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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year Ended December 31, 1997
Commission File Number 0-24800
THE TENERE GROUP, INC.
(Exact name of Registrant as specified in its charter)
MISSOURI 43-1675969
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1903 E. Battlefield, Springfield, MO 65804
(Address of principal executive offices) (Zip Code)
417-889-1010
(Registrant's Telephone Number Including Area Code)
Securities Registered Pursuant To Section 12(b) of the Act: None
Securities Registered Pursuant To Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value as of March 27, 1998 of the voting stock held
by non-affiliates of the Registrant cannot be determined since there is no
market at this time for the stock.
As of March 27, 1998 there were 1,999,774 shares outstanding of the
Registrant's common stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
As provided herein, portions of the following documents are incorporated herein
by reference.
Document Part of 10-K
-------- ------------
1997 Annual Report to Stockholders II
Proxy Statement for the 1998 Annual Meeting of Stockholders III
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THE TENERE GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
PART I
<S> <C> <C>
1. Business....................................................................................................... 3
2. Properties..................................................................................................... 11
3. Legal Proceedings.............................................................................................. 11
4. Submission of Matters to a Vote of Security Holders............................................................ 11
PART II
5. Market for the Registrant's Common Stock and Related Stockholder
Matters........................................................................................................ 12
6. Selected Financial Data........................................................................................ 12
7. Management's Discussion and Analysis of Financial Condition and
Results of Operation........................................................................................... 12
8. Financial Statements and Supplementary Data.................................................................... 12
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.......................................................................................... 13
PART III
10. Directors and Executive Officers............................................................................... 13
11. Executive Compensation......................................................................................... 13
12. Security Ownership of Certain Beneficial Owners and Management................................................. 13
13. Certain Relationships and Related Transactions................................................................. 14
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................. 14
</TABLE>
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PART I
ITEM 1. BUSINESS
HISTORY
Risk Control Associates, Inc., an assessable mutual property and
casualty insurance company, was organized in 1976 under Chapter 383 of
the Revised Missouri Statutes (RSMo) to provide professional liability
coverage to physicians and dentists practicing in the State of
Missouri. In 1991, the Company reorganized under Section 379.010 of
the RSMo and became a non-assessable mutual property and casualty
insurance company and its name was changed to RCA Mutual Insurance
Company (RCA). In 1995, the Company converted from a mutual to a stock
property and casualty insurance company and its name was changed to
Intermed Insurance Co. (Intermed). Effective with the demutualization,
Intermed became a wholly-owned subsidiary of The Tenere Group, Inc.
(Tenere), a Missouri holding company formed during the demutualization
process, and the policyholders of RCA became the stockholders of
Tenere.
Tenere has two principal operating subsidiaries, Intermed, which writes
medical and dental malpractice insurance, and Interlex Insurance
Company (Interlex) which writes legal malpractice insurance. Interlex
was formed in 1994 when RCA merged two of its subsidiaries, Insurance
Risks, Ltd., a Cayman Island corporation , into Springfield Casualty
Company, a Missouri corporation. Tenere operates its businesses
through a wholly-owned management company, Insurance Services, Inc.
(ISI), pursuant to a management contract between Intermed, Interlex and
ISI. Neither Tenere, Intermed nor Interlex have employees and all
persons conducting the businesses of these companies are employees of
ISI. The management contract with ISI is, in effect, a cost
reimbursement so that ISI makes neither a profit nor a loss.
PRODUCTS
Intermed currently writes medical and dental malpractice insurance in
the States of Missouri, Kansas and, through two purchasing groups,
Texas. Since the formation in 1976 of a predecessor company, medical
and dental malpractice insurance has been its only line of business.
Insurance is written on two policy forms, occurrence and claims-made.
Prior to September 1, 1995, Intermed also wrote business on a
claims-paid policy form. Estimates of losses and loss adjustment
expenses on occurrence coverages are charged to income as claims are
incurred. Estimates of losses and loss adjustment expenses on
claims-made coverages are charged to income as claims are reported.
Claims-paid coverages insured against claims which were reported and
paid during the period the policy was in effect. Intermed's
obligation to defend and pay claims ended upon expiration of a
claims-paid policy. Claims-paid losses were incurred at the time of
payment so no reserves were required on open claims. Intermed,
however, was contractually liable for claims that had been reported
during the claims-paid policy period if the Company chose not to renew
a claims-paid policy.
Intermed ceased writing claims-paid policies effective September 1,
1995. As these policies expired over the twelve-month period ending
August 31, 1996, claims-paid policyholders were given the opportunity
to convert to a claims-made policy. Reserves for all reported claims
on claims-paid policies which were non-renewed during the period
September 1, 1995 through August 31, 1996 totaled $995,000 at December
31, 1997, net of reinsurance.
At December 31, 1997, Intermed had 1,476 insureds: 501 occurrence and
975 claims-made. This was an increase of 248 from the prior year end.
Interlex writes legal malpractice insurance on a claims-made policy
form. At December 31, 1997, the Company had 693 insureds, an increase
of 265 over the prior year end.
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MARKETING
Intermed sells its products through salaried employees and independent
agents. For the calendar year 1997, salaried employees wrote 63% and
agents wrote 37% of total premiums written. Intermed will continue to
market its products through salaried employees and agents, with primary
emphasis on direct sales.
During 1996, Intermed formed a purchasing group, Intermedical of Texas,
Inc., and commenced operations offering medical malpractice insurance
to physicians in the State of Texas. Employees of ISI staff the
purchasing group from an office in Austin, Texas. During the first
quarter of 1997, a second purchasing group, Dental Defense Specialists,
Inc., was organized for the purpose of marketing malpractice insurance
to dentists in Texas.
Interlex also markets legal malpractice insurance through salaried
employees and independent agents. In calendar year 1997, salaried
employees produced 87% of total premiums written and agents 13%.
Interlex plans to continue distributing its products through salaried
employees and agents, with primary emphasis on direct sales. A
purchasing group for lawyers, Lawyers' Liability Association, Inc., has
been organized but has not commenced operations.
COMPETITION
The insurance business is highly competitive. In both Missouri and
Kansas, Intermed and Interlex compete with both regional and national
companies. In 1996, the last year for which statistics are available
from the Missouri Department of Insurance, there were 54 companies
writing medical malpractice insurance in the state. The top five
writers had 60.54% of the market. The largest market share was 20.07%.
Intermed, the seventh largest writer in 1996 in the state, had a
market share of 6.08%.
Ten companies wrote legal malpractice insurance in the State of
Missouri in 1996 according to the Missouri Department of Insurance.
One company, sponsored by the Missouri Bar Association, had a market
share of 71.75%; Interlex, which commenced operations in October 1994,
had a market share of 4.26% and was the fifth largest writer.
A number of hospitals in Missouri have begun purchasing the medical
practices of fee-for-service physicians and hiring the physicians as
employees of the hospital or a corporate entity affiliated with the
hospital. A number of such physicians formerly purchased their own
professional liability insurance through smaller insurance companies
such as Intermed . As a result of the consolidation, many of the
hospitals purchasing the practices of physicians have self-insured or
seek professional liability insurance from professional liability
carriers with capital and surplus greater than that of Intermed and at
premiums lower than those currently offered by Intermed.
The insurance industry is impacted by legislative changes, judicial
interpretations, market competition, inflation and other statutory
requirements. The insurance industry is subject to cyclical patterns
varying between "hard" and "soft" markets. The usual duration of the
cycle from one "hard" market through a "soft" market to another "hard"
market is approximately six to seven years. During the "hard" part of
the cycle, insurance is more difficult to obtain and the price of the
product is higher. It is possible to characterize this segment as a
"seller's" market. The "soft" part of the cycle is characterized with
ready availability of insurance products and commensurately lower
prices for the product. This segment could be characterized as a
"buyer's" market. During the soft portion of the cycle there is a
downward pressure on pricing, thereby subjecting Intermed to increased
pricing pressures which may have an adverse impact on its business and
operations. At the present time, the insurance industry has generally
been in the
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soft portion of the cycle for approximately ten years. While the
industry has been in the soft portion of the cycle for an unusually
long period, no assurance can be given that the industry will enter a
hard market in the near future. Intermed currently has excess capacity
and could double its current premium volume while maintaining required
premium to surplus ratios.
UNDERWRITING
Underwriting for both Intermed and Interlex is performed by an
experienced staff at the Company's home office in Springfield,
Missouri. This is augmented by Underwriting Committees composed of
physicians and dentists for Intermed and lawyers for Interlex. Because
these Committees are geographically broad-based, there is, in most
instances, personal knowledge of applicants and renewals. This
structure has enabled the Intermed and Interlex to maintain uniformly
high underwriting standards.
REGULATION
The activities of Intermed and Interlex are regulated by the Missouri
Department of Insurance. The companies are subject to examination by
the Department on a periodic basis. Such examinations pertain to many
aspects of the companies' operations and financial condition, including
loss reserves, investments, licensing and rates.
A financial examination and a limited market conduct examination were
conducted by the Missouri Department of Insurance during 1996. There
were no material adverse findings or material recommendations for
changes in Intermed's or Interlex's business operations.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
Loss reserves are the amounts reserved by Intermed and Interlex to
provide funds for payment of policyholders' claims in the future. An
insurance company must accumulate substantial loss reserves because
policies provide for payments of substantial amounts in the future for
claims that have occurred in prior contract periods. These loss
reserves are established as balance sheet liabilities representing
estimates of future amounts needed to pay claims and related expenses
with respect to insured events which have occurred, including events
that have not yet been reported.
Loss reserves associated with professional liability coverage tend to
be relatively higher than other types of property and casualty
insurance for primarily two reasons: the "tail" and the "trend." The
time between the occurrence and settlement of a claim is the "tail."
Property coverage is generally a "short tail" line of business where
loss reserves represent only those claims in the adjustment or
reporting stages of the claim and which will, for the most part, be
settled within the next year. Liability coverage is generally a "long
tail" line and the reserves represent claims that can take up to five
to seven years to settle due to the fact that discovery of the injury
can take several years and because of the complexity of the issues
inherent in the claims. This means that while property loss reserves
may represent as little as a few months to a year of losses,
professional liability loss reserves may represent five to seven or
more years of losses at any one time. Also, professional liability
loss reserves, due to the length of time before settlement, are more
sensitive than property lines to changes in external factors such as
increased medical costs, increased jury awards and changes in the
litigation environment. These external factors are used to calculate
the "trend," which is the yearly change in the overall costs of
coverage. The trend is factored into the calculation of the loss
reserves and has generally contributed to higher reserves for
professional liability coverages.
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Intermed employs an independent consulting actuary to make
recommendations in the establishment of loss reserves and to render an
opinion regarding the adequacy of Intermed's statutory loss reserves.
The quantification of reserves is complex and subjective as a result of
the need to project future contingent events and other factors
previously mentioned which are related to medical professional
liability claims. In determining reserve levels, the actuaries rely
primarily on historical loss experience, adjusted for changing
circumstances as deemed appropriate. This reliance is based on the
assumption that historical loss experience provides a good indication
of future loss experience despite uncertainties in loss cost trends and
delays in reporting and settling claims. These uncertainties are
increased by changes in normal inflation, changing propensities of
individuals to file claims and new causes of action. Despite these
uncertainties in the determination of reserve levels, management
believes that the methods used by Intermed and Interlex in
establishing reserves are reasonable and appropriate.
As additional information becomes available and is reviewed, estimates
reflected in earlier reserves may be revised upward or downward. Any
such increases could have an adverse effect on results for the period
in which adjustments are made. The uncertainties inherent in
estimating ultimate losses on the basis of past experience have grown
significantly in recent years as a result of judicial expansion of
liability standards and expansive interpretations of insurance
contracts.
Reserves for losses and loss adjustment expenses are estimated based on
Tenere's consolidated historical loss and loss adjustment expense
experience supplemented by insurance industry loss data. The reserves
are reported on a present value basis discounted at the rate of 2% in
1997, 3% in 1996, 4% in 1995 and 5% in 1994. At the direction of the
Missouri Department of Insurance, the discount will be eliminated
ratably over the five-year period ending December 31, 1998. The table
that follows presents the development of net balance sheet liabilities
of Tenere and subsidiaries for reserves for losses and loss adjustment
expenses for 1987 through 1997:
- Net Liability. The first row of data shows the
estimated net liability for reserves for losses and loss
adjustment expenses at December 31 for each year from 1987 to
1997. The liability includes both case and IBNR reserves as of
each year-end date, net of anticipated recoveries from
reinsurers. The rows immediately following the first row of
data show cumulative paid data at December 31, as of one year,
two years, etc., through up to 10 years of subsequent payments.
- Net Liability Re-estimated. The middle rows of data
show the re-estimated amount for previously reported net
liability based on experience as of the end of each subsequent
calendar year's results. This estimate is changed as more
information becomes known about the underlying claims for
individual years. The cumulative redundancy (deficiency) shown
in the table is the aggregate net change in estimates over the
period of years subsequent to the calendar year reflected at the
top of the respective columns. The amount in the line titled
"Redundancy (Deficiency) at December 31, 1997," represents for
each calendar year (the "Base Year") the aggregate change in (i)
the Company's original estimate of net liability for reserves
for losses and loss adjustment expenses for all years prior to
and including the Base Year compared to (ii) the Company's
re-estimate as of December 31, 1997, of net liability for
reserves for losses and loss adjustment expenses for all years
prior to and including the Base Year. A redundancy means that
the original estimate was greater than the re-estimate and a
deficiency means that the original estimate was less than the
re-estimate. By way of example, the deficiency for the year
1990, calculated as of December 31, 1997, represents a
deficiency in the Company's original estimate of unpaid claims
and claim expenses for 1990 and prior years.
- The last seven lines of data present the development of reserves
on a "gross of reinsurance" basis, reconciled to the "net of
reinsurance" basis shown in the immediately preceding tables.
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CHANGES IN HISTORICAL RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
FOR THE LAST TEN YEARS - GAAP BASIS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability for losses
and loss adjustment
expenses $21,310 27,120 29,389 21,737 17,070 25,021 25,304 25,695 25,461 25,788 21,080
Paid (cumulative) as of:
One year later 1,870 2,893 6,787 7,771 6,598 5,740 4,761 4,720 8,399 8,773
Two years later 4,646 9,546 14,200 14,060 12,093 9,830 9,088 11,342 14,263
Three years later 7,082 16,636 19,851 18,030 15,096 13,476 14,375 14,924
Four years later 11,496 21,949 23,262 20,433 18,160 18,441 17,003
Five years later 15,097 24,731 24,523 21,863 21,922 20,388
Six years later 16,844 25,251 25,250 23,926 23,228
Seven years later 17,303 25,738 27,258 24,648
Eight years later 17,704 26,542 27,972
Nine years later 18,450 27,103
Ten years later 19,001
Net liability re-estimated
as of:
One year later 17,612 26,765 28,186 22,351 26,877 26,277 25,850 23,759 26,876 24,627
Two years later 19,467 26,217 26,147 28,462 28,436 27,023 23,824 23,550 25,236
Three years later 18,904 24,660 28,835 28,711 28,861 25,280 23,253 22,149
Four years later 17,824 26,899 30,947 29,360 27,309 24,303 22,060
Five years later 18,565 30,275 31,136 28,567 26,094 24,070
Six years later 20,485 30,131 30,822 26,883 25,790
Seven years later 20,418 29,201 29,592 26,292
Eight years later 19,949 28,101 29,317
Nine years later 19,335 28,119
Ten years later 19,647
Redundancy (Deficiency)
at December 31, 1997 1,663 (999) 72 (4,555) (8,720) 951 3,244 3,546 225 1,161
Gross liability-end of year 21,310 27,120 29,389 21,737 17,070 25,021 25,304 26,280 26,623 32,887 31,030
Reinsurance recoverables - - - - - - - 585 1,162 7,099 9,950
Net liability-end of year 21,310 27,120 29,389 21,737 17,070 25,021 25,304 25,695 25,461 25,788 21,080
Gross re-estimated
liability-latest 19,647 28,119 29,317 26,301 25,791 24,071 22,132 22,753 30,578 31,944
Re-estimated reinsurance
recoverables - - - 9 1 1 72 604 5,342 7,317
Net re-estimated liability-latest 19,647 28,119 29,317 26,292 25,790 24,070 22,060 22,149 25,236 24,627
Gross redundancy (deficiency) 1,663 (999) 72 (4,564) (8,721) 950 3,172 3,527 (3,955) 943
</TABLE>
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A summary of the reserves for losses and loss adjustment expenses follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
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<S> <C> <C>
Undiscounted reserves for losses and loss
adjustment expenses $ 31,990,412 35,051,777
Less discount (see note 1) (960,000) (2,164,370)
-------------- --------------
Discounted reserves for losses and loss
adjustment expenses $ 31,030,412 32,887,407
============== ==============
</TABLE>
Following is the activity in the reserves for losses and loss adjustment
expenses:
<TABLE>
<CAPTION>
1997 1996 1995
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<S> <C> <C> <C>
Balance at January 1 $ 32,887,407 26,623,138 26,279,977
Less reinsurance recoverable on reserves for
losses and loss adjustment expenses (7,099,463 (1,162,495) (584,913)
-------------- -------------- --------------
25,787,944 25,460,643 25,695,064
-------------- -------------- --------------
Incurred related to:
Current year 5,646,863 9,812,694 9,612,075
Prior Year (1,168,439) 1,413,767 (1,935,587)
-------------- ------------- --------------
Total incurred 4,478,424 11,226,461 7,676,488
-------------- -------------- --------------
Paid related to:
Current year 413,191 2,499,788 3,190,397
Prior Year 8,773,277 8,399,372 4,720,512
-------------- -------------- --------------
Total paid 9,186,468 10,899,160 7,910,909
-------------- -------------- --------------
Net balance at December 31 21,079,900 25,787,944 25,460,643
Plus reinsurance recoverable on reserves for
losses and loss adjustment expenses 9,950,512 7,099,463 1,162,495
-------------- -------------- --------------
Balance at December 31 $ 31,030,412 32,887,407 26,623,138
============== ============== ==============
</TABLE>
The reserves for losses and loss adjustment expenses are estimated
based on development information available at each reporting date. As
a result of the nature of the risks underwritten, claims development may
occur over an extended period of time. The changes in the incurred
amounts disclosed above related to prior years are the result of
utilizing improved claim development information as that information
becomes available.
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Tenere's claim philosophy is to defend fully all claims in which an
evaluation reveals little or no negligence. For those claims in which
liability exists, Tenere moves promptly to settle the claim early in
order to minimize indemnity and loss adjustment expenses.
The Claim Department is staffed with experienced claims specialists and
is supervised by the Vice President-Claims/General Counsel of Tenere.
The case load per claim specialist is approximately 200 cases. This
allows for intensive scrutiny of each claim, close tracking of the
progress of each claim and containment of loss adjustment expenses
through constant monitoring.
In 1997, 83% of the claims closed by Intermed were without the payment
of indemnity and 17% were closed with payments averaging $177,500.
Average allocated loss adjustment expenses for claims closed in 1997 was
$11,900. In 1996, 80% of claims closed by Intermed were without payment
of indemnity and 20% were closed with payments averaging $165,000.
Average allocated loss adjustment expenses for claims closed in 1996 was
approximately $11,000.
Interlex completed its third full year of operation in 1997 and claims
statistics for that company are not comparable due to its limited
history.
REINSURANCE
Intermed had three reinsurance treaties in place during 1997:
(1) Effective October 1, 1996, Intermed renewed a multi-year excess of
loss reinsurance agreement through September 30, 1999. This
agreement provides excess of loss coverage on Intermed's
claims-paid, occurrence and claims-made policies up to $1,600,000
in excess of $400,000 on each claim, with an aggregate recoverable
of 300% of the ceded premiums earned. The maximum premium ceded
under the contract, assuming the contract remains in effect for the
full three-year period, is 20% of direct premiums earned. In
addition to the above, the treaty provides coverage for the
difference between $2,000,000 each loss and/or $4,000,000 in the
aggregate and $1,000,000 and/or $3,000,000 in the aggregate each
policy where applicable, with an aggregate recoverable of
$5,000,000. In 1997, Intermed ceded earned premiums of
approximately $3,294,000 and losses and allocated loss adjustment
expenses of approximately $2,682,000. This type of reinsurance
provides protection during periods when losses are both frequent
and severe and is not intended to cover all losses.
(2) A "catastrophic awards made" excess of loss reinsurance with
Lloyd's Underwriters of London with limits of $5,000,000 excess of
$250,000 over original policy limits for claims made after October
1, 1993 and excess of $1,000,000 for claims made prior to that
date, net of all other reinsurance. The period covered by the
treaty is through September 30, 1998 at an annual premium of 1.6%
of gross net premiums written. In 1997, ceded earned premiums were
approximately $146,000 and losses were $-0-. This type of insurance
covers the reassured for awards made in excess of policyholder's
original policy limit for which the policyholder is able to hold
the reassured responsible. It also covers claims related to
extra-contractual obligations.
(3) Effective January 1, 1996, Intermed entered into an Accident Year
Excess of Loss Reinsurance Agreement with American Re-Insurance
Company. Under Section A of this Agreement, the reinsurer is
responsible for 100% of the Company's aggregate ultimate net loss
from claims-paid coverages in 1996 in excess of $4,176,000. The
reinsurers' maximum liability is limited to $4,800,000. In 1997,
ceded earned premiums were $-0-. At December 31, 1997, Intermed
had ceded cumulative loss and allocated loss adjustment expenses of
$3,707,600.
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Under Section B of this Agreement, the reinsurer also agreed to
indemnify Intermed for the aggregate ultimate net loss on
occurrence and claims-made coverages in excess of Intermed's
accident year loss ratio for the four years commencing January 1,
1996 and ending December 31, 1999. The accident year loss ratio
for 1996 was 75% and 85% for 1997. For subsequent years, the loss
ratio is a weighted average loss ratio for the three accident years
immediately preceding the accident year for which the computation
is being made plus 2%-5% as mutually agreed to by the reinsurer and
the Company. Intermed ceded losses of $2,000,000 and $310,266 in
1996 and 1997, respectively, under this section of the agreement.
In 1997, Intermed ceded earned premiums of $800,000.
Interlex had three reinsurance treaties in place during 1997:
(1) A primary excess of loss reinsurance treaty with Lloyd's
Underwriters of London. The treaty covers the period October 1,
1997 through September 30, 1998 with limits of $700,000 excess of
$300,000 subject to a maximum recoverable of $2,100,000. However,
if the ceded premiums written exceed $500,000, the maximum
recoverable shall increase to $3,500,000. The premium is 7.5% of
gross net premiums written for policy limits of $300,000 or less,
16.5% of gross net premiums written for policies with limits of
$500,000 and 36% of gross net written premiums for policies with
limits of $1,000,000. In 1997, Interlex ceded earned premiums of
approximately $261,000 and losses of $-0-.
(2) A prior agreement excess of loss reinsurance treaty with Lloyd's
Underwriters of London covering the period October 1, 1997 through
September 30, 1998. Limits of the treaty are $5,000,000 with a
minimum underlying of $1,000,000 for each insured and $3,000,000
in the aggregate each policy where applicable. Ceded premium is
equal to 100% of the policy premium less a 10% ceding commission.
In 1997, Interlex ceded earned premiums of approximately $128,000.
(3) Effective October 1, 1996, the "catastrophic awards made" treaty
with Lloyd's Underwriters of London was expanded to include
Interlex Insurance Company under the same terms outlined above.
Management has confidence in the financial strength of the Lloyd's
syndicates and American Re-Insurance Company with which it reinsures,
and believes that amounts shown as due from reinsurers are fully
recoverable.
INVESTMENTS
Both Intermed and Interlex employ Boatmen's Capital Management, Inc.
(Boatmen's), headquartered in St. Louis, Missouri, to manage their
investment portfolios. Boatmen's operates under general investment
guidelines which are adopted by the Boards of Directors of Intermed and
Interlex and reviewed periodically to assure that they are consistent
with the companies' philosophy and income requirements. Under the
companies' current guidelines, investments will be in U.S. Treasuries,
U.S. Agencies, high grade (Moody's and Standard & Poor's rated A or
better) corporate debt, and municipal tax-exempt debt rated Aa or better
by Moody's and Standard & Poor's. No security purchased shall have a
final maturity longer than ten years. Additionally, the following
guidelines are followed to ensure diversification of the portfolio:
- direct or guaranteed obligations of the U.S. Government and its
agencies may be held without limit.
- corporate debt shall not exceed 10% of the portfolio. No more
than 2% will be invested in any one issuer.
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- municipal (tax-exempt) debt shall not exceed 15% of the portfolio.
No more than 2% will be invested in any one issuer.
- portfolio investments are limited to U.S. dollar denominated
securities.
At December 31, 1997, investments totaled $47,386,000. During 1997,
$16,500,000 was reinvested at a yield of approximately 7%. Tenere also
disposed of $4,186,000 in low-yielding bonds without realizing a
significant loss. Proceeds from these sales, as well as from other
sales and maturities, were invested short-term pending an anticipated
increase in interest rates in early 1998.
The fair value of bonds held available-for-sale and carried at market
at December 31, 1997 was $40,931,000 and there was a net unrealized gain
of $1,068,000. At prior year end, the fair value of bonds held
available for sale was $252,000 above amortized cost.
TRENDS
Tenere's most significant costs are losses and loss adjustment expenses
and the impacts of regulatory changes, increases in medical costs and
jury awards and changes in the litigation environment as discussed
above.
EFFECT OF INFLATION
Inflation has an effect on Tenere's general and administration expenses
through higher wages and the costs of goods and services. Inflation
also impacts loss adjustment expenses as attorneys and other
consultants pass on their increased costs through increased fees.
EMPLOYEES
Neither Tenere, Intermed nor Interlex had employees during 1997.
Insurance Services had 23 employees at December 31, 1997 and these
employees provided all services required by Tenere and its two
insurance subsidiaries under management contracts approved by each
company's Board of Directors.
ITEM 2. PROPERTIES
Neither Tenere nor any of its subsidiaries owned any real estate at
December 31, 1997. ISI, a wholly-owned subsidiary of Intermed, leases
the Company's home office for approximately $90,000 per year to June
30, 2000 and approximately $95,000 per year thereafter through June 30,
2002. The lease commenced on July 1, 1995 for a period of seven years
with an option to renew for an additional three years. ISI also leases
office space in Austin, Texas at a current rate of $28,000 which will
increase to $29,000 on May 7, 1998.
ITEM 3. LEGAL PROCEEDINGS
Neither Tenere nor any of its subsidiaries are subject to any
material pending legal proceedings other than ordinary routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Tenere did not submit any matters to a vote of its security holders
during the quarter ended December 31, 1997.
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Tenere Common Stock is not listed on any securities exchange or quoted
on any automated quotation system such as the National Association of
Securities Dealers Automated Quotations System ("NASDAQ"). There has
been no independent market for Tenere Common Stock and no assurance can
be given that an independent market will develop. As of March 16, 1998,
there were approximately 1,132 holders of record of shares of Tenere
Common Stock. Tenere has not paid a dividend since inception. However,
the Company's Board of Directors will, from time to time, consider the
issue based upon Tenere's then current financial condition, results of
operations and capital requirements.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data is included on Page 26 of Tenere's 1997 Annual
Report to Stockholders and is incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations is included on Pages 4 through 7 of Tenere's 1997 Annual
Report to Stockholders and is incorporated by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of Tenere are included
on the following pages of Tenere's 1997 Annual Report to Stockholders
and are incorporated by reference herein.
Annual Report
Page(s)
------
Independent Auditors' Report 8
Consolidated Balance Sheets at
December 31, 1997 and 1996 9
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995 10
Consolidated Statements of Stockholders' Equity/Policyholders'
Surplus Years ended December 31, 1997, 1996 and 1995 11
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995 12
Notes to Consolidated Financial Statements 13
Statement of Management's Responsibility 25
12
<PAGE> 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information regarding Directors set forth under the caption
"Election of Directors" of the Registrant's Proxy Statement for its 1998
annual meeting of stockholders is incorporated herein by reference. The
other executive officers of Tenere, their ages and principal offices
held in Tenere, Intermed, Interlex and ISI are set forth below:
ANDREW K. BENNETT, age 46, serves as Vice President - Claims and
General Counsel of Tenere, Intermed, Interlex and ISI. He also serves
as a Director of ISI. Mr. Bennett joined Tenere in June, 1994 as
Corporate Counsel and was elected to his current positions in May 1995.
Prior to joining Tenere, Mr. Bennett practiced law in Springfield,
Missouri for 17 years. He is a member of the Missouri Bar.
ANDREW C. FISCHER, age 47, serves as Vice President - Underwriting and
Policy Services of Tenere, Intermed, Interlex and ISI. He also serves
as a Director and Secretary of ISI. Mr. Fischer joined Tenere in 1987
as Chief Operating Officer and was elected to his current positions in
May 1995.
CLIFTON R. STEPP, age 35, serves as Vice President - Marketing of
Tenere, Intermed, Interlex and ISI. Mr. Stepp joined Tenere in 1990 as
Marketing Director and was elected to his current positions in May
1995.
JOSEPH D. WILLIAMS, CPA, age 61, serves as Vice President - Finance
and Chief Financial Officer of Tenere, Intermed, Interlex and ISI. He
also serves as Assistant Treasurer of Tenere, Intermed and ISI and as
Treasurer of Interlex. Mr. Williams joined Tenere in October 1994 as
Chief Financial Officer and was elected to his current positions in May
1995. Prior to joining Tenere, Mr. Williams served as Senior Vice
President and Controller of ITT Lyndon Insurance Group from 1987 to
1993 and as Senior Vice President and Deputy Controller of ITT
Diversified Financial Corporation from 1990 to 1991.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is included in Tenere's
Proxy Statement for the 1998 Annual Meeting of Stockholders under the
caption "Compensation of Executive Officers" and is incorporated by
reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is included in Tenere's Proxy Statement for the 1998
Annual Meeting of Stockholders under the captions "Voting Securities
and Principal Holders Thereof" and "Security Ownership by Management,"
which is incorporated herein by reference.
13
<PAGE> 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption, "Certain Transactions" of
the Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
(1) The financial statements incorporated by reference herein are listed
in PART II - Item 8 hereof.
(2) The financial statement schedules and independent auditors' report
thereon included herein are listed below:
Form 10-K
Page No.
--------
Independent Auditors' Report on Financial
Statement Schedules 16
Schedule II Condensed Financial Information of Registrant 17
Schedule III Supplemental Information Concerning Property-
Casualty Insurance Operations 21
Schedules other than listed above are omitted because they are either
not required or not applicable or because the information is presented
in the consolidated financial statements or notes thereto.
(B) EXHIBITS
See exhibit index
(C) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed by Tenere during the three
months ended December 31, 1997.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereto duly authorized.
THE TENERE GROUP, INC.
By: /s/ Raymond A. Christy
---------------------------------------
Date: March 18, 1998 Raymond A. Christy, M.D.
-------------- President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated:
NAME TITLE DATE
---- ----- ----
/s/ Thomas E. Ashley
-------------------------
Thomas E. Ashley, M.D. Director and
Vice President March 23, 1998
--------------
/s/ Gary O. Baker
-------------------------
Gary O. Baker, D.D.S. Director March 18, 1998
--------------
/s/ Albert J. Bonebrake
-------------------------
Albert J. Bonebrake, M.D. Director March 20, 1998
--------------
/s/ Raymond A. Christy
-------------------------
Raymond A. Christy, M.D. Director, President
and Chief Executive Officer March 18, 1998
------------------
/s/ Harry O. Cole
-------------------------
Harry O. Cole, M.D. Chairman of the Board of
Directors March 19, 1998
--------------
/s/ C. Richard Gulick
-------------------------
C. Richard Gulick, M.D. Director March 19, 1998
--------------
/s/ Michael D. Hoeman
-------------------------
Michael D. Hoeman, M.D. Director, Secretary
and Treasurer March 20, 1998
--------------
/s/ Christopher H. Jung
-------------------------
Christopher H. Jung, M.D. Director March 19, 1998
--------------
/s/ Carroll R. Wetzel
-------------------------
Carroll R. Wetzel, D.O. Director March 24, 1998
--------------
/s/ J. D. Williams
-------------------------
Joseph D. Williams,CPA Vice President-Finance,
Chief Financial Officer and March 18, 1998
Principal Accounting Officer --------------
15
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Tenere Group, Inc.:
Under date of March 17, 1998, we reported on the consolidated balance sheets of
The Tenere Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders'
equity/policyholders' surplus and cash flows for each of the years in the
three-year period ended December 31, 1997, as contained in the 1997 annual
report to stockholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1997. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedules, as listed in the accompanying index. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
March 17, 1998
16
<PAGE> 17
SCHEDULE II
THE TENERE GROUP, INC. (PARENT ONLY)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ----------- ----------
<S> <C> <C>
Investment in subsidiaries, at equity $21,741,059 21,561,303
Deferred income taxes 392,288 88,400
----------- ----------
Total assets $22,133,347 21,649,703
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deferred compensation payable $ 561,887 260,000
Deferred retirement benefit 591,901 -
----------- ----------
Total liabilities 1,153,788 260,000
Stockholders' equity
Common stock, $.01 par value; 7,000,000 shares authorized;
1,999,774 shares issued and outstanding 19,998 19,998
Contributed capital 21,940,828 21,940,828
Accumulated deficit (1,690,370) (737,596)
Unrealized gain on subsidiaries' investments, net of tax 709,103 166,473
Commitments and contingencies
----------- ----------
Total stockholders' equity 20,979,559 21,389,703
-----------------------
Total liabilities and stockholders' equity $22,133,347 21,649,703
=========== ==========
</TABLE>
See note to condensed financial statements of the registrant
17
<PAGE> 18
SCHEDULE II
THE TENERE GROUP, INC. (PARENT ONLY)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT
Statements of Operations
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Expenses
<S> <C> <C> <C>
Deferred compensation $ 301,887 260,000 -
Deferred retirement benefit 591,901 - -
----------- ---------- ----------
Total expenses 893,788 260,000 -
Loss before income taxes (893,788) (260,000) -
Income tax benefit 303,888 88,400 -
----------- ---------- ----------
Net loss (parent only) (589,900) (171,600) -
Equity in net income (loss) of subsidiaries (362,874) (2,762,886) 2,509,856
----------- ---------- ----------
Consolidated net income (loss) $ (952,774) (2,934,486) 2,509,856
=========== ========== ==========
Basic and diluted net income (loss) per share $ (0.48) (1.47) 1.26
=========== ========== ==========
</TABLE>
See note to condensed financial statements of the registrant
18
<PAGE> 19
SCHEDULE II
THE TENERE GROUP, INC. (PARENT ONLY)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net loss (parent only) $ (589,900) (171,600) -
Adjustments to reconcile net loss to net cash
from operating activities:
Deferred income tax benefit (303,888) (88,400) -
Change in deferred compensation payable 301,887 260,000 -
Change in deferred retirement benefit 591,901 - -
----------- --------- -----
Net cash provided by operating activities - - -
Net increase in cash and short-term investments - - -
Cash and short-term investments at beginning of year - - -
----------- --------- -----
Cash and short-term investments at end of year $ - - -
=========== ========= =====
</TABLE>
See note to condensed financial statements of the registrant
19
<PAGE> 20
SCHEDULE II
THE TENERE GROUP, INC. (PARENT ONLY)
NOTE TO CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT
BASIS OF PRESENTATION
In accordance with the requirements of Regulation S-X of the Securities and
Exchange Commission, the financial statements of the registrant are condensed
and omit many disclosures presented in the consolidated financial statement and
notes thereto.
Tenere is an insurance holding company with no operation of its own. Its
businesses are conducted through two property and casualty insurance
subsidiaries, Intermed Insurance Co. and Interlex Insurance Co.
The condensed financial statements and note thereto are representations of the
Company's management, which is responsible for their integrity and objectivity.
The condensed financial statements have been prepared on the basis of generally
accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
20
<PAGE> 21
SCHEDULE III
THE TENERE GROUP, INC.
SUPPLEMENTARY INSURANCE INFORMATION
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Deferred policy acquisition costs $ 183 85 140
Reserves for unpaid losses and loss
adjustment expenses 31,030 32,887 26,623
Discount deducted from unpaid losses
and loss adjustment expenses 960 2,164 2,933
Unearned premiums 7,717 6,300 10,447
Earned premiums 4,498 7,646 11,901
Net investment income 2,623 2,627 2,654
Losses and loss adjustment expenses
incurred related to:
Current year 5,647 9,813 9,612
Prior year (1,169) 1,414 (1,936)
Amortization of deferred policy
acquisition costs 263 340 431
Other operating expenses 2,200 1,784 1,438
Paid losses and loss adjustment
expenses 9,186 10,899 7,911
Net premiums written 5,802 3,469 8,369
Discount rates utilized on reserves are as follows: 2% 3% 4%
</TABLE>
21
<PAGE> 22
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO.
- ------- --------------------
[S] [C]
3.1 Articles of Incorporation of the Registrant,filed as Exhibit 3.1
to the Registrant's Registration Statement on Forms S-1 (Reg. No.
33-78702) is incorporated herein by this reference.
3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-78702) is
incorporated herein by this reference.
4.1 Form of common stock certificate, filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1 (Reg. No. 33-78702)
is incorporated herein by this reference.
10.1 Management Contract, dated July 8, 1994, by and between RCA Mutual
Insurance Company, Interlex Insurance Co. and Insurance Services,
Inc.
10.2 Lease Agreement, dated December 7, 1994, by and between
Georgetown Square II, Ltd. and Insurance Services, Inc., filed as
Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the nine months ended September 30, 1995, is incorporated
herein by reference.
10.3 Medical Practitioners' Liability Primary Excess of Loss Reinsurance
Contract, dated October 1, 1993, by and between RCA Mutual
Insurance Company and Certain Reinsurers of Lloyd's of London,
filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form
10-Q for the nine months ended September 30, 1995, is incorporated
herein by reference.
10.4 Addendum No. 1 to Medical Practitioners' Liability Primary Excess
of Loss Reinsurance Contract, dated February 1, 1996, by and
between RCA Mutual Insurance Company and Certain Reinsurers of
Lloyd's of London, filed as Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the nine months ended September
30, 1995, is incorporated herein by reference.
10.5 Addendum No. 2 to Medical Practitioners' Liability Primary Excess
of Loss Reinsurance Contract, effective April 27, 1996, by and
between RCA Mutual Insurance Company and Certain Reinsurers of
Lloyd's of London, filed as Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the nine months ended September
30, 1995, is incorporated herein by reference.
10.6 Reinsurance Cover Note: 95/1146/RM to Medical Practitioners'
Liability Primary Excess of Loss Reinsurance Contract, dated
October 16, 1996, by and between RCA Mutual Insurance Company and
Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.6 to
the Registrant's Quarterly Report on Form 10-Q for the nine months
ended September 30, 1995, is incorporated herein by reference.
22
<PAGE> 23
EXHIBIT DESCRIPTION
NO.
- ----------- --------------------
10.7 Reinsurance Cover Note: 95/1212/RM(A) to Catastrophe "Awards Made"
Excess of Loss Reinsurance Contract, dated October 16, 1995, by and
between RCA Mutual Insurance Company and Certain Reinsurers of
Lloyd's of London, filed as Exhibit 10.7 to the Registrant's
Quarterly Report on Form 10-Q for the nine months ended September
30, 1995, is incorporated herein by reference.
10.8 Catastrophe "Awards Made" Excess of Loss Reinsurance Contract,
commencing February 1, 1995, by and between RCA Mutual Insurance
Company and Certain Reinsurers of Lloyd's of London
including Amendment No. 1, effective April 27, 1995, filed as
Exhibit 10.8 to the Registrant's Quarterly Report on Form 10-Q for
the nine months ended September 30, 1995, is incorporated herein by
reference.
10.9 Reinsurance Cover Note: 95/1249/IP to Lawyers' Professional
Liability Primary Excess of Loss Reinsurance Treaty, dated October
16, 1995, by and between Interlex Insurance Company and Certain
Reinsurers of Lloyd's of London, filed as Exhibit 10.9 to the
Registrant's Quarterly Report on Form 10-Q for the nine months
ended September 30, 1995, is incorporated herein by reference.
10.10 Lawyers' Professional Liability Primary Excess of Loss Reinsurance
Contract, commencing July 1, 1995, by and between Interlex
Insurance Company and Certain Reinsurers of Lloyd's of London,
filed as Exhibit 10.10 to the Registrant's Quarterly Report on Form
10-Q for the nine months ended September 30, 1995, is incorporated
herein by reference.
10.11 Reinsurance Cover Note: 95/1250/IP to Prior Agreement Excess
of Loss Reinsurance Contract, dated October 16, 1996, by and
between Interlex Insurance Company and Certain Reinsurers of
Lloyd's of London, filed as Exhibit 10.11 to the Registrant's
Quarterly Report on Form 10-Q for the nine months ended September
30, 1995, is incorporated herein by reference.
10.12 Prior Agreement Excess of Loss Reinsurance Contract, commencing
July 1, 1996, by and between Interlex Insurance Company and
Certain Reinsurers of Lloyd's of London, filed as Exhibit 10.12
to the Registrant's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1995, is incorporated herein by
reference.
10.13 Draft Reinsurance Slip by and between Intermed Insurance Company
and American Re-Insurance Company filed as Exhibit 10.13 to the
Registran'ts Quarterly Report on Form 10-Q for the three months
March 31, 1996, is incorporated herein by reference.
10.14 Employment Agreement dated May 6, 1996 between The Tenere Group,
Inc. and Raymond A. Christy, M.D., President and Chief
Executive Officer, filed as Exhibit 10.14 to the Registrant's
Quarterly Report on Form 10-Q for the nine months ended September
30, 1996, is incorporated herein by reference.
23
<PAGE> 24
10.15 Employment Agreement dated May 6, 1996 between The Tenere Group,
Inc. and Andrew K. Bennett, Vice President-Claims and General
Counsel, filed as Exhibit 10.15 to the Registrant's Quarterly
Report on Form 10-Q for the nine months ended September 30, 1996,
is incorporated herein by reference.
10.16 Employment Agreement dated May 6, 1996 between The Tenere Group,
Inc. and Andrew C. Fischer, Vice President-Underwriti ng and Policy
Services, filed as Exhibit 10.16 to the Registrant's Quarterly
Report on Form 10-Q for the nine months ended September 30, 1996,
is incorporated herein by reference.
10.17 Employment Agreement dated May 6, 1996 between The Tenere Group,
Inc. and Clifton R. Stepp, Vice President-Marketing, filed as
Exhibit 10.17 to the Registrant's Quarterly Report on Form 10-Q for
the nine months ended September 30, 1996, is incorporated herein by
reference.
10.18 Employment Agreement dated May 6, 1996 between The Tenere
Group, Inc. and Joseph D. Williams, Vice President-Finance, Chief
Financial Officer and Assistant Treasurer filed, as Exhibit 10.18
to the Registrant's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1996, is incorporated herein by
reference.
10.19 The Tenere Group, Inc. Retirement Plan for Directors effective
May 17, 1996, filed as Exhibit 10.19 to the Registrant's Quarterly
Report on Form 10-Q for the nine months ended September 30, 1996,
is incorporated herein by reference.
10.20 The Tenere Group, Inc. 1996 Long Term Incentive Plan effective
April 17, 1996, filed as Annex A to the Registrant's definitive
proxy statements for the 1996 Annual Meeting of Shareholders, is
incorporated herein by reference.
10.21 Amendment No. 1 to Employment Agreement, dated February 28, 1997,
between The Tenere Group, Inc. and Raymond A. Christy, M.D.,
President and Chief Executive Officer.
10.22 Amendment No. 1 to Employment Agreement, dated February 28, 1997,
between The Tenere Group, Inc. and Andrew K. Bennett, Vice
President-Claims and General Counsel.
10.23 Amendment No. 1 to Employment Agreement, dated February 28, 1997,
between The Tenere Group, Inc. and Andrew C. Fischer, Vice
President - Underwriting and Policy Services.
10.24 Amendment No. 1 to Employment Agreement dated February 28, 1997,
between The Tenere Group, Inc. and Clifton R. Stepp, Vice
President-Marketing.
10.25 Amendment No. 1 to Employment Agreement dated February 28, 1997,
between The Tenere Group, Inc. and Joseph D. Williams, Vice
President-Finance, Chief Financial Officer and Assistant Treasurer.
24
<PAGE> 25
10.26 Reinsurance Cover Note: 96/1212/RM to Catastrophe "Awards Made"
Excess of Loss Reinsurance Contract, effective October 1, 1996, by
and between Intermed Insurance Company and/or Interlex Insurance
Company and certain Reinsurers of Lloyd's of London.
10.27 Addendum No. 2 to Catastrophe "Awards Made" Excess of Loss
Reinsurance Contract, effective October 1, 1996, by and between
Intermed Insurance Company and/or Interlex Insurance Company and
certain Reinsurers of Lloyd's of London.
10.28 Reinsurance Cover Note: 97/1212/RM to Catastrophe "Awards Made"
Excess of Loss Reinsurance Contract, effective October 1, 1997,
by and between Intermed Insurance Company and/or Interlex
Insurance Company and certain Reinsurers of Lloyd's of London.
10.29 Addendum No. 3 to Catastrophe "Awards Made" Excess of Loss
Reinsurance Contract, effective October 1, 1997, by and between
Intermed Insurance Company and/or Interlex Insurance Company and
certain Reinsurers of Lloyd's of London.
10.30 Reinsurance Cover Note: 94/1146/RM to Medical Practitioners'
Liability Primary Excess of Loss Reinsurance Contract, effective
October 1, 1994, by and between Intermed Insurance Company and
Certain Reinsurers of Lloyd's of London.
10.31 Medical Practitioners' Liability Primary Excess of Loss
Reinsurance Contract, effective October 1, 1996, by and between
Intermed Insurance Company and Certain Reinsurers of Lloyd's of
London.
10.32 Addendum No. 1 to Medical Practitioners' Liability Combined
Reinsurance Contract (formerly the Primary Excess of Loss
Reinsurance Contract), effective October 1, 1996, by and between
Intermed Insurance Company and Certain Reinsurers of Lloyd's of
London.
10.33 Addendum No. 2 to Medical Practitioners' Liability Combined
Reinsurance Contract (formerly the Primary Excess of Loss
Reinsurance Contract), effective October 1, 1997, by and between
Intermed Insurance Company and Certain Reinsurers of Lloyd's of
London.
10.34 Reinsurance Cover Note: 97/1146/RM to Medical Practitioners'
Liability Combined Reinsurance Contract (formerly the Primary
Excess of Loss Reinsurance Contract), effective October 1, 1997, by
and between Intermed Insurance Company and Certain Reinsurers of
Lloyd's of London.
10.35 Lawyers' Professional Liability Primary Excess of Loss
Reinsurance Contract, effective October 1, 1996, by and between
Interlex Insurance Company and Certain Reinsurers of Lloyd's of
London.
10.36 Lawyers' Professional Liability Primary Excess of Loss
Reinsurance Contract, effective October 1, 1997, by and between
Interlex Insurance Company and Certain Reinsurers of Lloyd's of
London.
10.37 Lawyers' Professional Liability Prior Agreement Excess
Reinsurance Contract, effective October 1, 1996, by and between
Interlex Insurance Company and Certain Reinsurers of Lloyd's of
London.
25
<PAGE> 26
10.38 Lawyers' Professional Liability Prior Agreement Excess
Reinsurance Contract, effective October 1, 1997, by and between
Interlex Insurance Company and Certain Reinsurers of Lloyd's of
London.
13 1997 Annual Report to Shareholders
21 Subsidiaries of the Registrant, filed as Exhibit 21 to Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995, is incorporated herein by reference.
27 Financial Data Schedules
26
<PAGE> 1
Exhibit 10.26
CARVILL REINSURANCE BROKERS
R.K. CARVILL & CO. LTD.
St. Helen's, 1 Undershaft
London EC3A8JT & at Lloyd's
Tel: 0171-9292800
Fax: 0171-9291604
27th September, 1996
Intermed Insurance Co
1903 E Battlefield
Springfield, Missouri 65804
USA
REINSURANCE COVER NOTE: 96/1212/RM
This is to certify that, in accordance with your instructions, we have effected
the following placement. Please examine this Cover Note carefully and advise us
immediately if it is in any way incorrect or does not otherwise meet your
requirements.
RESSURED: INTERMED INSURANCE COMPANY and/or INTERLEX INSURANCE COMPANY
1903 E. Battlefield
Springfield, MO 65804
U.S.A. (NAIC Code 33367)
PERIOD: Annual re-signing at 1st October, 1996, of continuous Contract
commencing 1st February 1995, covering Awards Made against the
Reassured on and after that date, arising out of policies issued
by the Reassured on and after 1st January, 1977.
Contract to be re-signed annually, but may be cancelled at any 1st
October anniversary date, subject to at least 90 days prior notice.
At the option of the Reassured, providing such option is
exercised prior to anniversary date, the current period of this
Contract may be extended at its anniversary date by 90 days, at
pro rata additional premium: with reinstatement conditions
remaining unchanged but to apply to entire extended period,
reinstatement additional premium being based on final earned
premium for entire extended period.
TYPE: CATASTROPHE "AWARDS MADE" EXCESS OF LOSS REINSURANCE CONTRACT.
<PAGE> 2
CLASS: Covering Medical Practitioners' Liability policies (including
Dentists' Liability) and all other ancillary coverages as
original, and Lawyers' Professional Liability policies and all
other incurred as a result of coverages as original; but only to
indemnify that portion of their the Reassured in respect of
liability Ultimate Net Loss relating to awards in excess of their
original policy limit and/or relating to claims related
extra-contractual obligations on such business.
TERRITORIAL
SCOPE: As per the Reassured's original policies.
LIMIT: Section (A)
In respect of original losses to Intermed Insurance Company
with claims made dates on or after 1st October, 1993:
To pay up to US$5,000,000 Ultimate Net Loss each and every loss
occurrence, excess of US$250,000 Ultimate Net Loss each and every
loss occurrence, which in turn in excess of the Reassured's
applicable reinsurance programme.
Reinsurers hereon shall have the benefit of all recoveries under
all Excess of Loss Contracts effected by the Reassured in respect
of all original losses coming within the scope of this Section, as
such Contracts apply to the limit of the original policy against
which the Award is made: but only to the extent of the limits of
the Reassured's applicable reinsurance programmes, whether
commuted exhausted or otherwise, which for the purposes of this
Section are deemed to be in full force.
Section (B) In respect of original losses to Intermed Insurance Company with
claims made dates prior to 1st October, 1993:
To pay up to US$5,000,000 Ultimate Net Loss each and every loss
occurrence, excess of US$250,000 Ultimate Net Loss each and every
loss occurrence, which in turn in excess of the original policy
limit issued by the Reassured.
Section (C) In respect of original losses to Interlex Insurance Company with
claims made dates on or after 1st July 1995:
To pay up to US$5,000,000 Ultimate Net Loss each and every loss
occurrence, excess of US$250,000 Ultimate Net Loss each and every
loss occurrence, which in turn in excess of the Reassured's
applicable reinsurance programme.
<PAGE> 3
Reinsurers hereon shall have the benefit of all recoveries
under all Excess of Loss Contracts effected by the Reassured
in respect of all original losses coming within the scope of
this Section, as such Contracts apply to the limit of the
original policy against which the Award is made: but only to
the extent of the limits of the Reassured's applicable
reinsurance programmes, whether commuted exhausted or
otherwise, which for the purposes of this Section are deemed to
be in full force.
However, the maximum limit recoverable hereunder in respect
of Sections (A), (B) and (C) combined shall not exceed
US$5,000,000 each and every loss occurrence.
CO-REINSURANCE
WARRANTY: Warranted that the Reassured retain 10% of the premium and of
any loss recoverable hereunder, net and unreinsured in any way.
REINSTATEMENT: One full reinstatement at 100% additional premium (pro rata as
to amount).
Annual Minimum and Deposit Premium $160,000 payable quarterly
in advance in equal installments.
Adjustable within 60 days of the expiry hereof at 1.6% of the
Reassured's subject matter Premium Income for the period
hereon.
For adjustment purposes hereon, the above rate is calculated
on the sum of Intermed Insurance Company's Gross Net Earned
Premium Income for original policies up to US$1,000,000 or so
deemed, and Interlex Insurance Company's Gross Net Written
Premium Income for original policies up to US$1,000,000 or so
deemed, including Premium in respect of Defence Costs Allowance
Rider on policy limits up to $1,000,000.
U. S. CLASS-
IFICATION: U.S. Reinsurance
TAXES: 1% Federal Excise Tax where applicable
LOSS RESERVES: Letter of Credit (Citibank NA Scheme) in respect of known and
reported losses only, excluding any losses Incurred But Not
Reported ("I.B.N.R"), or any application thereto, in compliance
with Statutory/Regulatory requirements, as required by the
Reassured from all Reinsurers hereon (including Lloyd's).
CLAIMS
ARRANGEMENTS: Individual loss advices and settlements
<PAGE> 4
GENERAL
CONDlTIONS: Ultimate Net Loss Clause:
(1) excluding all loss adjustment expenses and costs
incurred up to the time an award is made. However
such expenses and costs (net of all amounts recoverable
from more specific Reinsurances) shall be included within
and have first priority in contributing:
a) Where the applicable underlying Reinsurances provide
for pro-rata costs in addition, to the Reassured's
applicable retention of US$250,000 for Sections (A)
or (B) or (C) hereon only, but;
b) Where the applicable underlying Reinsurances are on
a costs-inclusive basis, to the retentions and
limits of the said underlying reinsurances and
thereafter to the Reassured's applicable retention
of US$250,000 for Sections (A) or (B) or (C) hereon
only.
(2) including, once an award is made, all further expenses
and costs/appeal costs for excess of original policy
limits and/or extra-contractual obligations awards, net
of all amounts recoverable from more specific Reinsurers.
Reassured's co-reinsurances in their applicable underlying
reinsurance programme to be disregarded for the purpose of
determining the Ultimate Net Loss hereunder
Second Generation Awards Clause.
Insolvency Clause.
Errors and Omissions Clause.
Amendments and Alterations Clause.
Currency Clause (U.S. Dollars only)
Access to Records Clause.
Arbitration Clause.
Service of Suit Clause (U.S.A. - NMA 1998).
Insolvency Funds Exclusion Clause.
Nuclear Incident Exclusion Clause - Liability - Reinsurance
U.S.A.
Confidentiality Clause.
Carvill Intermediary Clause.
Several Liability Notice
The subscribing reinsurers' obligations under contracts of
reinsurance to which they subscribe are several and not joint
and are limited solely to the extent of their individual
subscriptions. The subscribing reinsurers are not responsible
for the subscription of any co-subscribing reinsurer who for
<PAGE> 5
any reason does not satisfy all or part of its obligations. -
Ref: LSW 1001 (Reinsurance).
WORDING: To be agreed by Underwriters.
INFORMATION: In years immediately prior to 1st October, 1993 Intermed
purchased a layer of $2million xs $1million (Claims Made Basis)
covering Clash and ECO/XPL. Recoveries, if applicable, to inure
to benefit of Section B.
HEREON: 100.00% of 90.00% of the above LIMIT and PREMIUM.
EFFECTED WITH: Security as per Schedule A attached hereto.
R.K. CARVILL & COMPANY LIM1TED
Director
E. & O.E.
<PAGE> 6
Attaching to and forming part of Cover Note Number: 96/1212/RM
100.00% LLOYD'S UNDERWR1TERS
London, England.
100.00% OF 90.00%
The breakdown of Lloyd's Syndicates is as follows:
<TABLE>
Share Syndicate No. Pseudonym NAIC Id.No.
<S> <C> <C> <C>
7.50% 435 DPM AA 1126435
9.36% 1007 SVH AA 1127007
3.75% 623 AFB AA 1126623
3.75% 623 AFB AA 1126623
7.49% 672 IAM AA 1126672
7.49% 190 FRW AA 1126190
5.62% 219 RAE AA 1126219
5.62% 205 HGJ AA 1126205
2.09% 1027 MFN AA 1127027
0.91% 2027 MFN AA 1128027
5.62% 362 WEH AA 1126362
2.62% 470 GNR AA 1126470
1.26% 376 JHV AA 1126376
0.24% 2376 JHV AA 1128376
3.39% 861 MEB AA 1126861
1.10% 1209 MEB AA 1127209
1.80% 1212 SJB AA 1127212
2.70% 1212 SJB AA 1127212
2.22% 1003 SJC AA 1127003
0.78% 2003 SJC AA 1128003
0.75% 727 SAM AA 1126727
0.56% 990 BAR AA 1126990
0.56% 991 AEG AA 1126991
0.33% 724 SAH AA 1126724
0.61% 2724 SAH AA 1128724
1.03% 227 ROS AA 1126227
0.09% 2227 CMP AA 1128227
0.94% 1096 RAS AA 1127096
0.75% 314 CFP AA 1126314
1.12% 529 HLM AA 1126529
0.94% 51 ANT AA 1126051
0.56% 122 RJH AA 1126122
0.75% 958 GSC AA 1126958
1.87% 510 RJK AA 1126510
0.46% 590 COX AA 1126590
0.10% 2591 COX AA 1128591
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
0.75% 484 JSM AA 1126484
0.75% 47 JRR AA 1126047
0.50% 947 CBK AA 1126947
0.12% 2947 CBK AA 1128947
0.25% 923 FCD AA 1126923
0.06% 2923 FCD AA 1128923
1.12% 183 DFB AA 1126183
1.87% 1047 RGW AA 1127047
0.75% 780 BFC AA 1126780
0.37% 114 DER AA 1126114
1.87% 79 PJE AA 1126079
1.12% 204 FLD AA 1126204
1.12% ll41 JEM AA 1127141
2.62% 1215 BHB AA 1127215
- -------
100.00% of 90.00%
</TABLE>
<PAGE> 1
Exhibit 10.27
96/1212/RM
ADDENDUM NO. 2
attaching to and forming part of the
CATASTROPHE "AWARDS MADE" EXCESS OF
LOSS REINSURANCE CONTRACT
made between
INTERMED INSURANCE COMPANY and/or INTERLEX INSURANCE COMPANY
of Springfield, Missouri
(hereafter referred to as the "Reassured")
And
REINSURERS SIGNATORY HERETO
(hereinafter referred to as the "Reinsurers")
U.S. CLASSIFICATION: U.S. REINSURANCE
With effect from 1st October, 1996, the following amendments are made to this
Contract:
1. The PREAMBLE is amended to read as follows and not as heretofore:
This Contract is made and entered into between Intermed Insurance Company
of 1903 E. Battlefield, Springfield, Missouri 65804, U.S.A. (NAIC Code
33367) and/or Interlex Insurance Company of 1903 E. Battlefield,
Springfield, Missouri 65804, U.S.A. (NAIC Code 10037), (hereinafter
referred to as the "Reassured") and the Reinsurers signatory hereto
(hereinafter referred as the "Reinsurers"), on the following terms and
conditions:
2. ARTICLE 1, BUSINESS REINSURED is amended to read as follows and not as
heretofore:
ARTICLE 1
BUSINESS REINSURED
This Contract is to indemnify the Reassured for any loss or losses
sustained by them in respect of their net retentions, as hereinafter
provided and specified, on any contracts of Medical Practitioners'
Liability policies (including Dentists' Liability policies) including all
other ancillary coverages as original, and Lawyers' Professional
Liability policies including all other coverages as original, issued by
the Reassured, hereinafter referred to as "policies".
However, this Contract is only to indemnify the Reassured in respect of
all liability incurred as the result of that portion of the Reassured's
Ultimate Net Loss relating to awards in excess of their original policy
limits and/or relating to claims-related extra-contractual obligations on
such business, both as more fully defined herein.
<PAGE> 2
3. ARTICLE 3, COVER LIMIT AND RETENTION is amended to read follows and not as
heretofore:
ARTICLE 3
COVER LIMIT AND RETENTION
Section (A)
In respect of original losses to Intermed Insurance Company with claims
made dates on or after 1st October, 1993, the Reinsurers shall be liable
under this Contract in respect of each and every loss occurrence, for the
Reassured's Ultimate Net Loss in excess of US$250,000 Ultimate Net Loss
each and every loss occurrence in excess of the Reassured's applicable
reinsurance programme, subject to a limit of liability to the Reinsurers
of US$5,000,000 Ultimate Net Loss each and every loss occurrence.
The Reinsurers hereon shall have the benefit of all recoveries under all
Excess of Loss Contracts effected by the Reassured, including specific
treaties effected by the Reassured covering extra-contractual obligations
and excess of original policy limits awards, in respect of all original
losses coming within the scope of this Contract: but only to the extent
of the limits of the Reassured's applicable reinsurance programmes,
whether commuted, exhausted or otherwise, which for the purposes of this
Contract are deemed to be in full force.
Section (B)
In respect of original losses to Intermed Insurance Company with claims
made dates prior to 1st October, 1993, the Reinsurers shall be liable
under this Contract in respect of each and every loss occurrence, for the
Reassured's Ultimate Net Loss in excess of US$250,000 Ultimate Net Loss
each and every loss occurrence in excess of either the Reassured's
applicable reinsurance programme, or, if the applicable reinsurance
programme has expired, in excess of the original policy limit issued by
the Reassured, subject to a limit of liability to the Reinsurers of
US$5,000,000 Ultimate Net Loss each and every loss occurrence.
The Reinsurers hereon shall have the benefit of all recoveries under
reinsurances effected by the Reassured, including specific treaties
previously effected by the Reassured covering extracontractual
obligations and excess of original policy limits awards, in respect of
all original losses coming within the scope of this Contract; but only to
the extent of the limits of the Reassured's applicable reinsurance
programmes, whether commuted, exhausted or otherwise, which for the
purposes of this Contract are deemed to be in full force.
Section (C)
In respect of original losses to Interlex Insurance Company with claims
made dates on or after 1st July, 1995, the Reinsurers shall be liable
under this Contract in respect of each and every loss occurrence, for the
Reassured's Ultimate Net Loss in excess of US$250,000 each and every loss
occurrence in excess of the Reassured's applicable reinsurance programme,
subject to a limit of liability to the Reinsurers of US$5,000,000
Ultimate Net Loss each and every loss occurrence.
The Reinsurers hereon shall have the benefit of all recoveries under all
reinsurances effected by the Reassured, including specific treaties
effected by the Reassured covering extracontractual obligations and
excess of original policy limits awards, in respect of all original
losses coming within the scope of this Contract: but only to the extent
of the limits of the Reassured's applicable reinsurance programmes,
whether commuted, exhausted or otherwise, which for the purposes of this
Contract are deemed to be in full force.
<PAGE> 3
The Reassured warrant that they will retain 10%, of the premium and of
any loss recoverable hereunder net for their own account and unreinsured
in any manner.
The maximum recoverable under this Contract in respect of Section (A),
(B) and (C) combined, shall not exceed $5,000,000 each and every loss
occurrence.
4. Item F. of ARTICLE 4, DEFINITIONS is amended to read as follows and not
as heretofore:
F. The term "Ultimate Net Loss" as used in this Contract shall mean the sum
actually paid or payable by the Reassured in settlement of any liability
incurred by the Reassured as a result of awards in excess of their
original policy limits and/or in respect of claims-related
extra-contractual obligations, both as more fully defined herein.
The amount of the Reassured's Ultimate Net Loss shall, once an award has
been made, include all further expenses and costs or appeal costs
incurred by the Reassured for awards in excess of original policy limits
and/or claims-related extracontractual obligations awards, net of all
amounts recovered from more specific Reinsurers as provided in ARTTCLE 3,
COVER LIMIT AND RETENTION.
For the purposes hereof, the Ultimate Net Loss shall not include expenses
incurred by the Reassured up to the date that an award has been made, in
connection with the adjustment, settlement or compromise of any loss
including expenses of litigation if any and all subrogation, salvage and
recovery expenses; nor the salaries of employees and all office expenses
of the Reassured.
However, such expenses and costs may be included within, and have first
priority in contributing to, either the Reassured's applicable retention
of US$250,000 in respect of Sections (A), (B) and (C), where the
applicable inuring reinsurances provided for pro-rata expenses and costs
in addition to the limit; or the retention and the limits of the
Reassured's underlying excess of loss programme as applicable and
thereafter to the Reassured's applicable retention of US$250,000 in
respect of Sections (A), (B) and (C) where the applicable inuring
reinsurances provide for expenses and costs within the limit.
All salvages and recoveries, including recoveries under all reinsurances
which inure to the benefit of this Contract as warranted in ARTICLE 3,
COVER LIMIT AND RETENTION, whether collected or not, shall first be
deducted from such loss to arrive at the amount of the Reassured's
Ultimate Net Loss for the purposes of this Contract.
All salvages recoveries or payments recovered or received subsequent to a
loss settlement under this Contract shall be applied as if recovered or
received prior to the aforesaid settlement and all necessary adjustments
shall be made by the parties hereto. However, nothing in the foregoing
shall be construed as meaning that losses are not recoverable hereunder
until the Reassured's Ultimate Net Loss has been ascertained.
<PAGE> 4
For the purposes hereof, the Reassured's retention's and co-insurance's
in their current reinsurance programme, as warranted in ARTICLE 3, COVER
LIMIT AND RETENTION, shall be disregarded for the purpose of determining
the Ultimate Net Loss hereunder. The Reassured shall have the benefit of
underlying recoveries, if any, under all reinsurance contracts.
5. ARTICLE 8, PREMIUM is amended to read as follows and not as heretofore:
ARTICLE 8
PREMIUM
In consideration of the liabilities undertaken by the Reinsurers in
accordance with the terms of this Contract, the Reassured shall pay the
Reinsurers a premium for each Contract Year hereunder, calculated at the
rate of 1.60% of the Reassured's subject matter Premium Income (being the
sum of Intermed Insurance Company's Gross Net Earned Premium Income for
original policies up to US$1,000,000 or so deemed, and Interlex Insurance
Company's Gross Net Written Premium Income for original policies up to
US$1,000,000 or so deemed, including Premium in respect of Defence Costs
Allowance Rider on policy limits up to US$1,000,000) for the Contract
Year under consideration, subject, however, to an annual Minimum and
Deposit Premium of US$160,000 payable in four equal instalments on 1st
October, 1996, 1st January, 1997, 1st April, 1997 and 1st July, 1997.
Notwithstanding the above, the Minimum and Deposit Premium for subsequent
Contract Years shall be as mutually agreed.
Within 60 days following the end of each Contract Year, the Reassured
shall report the reinsurance premium due, calculated at the rate
stipulated above, but subject always to the applications of the Minimum
Premium for that Contract Year. Any additional premium due in excess of
the previously paid Minimum and Deposit Premium for that Contract Year
shall be remitted to the Reinsurers concurrently with the report.
The term "Gross Net Earned Premium Income" shall, for all purposes of
this Contract, be understood to mean the full gross amount of the
premiums charged by the Reassured to their original insureds for original
policy limits of up to US$1,000,000 or so deemed as per the Reassured's
Primary Excess of Loss Contracts, less cancellations and return premiums
and less premiums paid for reinsurances, recoveries under which would
inure to the benefit of this Contract, which is allocated by the
Reassured as earned during the Contract Year under consideration.
The term "Gross Net Written Premium Income" shall, for all purposes of
this Contract, be understood to mean the full gross amount of the
premiums charged by the Reassured to their original insureds for original
policy limits of up to US$1,000,000 or so deemed, including Premium in
respect of Defence Costs Allowance Rider on policy limits up to
US$1,000,000 as per the Reassured's Primary Excess of Loss Contract, less
cancellations and return premiums, and less premiums paid for
reinsurances, recoveries under which would inure to the benefit of this
Contract, which is allocated by the Reassured as written during the
Contract Year under consideration.
6. The participations of Reinsurers shall be as shown in the attached
schedule and not as heretofore.
<PAGE> 5
IN W1TNESS WHEREOF the parties hereto have, by their duly authorised
representative, executed this Addendum as follows:
Signed in Springfield, Missouri this 8th day of October 1996
For and on behalf of the Reassured
INTERMED INSURANCE COMPANY
And for the Reinsurers by means of and in accordance with the attached
schedule which shall be considered to form an integral part of this
Addendum.
<PAGE> 1
Exhibit 10.28
CARVILL REINSURANCE BROKERS
R.K. CARVILL & CO. LTD.
St. Helen's, 1 Undershaft
London EC3A8JT & at Lloyd's
Tel: 0171-9292800
Fax: 0171-9291604
27th September, 1996
Intermed Insurance Co
1903 E Battlefield
Springfield, Missouri 65804
USA
REINSURANCE COVER NOTE: 97/1212/RM
This is to certify that, in accordance with your instructions, we have effected
the following placement. Please examine this Cover Note carefully and advise us
immediately if it is in any way incorrect or does not otherwise meet your
requirements.
RESSURED:
INTERMED INSURANCE COMPANY and/or INTERLEX INSURANCE COMPANY
1903 E. Battlefield
Springfield, MO 65804
U.S.A. (NAIC Code 33367)
PERIOD: Annual re-signing at 1st October, 1997, of continuous Contract
commencing 1st February 1995, covering Awards Made against the
Reassured on and after the date, arising out of policies issued by
the Reassured on and after 1st January, 1977.
Contract to be re-signed annually, but may be cancelled at any 1st
October anniversary date, subject to at least 90 days prior notice.
At the option of the Reassured, providing such option is
exercised prior to anniversary date, the current period of this
Contract may be extended at its anniversary date by 90 days, at pro
rata additional premium: with reinstatement conditions remaining
unchanged but to apply to entire extended period, reinstatement
additional premium being based on final earned premium for entire
extended period.
TYPE: CATASTROPHE "AWARDS MADE" EXCESS OF LOSS
REINSURANCE CONTRACT.
<PAGE> 2
CLASS: Covering Medical Practitioners' Liability policies (including
Dentists' Liability) and all other ancillary coverages as
original, and Lawyers' Professional Liability policies and all
other coverages as original; but only to indemnify the Reassured
in respect of liability incurred as a result of that portion of
their Ultimate Net Loss relating to awards in excess of their
original policy limit and/or relating to claims related
extra-contractual obligations on such business.
TERRITORIAL
SCOPE: As per the Reassured's original policies.
LIMIT: Section (A)
In respect of original losses to Intermed Insurance Company
with claims made dates on or after 1st October, 1993:
To pay up to US$5,000,000 Ultimate Net Loss each and every loss
occurrence, excess of US$250,000 Ultimate Net Loss each and every
loss occurrence, which in turn in excess of the Reassured's
applicable reinsurance programme.
Reinsurers hereon shall have the benefit of all recoveries under
all Excess of Loss Contracts effected by the Reassured in respect
of all original losses coming within the scope of this Section, as
such Contracts apply to the limit of the original policy against
which the Award is made: but only to the extent of the limits of
the Reassured's applicable reinsurance programmes, whether
commuted exhausted or otherwise, which for the purposes of this
Section are deemed to be in full force.
Section (B)
In respect of original losses to Intermed Insurance Company
with claims made dates prior to 1st October, 1993:
To pay up to US$5,000,000 Ultimate Net Loss each and every loss
occurrence, excess of US$250,000 Ultimate Net Loss each and every
loss occurrence, which in turn in excess of the original policy
limit issued by the Reassured.
Section (C)
In respect of original losses to Interlex Insurance Company
with claims made dates on or after 1st July 1995:
To pay up to US$5,000,000 Ultimate Net Loss each and every loss
occurrence, excess of US$250,000 Ultimate Net Loss each and every
loss
<PAGE> 3
occurrence, which in turn in excess of the Reassured's
applicable reinsurance programme.
Reinsurers hereon shall have the benefit of all recoveries
under all Excess of Loss Contracts effected by the Reassured in
respect of all original losses coming within the scope of this
Section, as such Contracts apply to the limit of the original
policy against which the Award is made: but only to the extent
of the limits of the Reassured's applicable reinsurance
programmes, whether commuted exhausted or otherwise, which for
the purposes of this Section are deemed to be in full force.
However, the maximum limit recoverable hereunder in respect
of Sections (A), (B) and (C) combined shall not exceed
US$5,000,000 each and every loss occurrence.
CO-REINSURANCE
WARRANTY: Warranted that the Reassured retain 10% of the premium and of
any loss recoverable hereunder, net and unreinsured in any way.
REINSTATEMENT: One full reinstatement at 100% additional premium (pro rata as
to amount).
Annual Minimum and Deposit Premium $170,000 payable quarterly
in advance in equal installments.
Adjustable within 60 days of the expiry hereof at 1.6% of the
Reassured's subject matter Premium Income fore the period
hereon.
For adjustment purposes hereon, the above rate is calculated
on the sum of Intermed Insurance Company's Gross Net Earned
Premium Income for original policies up to US$1,000,000 or so
deemed, and Interlex Insurance Company's Gross Net Written
Premium Income for original policies up to US$1,000,000 or so
deemed, including Premium in respect of Defence Costs Allowance
Rider on policy limits up to $1,000,000.
U. S. CLASS-
IFICATION: U.S. Reinsurance
TAXES: 1% Federal Excise Tax where applicable
LOSS RESERVES: Letter of Credit (Citibank NA Scheme) in respect of known and
reported losses only, excluding any losses Incurred But Not
Reported ("I.B.N.R"), or any application thereto, in compliance
with Statutory/Regulatory requirements, as required by the
Reassured from all Reinsurers hereon (including Lloyd's).
<PAGE> 4
CLAIMS
ARRANGEMENTS: Individual loss advices and settlements
GENERAL
CONDlTIONS: Ultimate Net Loss Clause:
(1) excluding all loss adjustment expenses and costs
incurred up to the time an award is made. However
such expenses and costs (net of all amounts recoverable
from more specific Reinsurances) shall be included
within and have first priority in contributing:
a) Where the applicable underlying Reinsurances
provide for pro-rata costs in addition, to the
Reassured's applicable retention of US$250,000 for
Sections (A) or (B) or (C) hereon only, but;
b) Where the applicable underlying Reinsurances are
on a costs-inclusive basis, to the
retentions and limits of the said underlying
reinsurances and thereafter to the Reassured's
applicable retention of US$250,000 for Sections (A)
or (B) or (C) hereon only.
(2) including, once an award is made, all further expenses
and costs/appeal costs for excess of original policy
limits and/or extra-contractual obligations awards, net
of all amounts recoverable from more specific
Reinsurers.
Reassured's co-reinsurances in their applicable underlying
reinsurance programme, to be disregarded for the purpose of
determining the Ultimate Net Loss hereunder
Second Generation Awards Clause.
Insolvency Clause.
Errors and Omissions Clause.
Amendments and Alterations Clause.
Currency Clause (U.S. Dollars only)
Access to Records Clause.
Arbitration Clause.
Service of Suit Clause (U.S.A. - NMA 1998).
Insolvency Funds Exclusion Clause.
Nuclear Incident Exclusion Clause - Liability - Reinsurance
U.S.A.
Confidentiality Clause.
Carvill Intermediary Clause.
<PAGE> 5
Several Liability Notice
The subscribing reinsurers' obligations under contracts of
reinsurance to which they subscribe are several and not joint
and are limited solely to the extent of their individual
subscriptions. The subscribing reinsurers are not responsible
for the subscription of any co-subscribing reinsurer who for
any reason does not satisfy all or part of its obligations. -
Ref: LSW 1001 (Reinsurance).
WORDING: To be agreed by Underwriters.
INFORMATION: In years immediately prior to 1st October, 1993 Intermed
purchased a layer of $2million xs $1million (Claims Made Basis)
covering Clash and ECO/XPL. Recoveries, if applicable, to inure
to benefit of Section 1.
HEREON: 100.00% of 90.00% of the above LIMIT and PREMIUM.
EFFECTED WITH: Security as per Schedule A attached hereto.
R.K. CARVILL & COMPANY LIM1TED
Director
E. & O.E.
<PAGE> 6
Attaching to and forming part of Cover Note Number: 97/1212/RM
100.00% LLOYD'S UNDERWR1TERS
London, England.
100.00% OF 90.00%
The breakdown of Lloyd's Syndicates is as follows:
<TABLE>
<S> <C> <C> <C>
Share Syndicate No. Pseudonym NAIC Id.No.
7.49% 435 DPM AA 1126435
9.13% 1007 SVH AA 1127007
3.65% 623 AFB AA 1126623
3.65% 623 AFB AA 1126623
7.31% 672 IAM AA 1126672
7.31% 190 FRW AA 1126190
5.48% 219 RAE AA 1126219
5.47% 205 HGJ AA 1126205
1.62% 1027 MFN AA 1127027
1.30% 2027 MFN AA 1128027
5.47% 362 WEH AA 1126362
2.55% 570 GNR AA 1126570
0.99% 376 JHV AA 1126376
0.47% 2376 JHV AA 1128376
3.18% 861 MEB AA 1126861
1.20% 1209 MEB AA 1127209
1.75% 1212 SJB AA 1127212
2.63% 1212 SJB AA 1127212
1.11% 1003 SJC AA 1127003
1.81% 2003 SJC AA 1128003
0.73% 727 SAM AA 1126727
0.55% 990 BAR AA 1126990
0.73% 991 AEG AA 1126991
1.09% ll41 JEM AA 1127141
1.82% 1047 RGW AA 1127047
2.55% 1215 BHB AA 1127215
0.48% 947 CBK AA 1126947
0.13% 2947 CBK AA 1128947
0.24% 923 FCD AA 1126923
0.07% 2923 FCD AA 1128923
0.91% 1096 RAS AA 1127096
1.82% 510 KLN AA 1126510
0.91% 1223 MEL AA1127223
0.91% 227 ROS AA 1126227
0.19% 2227 CMP AA 1128227
0.73% 314 CFP AA 1126314
1.09% 529 HLM AA 1126529
0.91% 51 ANT AA 1126051
0.55% 122 RJH AA 1126122
0.73% 958 GSC AA 1126958
0.32% 590 COX AA 1126590
0.23% 2591 COX AA 1128591
1.09% 183 DFB AA 1126183
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
0.73% 484 JSM AA 1126484
0.73% 47 JRR AA 1126047
0.73% 780 BFC AA 1126780
1.82% 79 PJG AA 1126079
1.09% 204 FLD AA 1126204
0.36% 112 DER AA 1126112
2.19% 1218 DJN AA 1127218
- -------
100.00% of 90.00%
</TABLE>
<PAGE> 1
EXHIBIT 10.29
ADDENDUM NO. 3
attaching to and forming part of the
CATASTROPHE "AWARDS MADE" EXCESS OF LOSS
REINSURANCE CONTRACT
made between
INTERMED INSURANCE COMPANY and/or INTERLEX INSURANCE COMPANY
of Springfield, Missouri
(hereinafter referred to as "the Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as "the Reinsurers")
U.S. CLASSIFICATION: U.S. REINSURANCE
With effect from 1st October, 1997, the following amendments are made to this
Contract:
1. The first paragraph of ARTICLE 8 - PREMIUM, is amended to read as follows:
In consideration of the liabilities undertaken by the Reinsurers in
accordance with the terms of this Contract, the Reassured shall pay
the Reinsurers a premium for each Contract Year hereunder, calculated
at the rate of 1.50% of the Reassured's subject matter Premium Income
(being the sum of Intermed Insurance Company's Gross Net Earned
Premium Income for original policies up to US$1,000,000 or so deemed,
and Interlex Insurance Company's Gross Net Written Premium Income for
original policies up to US$1,000,000 or so deemed, including Premium
in respect of Defence Costs Allowance Rider on policy limits up to
US$1,000,000) for the Contract Year under consideration, subject,
however, to an annual Minimum and Deposit Premium of US$170,000
payable in four equal instalments on 1st October, 1997, 1st January,
1998, 1st April, 1998 and 1st July, 1998.
2. The participations of Reinsurers shall be as shown in the attached
Schedules and not as heretofore.
ALL OTHER TERMS AND CONDITIONS REMAIN UNALTERED
IN WITNESS WHERREOF the parties hereto have, by their duly authorised
representative, executed this Addendum as follows.
Signed in Springfield, Missouri, this 29th day of December, 1997
For and on behalf of the Reassured:
INTERMED INSURANCE COMPANY
/s/
And for the Reinsurers by means of and in accordance with the attached
Schedules which shall be considered to form an integral part of this Contract.
<PAGE> 1
Exhibit 10.30
CARVILL
REINSURANCE BROKERS
R.K. CARVILL & CO., LTD.
1 Minster Court
Mincing Lane
London EC3R7AA & at Lloyd's
Tel: 071-9292800
Tlx: 8952946 CARCORP
Fax: 071-9291604
5 October 1994
RCA Mutual Insurance Co
1111 S. Glenstone
Suite 3-102
Springfield, Missouri 65804
USA
REINSURANCE COVER NOTE: 94/1146/RM
This is to certify that, in accordance with your instructions, we have effected
the following placement. Please examine this Cover Note carefully and advise us
immediately if it is in any way incorrect or does not otherwise meet your
requirements.
REASSURED: RCA MUTUAL INSURANCE COMPANY (or name to be agreed by Underwriters)
of Springfield, Missouri.
PERIOD: Annual re-signing at 1st October, 1994, of Contract covering claims
first made against the Reassured during the period 1st October,
1993, to 30th September, 1996, both dates inclusive.
Contract to be re-signed annually, but may be cancelled at any 1st
October anniversary date subject to 90 days prior notice of
cancellation.
In the event of cancellation and non-renewal of this Contract,
Reinsurers hereon shall continue to be liable for all claims first
made against the Reassured during an additional 60 months reporting
period from the effective date of cancellation and non-renewal.
Such 60 months reporting period coverage shall not apply to claims
first made on new or renewal policies incepting after the effective
date of cancellation and non-renewal of this Contract.
<PAGE> 2
TYPE: PRIMARY EXCESS OF LOSS REINSURANCE TREATY.
CLASS: Covering Medical Practitioners' Liability policies (including
Dentists' Liability,) and all other ancillary coverages as
original.
TERRITORIAL
SCOPE: As per the Reassured's original policies.
LIMITS: To pay:
(A) Up to US$1,600,000 Ultimate Net Loss each and every loss,
each policy and/or insured, excess of US$400,000 Ultimate
Net Loss each and every loss, each policy and/or insured,
and, in addition, where two or more policies and/or insureds
are involved in the same loss occurrence:
(B) Up to US$1,600,000 Ultimate Net Loss each and every loss
occurrence, excess of US$500,000 Ultimate Net Loss each and
every loss occurrence
Recoveries under Section (A) to inure to the benefit of
Section (B).
In the event that two or more policies or insureds are
involved in the same loss occurrence and there is a difference in
the dates claims are made, the date on which the first claim is
made shall establish the date of loss for all related claims
arising out of the same loss occurrence.
Notwithstanding the foregoing, in any loss occurrence, should
any claim made date(s) fall prior to the inception of this
Contract, it is hereby understood and agreed that those specific
loss(es) shall be disregarded for the purposes of determining
recoveries hereunder.
For the purposes of this Contract, the date of loss shall be
the date of receipt by the Reassured of acceptable notice from its
original insured or a representative of its original insured; that
a claim is being or may be made against that original insured.
Maximum recoverable hereon to be 300% of the maximum
reinsurance premium payable hereunder for the Contract Period.
WARRANTY: Warranted Maximom Original Policy Limit US$1,000,000 or so deemed,
except as respects Excess of Original Policy Limits and/or
Extra-Contractual Obligation coverage.
<PAGE> 3
PREMIUM: Second Annual Provisional Premium US$1,45O,000 payable in quarterly
installments in advance at 1st October, 1994, 1st January, 1995, 1st
April, 1995 and 1st July, 1995 and adjustable at expiry of each
annual period at provisional rates indicated below. Further
adjustable 12 months after expiry of Contract Period and annually
thereafter until all losses for Contract Period are finally settled
or commuted at a rate equivalent to 110% of the cumulative Incurred
Loss Cost, plus the Minimum rate for the Contract Period as
indicated below. In no event however shall the Contract Period
Minimum rate plus 110% of the cumulative Incurred Loss Cost for the
Contract Period exceed the Maximum rate for the applicable Contract
Period as indicated below.
Annual Period is that period from 1st October, 1993 to 30th
September, 1994, both dates inclusive, and each successive 12 month
period thereof.
Contract Period is that period from 1st October, 1993 to 30th
September, 1996 both dates inclusive, or earlier in the event of
cancellation.
Minimum, Provisional and Maximum Rates as follows:
<TABLE>
<CAPTION>
MIN PROV MAX
<S> <C> <C> <C>
If Contract terminated at 1st October 1995 7.50% 17.00% 25.00
If Contract terminated at 1st October 1996 6.00% 16.50% 22.50
</TABLE>
For adjustment purposes hereon, rates above calculated on the
cumulative Gross Net Earned Premium Income for original policy
limits up to US$1,000,000 or so deemed.
In the event of cancellation and non-renewal of this Contract any
applicable unearned premium shall accrue back to the last Annual
Period hereof and shall be added to the Reassured's subject Gross
Net Earned Premium Income for the purpose of the premium rating
formula hereunder.
SPECIAL
CONDITION: In the event that the Reassured cancels and non-renews this
Contract and continues to be reinsured hereon for claims first made
during an additional 60 month period, it is agreed that the Maximum
rate for the last Annual Periodhereon shall be automatically
increased by a factor of 1.65 with the resulting Maximum premium
for the Contract Period hereon to be calculated accordingly.
DEDUCTIONS: 1% Federal Excise Tax where applicable.
<PAGE> 4
CLAIMS
ARRANGEMENTS: Reassured to provide quarterly bordereaux detailing paid
losses hereunder, and quarterly bordereaux detailing all
outstanding losses reserved by the Reassured at US$300,000
Ultimate Net Loss and above.
Settlement of paid losses recoverable hereunder as per
bordereaux to be effected as soon as practicable after
receipt of bordereaux, provided that individual losses of
US$200,000 Ultimate Net Loss or greater hereto shall be
subject to cash loss collection on provision by Reassured of
Proof of Loss.
LOSS RESERVES: Letter of Credit (Citibank N.AScheme) in respect of known
and reported outstanding losses, excluding losses Incurred
But Not Reported ("I.B.N.R") or any application thereto, in
compliance with statutory/regulatory requirements, as
required by Reassured from non-admitted Reinsurers only.
GENERAL
CONDITIONS: Excess of Original Policy Limits and Extra-Contractual
Obligations Inclusion
Clauses, both included within Reassured's Ultimate Net Loss.
Ultimate Net Loss Clause, including Loss Adjustment Expenses.
Net Retained Lines Clause.
Insolvency Clause.
Errors and Omissions Clause.
Currency Clause (U.S. Dollars only).
Access to Records and Claims Review Clause.
Amendments and Alterations Clause.
Arbitration Clause.
Service of Suit Clause - U.S.A. - NMA 1998.
Nuclear Incident Exclusion Clause - Liability -
Reinsurance - U.S.A.
Insolvency Funds Exclusion Clause.
Carvill Intermediary Clause.
COMMUTATION: Reassured to have right one year after end of the Contract
Period or at any time thereafter to commute losses at
their discretionary reserves and relieve Reinsurers of all
further liability hereunder provided rate at that time is
below the maximum rate for the Contract Period hereon.
WORDING: Wording to be agreed by Underwriters.
INFORMATION: 1. Medical Practitioners' Liability
(including Dentists' Liability), and all other ancillary
coverages as original, issued by Reassured on Claims
Paid, Occurrence and Claims Made Policy Form. It is
<PAGE> 5
hereby understood and agreed that all coverage hereunder
is provided on a claims first made during basis only.
2. Unlimited pre-paid discovery coverage is available
a) Deceased Doctors.
b) Doctors who through
disablement are unable to continue medical
practice.
c) Doctors who retire.
3. Original policies may contain Aggregate Limitation but
no aggregate coverage hereon.
4. Estimated Gross Net Earned Premium Income for 12 months
at 1st October, 1994 US$9,000,000.
HEREON: 100% of the above LIMIT and PREMIUM.
EFFECTED WITH: LLOYD'S UNDERWRITERS
London, England.
R.K. CARVILL & COMPANY LIMITED
Director
E. & O.E.
<PAGE> 1
Exhibit 10.31
96/1146/RM
TITLE: MEDICAL PRACTITIONERS' LIABILITY
PRIMARY EXCESS OF LOSS REINSURANCE CONTRACT
BETWEEN: INTERMED INSURANCE COMPANY
AND
THE REINSURERS SIGNATORY HERETO
COMMENCING: 1ST OCTOBER, 1996
U.S. CLASS-
IFICATION: U.S. REINSURANCE
<PAGE> 2
INDEX OF ARTICLES
<TABLE>
<S> <C>
PREAMBLE IDENTITY OF PARTIES
ARTICLE 1 BUSINESS REINSURED
ARTICLE 2 COVER, LIMIT AND RETENTION
ARTICLE 3 DEFINITIONS
ARTICLE 4 TERRITORIAL SCOPE
ARTICLE 5 EXCLUSIONS
ARTICLE 6 NET RETAINED LINES
ARTICLE 7 ULTIMATE NET LOSS
ARTICLE 8 EXCESS OF ORIGINAL POLICY LIMITS
ARTICLE 9 EXTRA-CONTRACTUAL OBLIGATIONS
ARTICLE 1 0PREMIUM
ARTICLE 11 PERIOD
ARTICLE 12 LOSS REPORTS AND PAYMENTS
ARTICLE 13 CURRENCY
ARTICLE 14 ACCESS TO RECORDS AND CLAIMS REVIEW
ARTICLE 15 COMMUTATION
ARTICLE 16 LOSS RESERVES
ARTICLE 17 TAX PROVISIONS
ARTICLE 18 DELAYS, ERRORS OR OMISSIONS
ARTICLE 19 INSOLVENCY OF THE REASSURED
ARTICLE 20 AMENDMENTS AND ALTERATIONS
ARTICLE 21 ARBITRATION
ARTICLE 22 SERVICE OF SUIT (NMA 1998)
ARTICLE 23 INTERMEDIARY
ARTICLE 24 PARTICIPATION
ATTACHMENTS NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY
REINSURANCE- U.S.A.
</TABLE>
<PAGE> 3
Exhibit 10.31
96/1146/RM
MEDICAL PRACTITIONERS' LIABILITY
PRIMARY EXCESS OF LOSS
REINSURANCE CONTRACT
PREAMBLE
This Contract is made and entered into between Intermed Insurance Company of
1903 E. Battlefield, Springfield, Missouri, U.S.A. (NAIC Code 33367)
(hereinafter referred to as the "Reassured") and the Reinsurers signatory
hereto (hereinafter referred to as the "Reinsurers"), on the following terms
and conditions:
ARTICLE 1
BUSINESS REINSURED
For and in consideration of the premium being paid by the Reassured in
accordance with ARTICLE 1Q, PREMIUM, the Reinsurers agree to indemnify the
Reassured in respect of the net excess liability incurred by the Reassured
resulting from losses under Medical Practitioners' Liability policies
(including Dentists' Liability policies), including all other ancillary
coverages as original, issued by the Reassured, hereinafter referred to as
"policies."
ARTICLE 2
COVER. LIMIT AND RETENTION
Section (A) below applies to each and every loss, each policy and/or insured.
Section (B) below applies to the sum of the Reassured's Section (A) retentions
in respect of two or more policies and/or insureds involved in the same loss
occurrence.
The Reinsurers shall accordingly be liable hereunder:
Section (A):
Whenever the Reassured has paid or advanced, or agreed to pay or advance, or
become liable to pay on account of a loss under any policy an amount in excess
of US$400,000 Ultimate Net Loss each and every loss, each policy and/or
insured, the amount recoverable from the Reinsurers hereunder shall be the
amount in excess of US$400,000 Ultimate Net Loss each and every loss, each
policy and/or insured, but such amount recoverable shall not exceed up to a
further US$1,600,000 Ultimate Net Loss each and every loss, each policy and/or
insured
and/or
Section (B):
Whenever two or more policies and/or insureds are involved in the same loss
occurrence the amount recoverable from the Reinsurers hereunder shall be the
amount in excess of US$400,000 Ultimate Net Loss each and every loss
occurrence, but such amount recoverable shall not exceed a further US$1,600,000
Ultimate Net Loss each and every loss occurrence.
Recoveries by the Reassured under Section (A) above shall inure to the benefit
of the Reinsurers under Section (B).
<PAGE> 4
It is agreed that the maximum overall recovery under this Contract shall be
300% of the maximum premium payable hereunder for the Contract Period, as
determined in ARTICLE 10, PREMIUM.
It is warranted that the Maximum Original Policy Limit for the purposes of this
Contract is US$1,000,000, or so deemed, except as respects awards in excess of
the Reassured's original policy limits and/or awards arising out of any
extra-contractual obligation, both as more fully defined in ARTICLES 8 and 9 of
this Contract, where coverage hereon applies to original policies issued
irrespective of limits.
It is agreed that although the original policies are issued by the Reassured on
an occurrence, claims made and claims paid basis, recoveries hereunder shall be
made on a claims made basis only.
It is further agreed that although original policies may contain aggregate
coverage, no aggregate coverage shall be provided by this Contract.
ARTICLE 3
DEFINITIONS
A. The term "Policy" or "Policies" as used in this Contract shall mean any
binder, policy, endorsement, extended reporting endorsement or contract of
insurance issued, accepted or held covered by the Reassured.
For the purposes hereof, the original policy period shell be no greater
than 12 months, plus odd time, not exceeding 18 months in all, except as
respects extended reporting endorsements, which may be unlimited in
period.
B. The term "loss occurrence" as used in this Contract shall mean the
happening of one or a series of related acts, errors, omissions,
accidents, events or occurrences.
C. For the purposes of this Contract the "claim made" date for any loss
recoverable hereunder shall be deemed to be date of the receipt by the
Reassured of acceptable notice from its original insured or a
representative of its original insured that a claim is being or may be
made against that original insured. The date of such receipt shall
determine the date of loss for the purposes of this Contract.
Furthermore, as regards extended reporting endorsements, the date a claim
is made shall determine the date of loss for the purpose of this
Contract.
In the event that two or more policies and/or insureds are involved in
the same loss occurrence and there is a difference in the dates claims are
made during this Contract Period, or subsequent renewal thereof, the date
on which the first claim is made shall establish the date of loss for all
related claims arising out of the same loss occurrence. Notwithstanding
the foregoing, in any loss occurrence, should any claim made date(s) fall
prior to 1st October 1993, it is understood and agreed that those specific
loss(es) shall be disregarded for the purposes of determining the
Reassured's Ultimate Net Loss hereunder
D. The term "Annual Period" as used in this Contract shall mean the period
from 1st October, 1996 to 30th September, 1997, both dates inclusive, and
each successive 12 month period thereof within this Contract Period.
E. The term "Contract Period" as used in this Contract shall mean the period
commencing at October 1st, 1996 and ending at September 30th, 1999 both
dates inclusive, or any earlier date of termination as provided for in
ARTICLE 11, PERIOD.
F. The term "retention" as used in this Contract shall mean the amount
retained by the Reassured in respect of each and every loss hereunder and
which amount shall be retained net by the Reassured.
<PAGE> 5
ARTICLE 4
TERRITORIAL SCOPE
This Contract shall cover wherever the Reassured's policies cover.
ARTICLE 5
EXCLUSIONS
This Contract does not apply to and absolutely excludes the following:
1. Nuclear Incidents, in accordance with the attached Nuclear Incident
Exclusion Clause - Liability Reinsurance - U.S.A.
2. All liability of the Reassured arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any Insolvency Fund. "Insolvency Fund" includes any
Guaranty Fund, Insolvency Fund, Plan, Pool, Association, Fund or other
arrangement, howsoever denominated, established or governed which provides
for any assessment of or payment or assumption by the Reassured of part or
all of any claim, debt, charge, fee or other obligation of an insurer, or
its successors or assigns which has been declared by any competent
authority to be insolvent or which is otherwise deemed unable to meet any
claim, debt, charge, fee or other obligation in whole or in part.
3. Reinsurance Assumed.
ARTICLE 6
NET RETAINED LINES
Subject always to the provisions of ARTICLE 7. ULTIMATE NET LOSS. this Contract
applies only to that portion of any insurance covered by this Contract which
the Reassured retains net for its own account and in calculating the amount of
any loss hereunder and also in computing the amount or amounts in excess of
which this Contract attaches, only loss or losses in respect of that portion of
any insurance which the Reassured retains net for its own account shall be
included.
It is understood and agreed that the amount of the Reinsurers' liability
hereunder in respect of any loss or losses shall not be increased by reason of
the inability of the Reassured to collect from any other reinsurers, whether
specific or general, any amounts which may have become due from them, whether
such inability arises from the insolvency of such other reinsurers or
otherwise.
ARTICLE 7
ULTIMATE NET LOSS
The term "Ultimate Net Loss" as used in this Contract shall mean the sum
actually paid or payable by the Reassured in settlement of any loss or losses
for which it is liable under its original policy or policies, and/or any
additional liability incurred by the Reassured as a result of an award in
excess of its original policy limits, and/or any additional liability incurred
by the Reassured from any extra-contractual obligation, both as more fully
defined in ARTICLES 8 and 9 of this Contract.
The amount of the Reassured's Ultimate Net Loss shall also include all loss
adjustment expenses incurred by the Reassured in connection with the
adjustment, settlement or compromise of any loss including
<PAGE> 6
expenses of litigation, if any, and all subrogation, salvage and recovery
expenses, but excluding the salaries of employees and all office expenses of
the Reassured.
All salvages and recoveries, including recoveries under all reinsurances which
inure to the benefit of this Contract, whether collected or not, shall first be
deducted from such loss to arrive at the amount of the Reassured's actual loss
for the purposes of this Contract.
All salvages, recoveries and payments recovered or received subsequent to a
loss settlement under this Contract shall be applied as if recovered or
received prior to the aforesaid settlement and all necessary adjustments shall
be made by the parties hereto. However, nothing in the foregoing shall be
construed as meaning that losses are not recoverable hereunder until the
Reassured's Ultimate Net Loss has been ascertained.
ARTICLE 8
EXCESS OF ORIGINAL POLICY LIMITS
As provided in ARTICLE 7, ULTIMATE NET LOSS, this Contract shall protect the
Reassured, within the limits of this Contract, in respect of any additional
liability incurred by the Reassured as the result of an award in excess of
their original policy limit as more fully defined below. The Reinsurers agree
that the additional liability so incurred, plus the Reassured's contractual
loss, shall be considered as one combined loss for the purposes of the
Reassured's retention and of the recovery under this Contract subject always,
however, to the amount recoverable hereunder not exceeding the limit of
recovery under this Contract as provided in ARTICLE 2, COVER. LIMIT AND
RETENTION.
Awards in excess of the Reassured's original policy limit are defined as losses
which the Reassured would have been contractually liable to pay, had it not
been for the limit of the original policy and where such losses in excess of
the original policy limit have been incurred because of failure by the
Reassured to settle within the original 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 defence or in the trial of any action against their
insured or in the preparation or prosecution of an appeal consequent upon such
action.
The claims made date for any such award in excess of the original policy limit
shall be deemed, in all circumstances, to be the same as the claims made date
of the original claim to which such award attaches.
However, this Article shall not apply where such awards in excess of original
policy limit have been incurred due to the fraud of a member of the Board of
Directors or a corporate officer of the Reassured acting individually or
collectively or in collusion with any individual or corporation or any other
organisation or party involved in the presentation, defence or settlement of
any claim.
ARTICLE 9
EXTRA-CONTRACTUAL OBLIGATIONS
As provided in ARTICLE 7, ULTIMATE NET LOSS, this Contract shall protect the
Reassured, within the limits of this Contract, in respect of any liability
incurred by the Reassured as the result of an award in respect of any
extra-contractual obligation, as more fully defined below. The Reinsurers agree
that the liability so incurred, plus the Reassured's contractual loss if any,
shall be considered as one combined loss for the purposes of the Reassured's
retention and of the recovery under this Contract subject always, however, to
the amount recoverable hereunder not exceeding the limit of recovery under this
Contract as provided in ARTICLE 2, COVER. LIMIT AND RETENTION.
"Extra-contractual obligations" are defined as those liabilities of the
Reassured not covered under any other provision of this Contract and which
arise from the handling of any claim on business covered hereunder, such
liabilities arising because of, but not limited to, the following: failure by
the Reassured to settle within
<PAGE> 7
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 defence
or in the trial of any action against their insured or in the preparation or
prosecution of an appeal consequent upon such action.
The claims made date for any such extra-contractual obligation shall be deemed,
in all circumstances, to be the same as the claims made date of the original
claim to which such extra-contractual obligation attaches.
However, this Article shall not apply where such extra-contractual obligations
have been incurred due to the fraud of a member of the Board of Directors or a
corporate officer of the Reassured acting individually or collectively or in
collusion with any individual or corporation or any other organisation or party
involved in the presentation, defence or settlement of any claim.
ARTICLE 10
PREMIUM
A. The Reassured shall pay to the Reinsurers for the Annual Period
commencing 1st October, 1996, a Provisional Premium of US$1,000,000 in
four equal instalments at 1st October 1st, 1996, 1st January, 1997, 1st
April, 1997 and 1st July, 1997.
The Provisional Premiums payable for subsequent Annual Periods shall be
as mutually agreed.
B. As soon as practicable after the close of each Annual Period, the
Reassured shall render a statement of its cumulative Gross Net Earned
Premium Income (as defined herein) and the Reassured shall pay or be paid
by the Reinsurers as follows:
1) if the Contract is in effect for one year, the difference
between the annual Provisional Premium and the Premium determined by
applying a rate of 10.00% to the Gross Net Earned Premium Income. 12
months after the expiry of the Contract Period a further premium
adjustment shall be made by applying a rate of 110.00% to the
cumulative Incurred Loss Cost and Expenses recoverable hereunder, to
which shall be added a minimum rate of 4.50% of the Gross Net Earned
Premium Income. In no event however shall the minimum rate plus
110.00% of the cumulative Incurred Loss Cost and Expenses for the
Contract Period exceed a maximum rate of 22.00%.
2) if the Contract is in effect for two years, the difference
between the Provisional Premium for the two years and the premium
determined by applying a rate of 10.00% to the cumulative Gross Net
Earned Premium Income. 12 months after the expiry of the Contract
Period a further premium adjustment shall be made by applying a rate
of 110.00% to the cumulative Incurred Loss Cost and Expenses
recoverable hereunder, to which shall be added a minimum rate of
4.50% of the cumulative Gross Net Earned Premium Income. In no event
however shall the minimum rate plus 110.00% of the cumulative
Incurred Loss Cost and Expenses for the Contract Period exceed a
maximum rate of 21.50%;
3) if the Contract is in effect for three years, the difference
between the Provisional Premium for the three years and the premium
determined by applying a rate of 10.00% to the cumulative Gross Net
Earned Premium Income. 12 months after the expiry of the Contract
Period a further premium adjustment shall be made by applying a rate
of 110.00% to the cumulative Incurred Loss Cost and Expenses
recoverable hereunder, to which shall be added a minimum rate of
3.875% of the cumulative Gross Net Earned Premium Income. In no
event however shall the minimum rate plus 110.00% of the cumulative
Incurred Loss Cost and Expenses for the Contract Period exceed a
maximum rate of 20.00%.
<PAGE> 8
C. In the event of cancellation and non-renewal of this Contract, as defined
in ARTICLE 11, PERIOD, the maximum rate for the last Annual Period hereon
shall be automatically increased by a factor of 1.65, with the resulting
Maximum premium for the Contract Period hereon to be calculated
accordingly, as determined above.
Further, in the event of cancellation and non-renewal of this Contract,
any unearned premium applicable to policies in force at the effective date
of cancellation and non-renewal, including any extended reporting
endorsements attached thereto, shall be applied to the last Annual Period
hereof, and the unearned premium shall be added to the Gross Net Earned
Premium Income accruing to the last Annual Period of this Contract for the
purposes of the rating formula.
D. The premium determined for the Contract Period shall be re-calculated
annually thereafter until all losses for the Contract Period are either
settled, or commuted in accordance with ARTICLE 15, COMMUTATION.
E. The term "Gross Net Earned Premium Income" shall, for all purposes of
this Contract, be understood to mean the full gross earned amount of the
premiums charged by the Reassured to its original insureds, for original
policy limits up to US$1,000,000 or so deemed, less cancellations and
return premiums and less premiums paid for reinsurances which inure to the
benefit of this Contract, but including earned premium income for extended
reporting endorsements.
F. For the purpose of this article, the term "cumulative Incurred Loss Cost
and Expenses" shall mean, on business the subject matter of this Contract,
paid and outstanding losses and loss expenses recoverable under this
Contract and all such incurred losses shall be charged to the Annual
Period of this Contract to which the loss or losses fall for the purpose
of determining the rate applicable to the Contract Period.
G. It is agreed that in the event of commutation in accordance with ARTICLE
15, COMMUTATION, the difference between the premium paid at that time and
the premium adjustment due in consequence of such commutation shall be
immediately payable.
ARTICLE II
PERIOD
This Contract takes effect on 1st October, 1996 and applies to claims first
made on or alter that date as respects Medical Practitioners' Liability
(including Dentists' Liability), and all other ancillary coverages as in the
original policies.
This Contract shall remain in full force and effect until 30th September, 1999
but may be terminated at 30th September, 1997, or 30th September, 1998, by
either party giving to the other not less than 90 days written notice prior to
anniversary date.
In the event of the cancellation and non-renewal of this Contract, the
Reinsurers shall continue to be liable hereunder in respect of all claims first
made against the Reassured during an additional 60 months reporting period from
the effective date of cancellation and non-renewal. In respect of the
foregoing, the maximum rate for the last Annual Period hereon shall be
automatically increased by a factor of 1.65, with the resulting Maximum premium
for the Contract Period hereon to be calculated accordingly, as detailed in
ARTICLE 10, PREMIUM. The 60 months reporting period provisions provided above
shall not apply to claims first made on new or renewal policies incepting after
the effective date of cancellation and non-renewal of this Contract. Further,
in the event of cancellation and non-renewal of this Contract, all claims first
made against the Reassured during the additional 60 months reporting period
shall be applied to the last Annual Period hereof.
<PAGE> 9
The 60 months reporting period provisions provided above shall not be operative
if the Reassured replaces the reinsurance coverage afforded by this Contract,
whether in part or in full, or if the Reassured retains the limits provided
herein net and for its own account, whether in part or in full.
If any law or regulation of the Federal, State or Local Government of any
jurisdiction in which the Reassured is doing business shall render illegal the
arrangements made herein this Contract can be terminated immediately in so far
as it applies to such jurisdiction by the Reassured giving notice to the
Reinsurers to such effect.
ARTICLE 12
LOSS REPORTS AND PAYMENTS
The Reinsurers agree to abide by all loss settlements of the Reassured,
provided such loss settlements are within the terms and conditions of the
Reassured's original policies and of this Contract, which at its sole
discretion shall adjust, settle or compromise all losses. All such adjustments,
settlements or compromises shall be unconditionally binding upon the
Reinsurers, who shall also benefit in due proportion from any salvages,
recoveries and compromises effected or negotiated by the Reassured.
The Reassured shall advise the Reinsurers by quarterly bordereaux of all paid
losses hereunder, and of outstanding losses including any subsequent
developments in connection therewith, which are reserved by the Reassured at,
or in excess of $400,000 Ultimate Net Loss.
Such bordereaux shall be furnished by the Reassured within 60 days following
the end of each quarter. The information contained therein shall be in brief
summary form but shall be sufficient to enable the individual losses, the
nature of each claim, the claim made date and the inception or renewal dates of
the policies to which such losses relate, to be readily identified.
The Bordereaux shall detail, for each individual loss:
1. The amounts paid by the Reassured and the amounts outstanding in its own
books for both indemnity and expenses, as at the end of the quarter under
consideration. and the Reinsurers' share thereof.
2. Indemnity and expense payments made by the Reassured during the quarter
under consideration in respect of which reimbursement by the Reinsurers is
then required.
The Reinsurers agree to pay any amount for which they may be liable under this
Contract as soon as possible after the quarterly bordereaux have been furnished
to them; but in the event of the Reassured sustaining a loss in respect of
which the Reinsurers' share amounts to or exceeds $200,000 Ultimate Net Loss,
the Reassured shall have the option of requiring the Reinsurers to effect
immediate payment outside of the quarterly bordereaux upon submission of proof
of loss.
ARTICLE 13
CURRENCY
The currency to be used for all purposes of this Contract shall be United
States Dollars.
ARTICLE 14
ACCESS TO RECORDS AND CLAIMS REVIEW
All documents and records in the possession of the Reassured concerning this
Contract shall be made available upon reasonable notice at the request of the
Reinsurers for inspection at the Reassured's offices by
<PAGE> 10
the Reinsurers or their nominated representatives for the purposes of
obtaining information concerning this Contract or the subject matter hereof.
Specifically, the Reinsurers shall be entitled to nominate a representative to
assess the Reassured's claims and claims procedures.
For the avoidance of doubt, it is hereby expressly agreed that the rights given
to the Reinsurers by this Article shall continue in effect notwithstanding the
expiration of this Contract and shall be exercised at the Reinsurers' own
expense.
ARTICLE 15
COMMUTATION
The Reassured at its option may, 12 months after the expiry of the Contract
Period or at any time thereafter, commute all losses outstanding to this
Contract.
The Reinsurers agree to accept the Reassured's discretionary reserves existing
at the time of commutation in consideration of which they will be relieved of
all further liability in respect of the Contract period both in respect of
known and unknown losses.
The option to commute may only be exercised by the Reassured provided that the
rate as determined in accordance with ARTICLE 10, PREMIUM, after commutation,
is less than the maximum rate stipulated in that Article and commutation shall
constitute a complete release of the Reinsurers from all further liability
under this Contract.
ARTICLE 16
LOSS RESERVES
This Article applies only to those Reinsurers signatory hereto who do not
qualify for credit under the regulations of the State insurance authorities or
departments which have jurisdiction over the Reassured's loss reserves.
The Reassured agrees that when, for its Annual Convention Statement purposes,
it files with the authorities or departments mentioned above or sets up in its
bocks statutory reserves for known outstanding losses and allocated loss
expenses reinsured by this Contract it shall forward to the Reinsurers a clear
statement of the Reinsurers' proportion of those reserves detailing the amounts
involved for known outstanding losses and allocated loss expenses and also how
those amounts are calculated.
The Reinsurers, promptly upon receipt of the Reassured's statement, shall apply
for and secure delivery to the Reassured of a clean, irrevocable and
unconditional Letter of Credit, in an amount equal to their proportion of the
stated reserves. Under no circumstances shall any amount relating to reserves
in respect of losses or loss expenses Incurred But Not Reported be included in
the amount of the Letter of Credit.
All Letters of Credit procured pursuant to this Contract shall be issued by a
Bank which is a Member of the Federal Reserve and shall be in fall conformity
with the requirements of the authorities or departments mentioned in the first
paragraph of this Article current at the date of the Reassured's statement.
Further, they shall be "Evergreen" in that they shall be issued for an initial
period of not less than one year and shall be automatically extended for one
year from their original expiration dates and subsequently from their extended
expiration dates unless and until, at least thirty days before any expiration
date, the issuing bank gives notice to the Reassured by registered mail that
the issuing bank elects not to extend the life of the Letter of Credit in
question beyond its forthcoming expiration date.
<PAGE> 11
In consideration of the agreement of the Reinsurers to furnish such Letters of
Credit to the Reassured to enable it to obtain credit for the reinsurance
provided under this Contract, the Reassured hereby undertakes to hold such
Letters of Credit and the proceeds of any drawings made upon them in trust for
the Reinsurers and to use and apply the proceeds of any such drawings for the
following purposes only:
a. To pay the Reinsurers' share or to reimburse the Reassured
for that share of any liability for loss or allocated loss expense
reinsured by this Contract;
b. To refund to the Reinsurers any balance by which the amount
of the Letter of Credit exceeds the Reinsurers' proportion of any
liability for loss or allocated loss expense reinsured by this
Contract.
c. In the event that one or more of the Reinsurers participating
in the Letter of Credit gives timely notice of cancellation or
non-renewal of their participation in the Letter of Credit and
provided that the obligations secured by the Letter of Credit remain
unliquidated and undischarged at the time of receipt by the
Reassured of such notice, to create a cash deposit account, separate
from its own assets, in an amount equal to the participation of the
cancelling or non-renewing Reinsurer(s) in the Letter of Credit.
That cash deposit account may then be used as in sub-paragraphs a
and b above. It is understood and agreed that this procedure may
only be implemented before the expiry of the notice period in
respect of cancellation or non-renewal and that if it is
implemented, the Reassured will ensure that a rate of interest is
obtained for the Reinsurers on such a deposit account that is at
least equal to the rate which would be paid by Citibank N.A. in New
York, and further that the Reassured will account to the Reinsurers
on an annual basis for all interest accruing on the cash deposit
account for the benefit of the Reinsurers.
The issuing bank shall have no responsibility whatsoever in connection with the
propriety of drawings made by the Reassured on the Letters of Credit issued
under this Contract or in connection with the disposition of any funds so
withdrawn, except to ensure that drawings are made only upon the order of
properly authorised representatives of the Reassured.
All Letters of Credit procured for the Reassured under this Contract shall be
adjusted at annual intervals, or more frequently as agreed (but never more
frequently than quarterly), to reflect the current balance of the Reinsurers'
proportion of the Reassured's known outstanding loss and allocated loss expense
reserves and the Reassured shall produce a statement for this purpose detailed
in the same way as the original statement on the basis of which such Letters of
Credit were first issued. If the statement shows that the Reinsurers'
proportion of such losses and allocated expenses exceeds the current amount of
the Letters of Credit, the Reinsurers shall, within thirty days alter receipt
of the statement secure the amendment of the Letters of Credit increasing their
amount to the amount of the current balance of these items. If, however, the
statement shows that the Reinsurers' proportion of the current balance of those
items is less than the amount of the Letters of Credit the Reassured shall,
within thirty days of receipt of a written request from the Reinsurers to do
so, facilitate the release of the excessive security by authorising the
amendment of the Letters of Credit so as to reduce their amount to the current
balance required.
Under no circumstances shall any excessive security so determined be applied
towards securing the Reassured reserves for losses or loss expenses Incurred
But Not Reported.
All expenses incurred in the establishment or maintenance of such Letters of
Credit shall be for the account of the Reinsurers.
ARTICLE 17
TAX PROVISIONS
<PAGE> 12
The Reassured shall be liable for all fazes (except Federal Excise Tax) levied
on premiums payable to the Reinsurers hereunder. Federal Excise Tax applies
only to those Reinsurers, excepting Underwriters at Lloyd's, London and other
Reinsurers exempt from the Federal Excise Tax, who are domiciled outside the
United States of America.
To the extent that such premium is subject to Federal Excise Tax, the
Reinsurers hereby agree to allow as a deduction from the premium, for the
purpose of paying Federal Excise Tax, 1% of the premium payable hereon.
In the event of any return premium becoming due hereunder the Reinsurers will
deduct 1% from the amount of the return, and the Reassured or their agents
shall take steps to recover the tax from the Government of the United States of
America.
Notwithstanding the above, any changes in the Federal Excise Tax rate or the
exemption status of Reinsurers shall be automatically applicable to this
Contract.
In consideration of the terms under which this Contract is issued, the
Reassured undertake not to claim any deduction in respect of premium payable
hereon when making tax returns, other than Income or Profits tax returns, to
any fiscal authority of the United States of America or any State or Territory
thereof.
ARTICLE 18
DELAYS. ERRORS OR OMISSIONS
No inadvertent delay, error or omission shall be held to relieve either party
hereto of any liability which would have attached to them under this Contract
if such delay, error or omission had not been made, provided that rectification
is made immediately upon discovery.
INSOLVENCY OF THE REASSURED
Amounts due to the Reassured under this Contract shall be payable by the
Reinsurers on the basis of the liability of the Reassured under the original
policies reinsured hereunder without diminution because of the insolvency of
the Reassured.
In the event of the insolvency of the Reassured, the Liquidator or Receiver or
Statutory Successor of the Reassured shall give written notice to the
Reinsurers of the pendency of any claim against the insolvent Reassured on the
original policies reinsured hereunder within a reasonable time after such claim
is filed in the insolvency proceedings. During the pendency of such claim the
Reinsurers may investigate such claim and intervene, at their own expense, in
the proceedings where such claim is to be adjudicated and interpose any defense
or defenses which they may deem available to the Reassured or its Liquidator or
Receiver or Statutory Successor. The expense thus incurred by the Reinsurers
shall be chargeable, subject to court approval, against the insolvent Reassured
as part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Reassured solely as a result of the defence
so undertaken by the Reinsurers.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to investigate the claim and/or to interpose defence to such
claim, the expense shall be apportioned in accordance with the terms of the
above paragraph as though such expense had been incurred by the Reassured.
Should the Reassured go into liquidation or should a Receiver be appointed, the
Reinsurers shall be entitled to deduct from any sums which may be or may become
due to the Reassured under this Contract any sums which are due to the
Reinsurers from the Reassured under this Contract and which are expressed
herein to be payable at a fixed or stated date, as well as any other sums due
to the Reinsurers which are permitted to be offset under applicable law.
<PAGE> 13
In the event of the insolvency of the Reassured, the amounts due to the
Reassured under this Contract shall be payable by the Reinsurers directly to
the Reassured or to its Liquidator, Receiver or Statutory Successor.
ARTICLE 20
AMENDMENTS AND ALTERATIONS
The terms herein contained comprise the whole Contract between the Reassured
and the Reinsurers and may only be changed in writing, signed by or on behalf
of both parties.
ARTICLE 21
ARBITRATION
As a condition precedent to any right of action hereunder, all disputes or
differences arising out of or connected with this Contract (whether or not
arising before or after cancellation) including interpretation or
implementation of its terms, shall be referred to arbitration, in the City in
which the Reassured's principal office is located.
The party which desires to refer a matter to Arbitration ("the Claimant") shall
so notify the other party ("the Respondent") in writing and at the time of so
doing shall request the Respondent to agree as sole Arbitrator one of a list of
three individuals whom the Claimant shall name. The Respondent shall, within 30
days of receipt of the said notice, notify the Claimant either (a) that it
agrees one of those three individuals as sole Arbitrator, thus completing the
constitution of the Arbitral Tribunal, or (b) that it nominates another person
as its own Arbitrator.
In the event that the Respondent nominates its own Arbitrator, the Claimant
shall itself nominate its own Arbitrator within 30 days of receipt by it of the
Respondent's notice. The two Arbitrators so nominated shall, within 30 days of
the appointment of the second of them, themselves appoint a third Arbitrator to
complete the constitution of the Arbitral Tribunal.
Should the Respondent or the two chosen Arbitrators fail to make the
appointment required of them, then on application of the Claimant, the American
Arbitration Association will appoint the third arbitrator, and such appointment
will be made in accordance with the qualifications set forth in this Article
without regard to any of the American Arbitration Association's commercial
arbitration rules, including its rules concerning the qualifications and/or
nationality of arbitrators.
All Arbitrators shall be active or former disinterested officials of Insurance
or Reinsurance Companies or Lloyd's Underwriters who have experience of the
class of business which is the subject matter of this Contract.
The Arbitral Tribunal shall interpret this Contract as if it were an honourable
engagement and not as merely a legal obligation; it is relieved of all judicial
formalities and may abstain from following the strict rules of law, and shall
make its award with a view to effecting the general purpose of this Contract in
a reasonable manner with due regard to the custom and usage of the insurance
and reinsurance business.
The Arbitral Tribunal shall have full discretion to make such orders as it
thinks fit in connection with all procedural matters in the Arbitration,
including but not limited to the conduct of the reference by written or oral
submissions, the production of documents, the examination of witnesses, and the
imposition of time limits for the taking of necessary procedural steps. The
Arbitral Tribunal shall also have full discretion to make such orders as it
thinks fit with regard to the payment of the costs of the Arbitration including
attorneys' costs and fees. Punitive damages shall not be awarded, however the
Arbitral Tribunal may, at its discretion, award such other costs and expenses
as it deems appropriate, including but not limited to attorneys' fees, to the
extent permitted by law.
<PAGE> 14
If more than one Reinsurer is involved in the same dispute, all such Reinsurers
shall constitute and act as one party for purposes of this clause, and
communications shall be made by the Reassured to each of the Reinsurers
constituting the one party, provided that nothing therein shall impair the
rights of such Reinsurers to assert several, rather than joint, defenses or
claims, nor be construed as changing the liability of the Reinsurers under the
terms of this Contract from several to joint.
Any Award or order of the Arbitral Tribunal or a majority thereof shall be
binding on the parties and there shall be no right of appeal therefrom. For the
purpose of enforcement of any Final Award, such Final Award may be made a Rule
of any Court of competent jurisdiction.
ARTICLE 22
SERVICE OF SUIT (NMA 1998)
This Article applies only to those Reinsurers signatory hereto who are
domiciled outside the United States of America or, should the Reassured be
authorised to do business in the State of New York, those Reinsurers who are
unauthorised in New York as respects suits instituted in New York.
It is agreed that in the event of the failure of the Reinsurers hereon to pay
any amount claimed to be due hereunder, the Reinsurers hereon, at the request
of the Reassured, will submit to the jurisdiction of a Court of competent
jurisdiction within the United States. Nothing in this Article constitutes or
should be understood to constitute a waiver of the Reinsurers' rights to
commence an action in any Court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another Court as permitted by the laws of the United States or of any
State in the United States.
It is further agreed that service of process in such suit may be made upon
Mendes and Mount, 750 Seventh Avenue, New York, N.Y. 10019-6829, and that in
any suit instituted against any one of them upon this Contract, the Reinsurers
will abide by the final decision of such Court or of any Appellate Court in the
event of any appeal.
The above-named are authorised and directed to accept service of process on
behalf of the Reinsurers in any such suit and/or upon the request of the
Reassured to give a written undertaking to the Reassured that they will enter a
general appearance upon the Reinsurers' behalf in the event such a suit shall
be instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefore, the Reinsurers hereon hereby
designate the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reassured or any beneficiary hereunder arising out of this Contract of
Reinsurance, and hereby designate the above-named as the person to whom the
said officer is authorised to mail such process or a true copy thereof.
ARTICLE 23
INTERMEDIARY
Carvill America Inc. of 180 North Stetson Avenue, Suite 5100, Chicago,
Illinois, U.S.A. is hereby recognised as the Intermediary negotiating this
Contract. All communications (including but not limited to notices, statements,
premiums, return premiums, commissions, taxes, losses, loss adjustment
expenses, salvages and loss settlements) relating thereto shall be transmitted
to the Reassured or the Reinsurers through Carvill America. Payments by the
Reassured to the Intermediary shall be deemed to constitute payment to the
Reinsurers. Payments by the Reinsurers to the Intemmediary shall be deemed to
constitute payment to the Reassured only to the extent that such payments are
actually received by the Reassured.
<PAGE> 15
ARTICLE 24
PARTICIPATION
This Contract obligates each of the Reinsurers for their proportion of the
interests and liabilities set forth under this Contract, such proportions being
shown in the attached Schedules.
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for any
reason does not satisfy all or part of its obligations. - Ref: LSW 1001
(Reinsurance).
IN WITNESS WHEREOF the parties hereto have, by their duly authorised
representative, executed this Contract as follows:
Signed in Springfield, Missouri, this day of 199
For and on behalf of the Reassured:
INTERMED INSURANCE COMPANY
And for the Reinsurers by means of and in accordance with the attached
schedules which shall be considered to form an integral part of this Contract.
<PAGE> 16
SCHEDULE B
Attaching to and forming part of the
MEDICAL PRACTITIONERS' LIABILITY
PRIMARY EXCESS OF LOSS REINSURANCE CONTRACT
effected between
INTERMED INSURANCE COMPANY
of Springfield, Missouri
(hereinafter referred to as the "Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as the "Reinsurers")
Signed in London, England this day of 199
The London Insurance and Reinsurance Market Association for and on behalf of
the following Reinsurers:
7.08% SPHERE DRAKE (UNDERWRITING) LIMITED
For and on behalf of:
SPHERE DRAKE INSURANCE PLC
Ref: 96MWDCA14284
LIRMA Ref: S0289
NOW KNOW YE that We, the Reinsurers each of us to the extent of the
amount/percentage underwritten by us respectively, do hereby assume the burden
of the Reinsurance, and promise and bind ourselves, each for itself only and
not one for the other and in respect only of the due proportion of each of us.
to the Reinsured, their Executors, Administrators and Assigns, for the true
performance and fulfilment of this Contract.
IN WITNESS WHEREOF the Director of Policy Signing Services of LONDON INSURANCE
AND REINSURANCE MARKET ASSOCIATION ("LIRMA") has subscribed his name on behalf
of each of the LIRMA Companies and (where the Companies Collective Signing
Agreement ("CCSA") is being implemented) on behalf of the Leading CCSA Company
which is a LIRMA Member and authorised to sign this Contract (either itself or
by delegation to LIRMA) on behalf of all the other CCSA Companies.
Signed:
-------------------------------------
Director of Policy Signing Services
<PAGE> 17
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for thc purpose of covering Nuclear Energy Risks or as a
direct or indirect reinsurer of any such member, subscriber or
association.
(2) Without in any way restricting thc operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this
reinsurance all thc original policies of thc Reassured (new, renewal and
replacement) of the classes specified in Clause II of this paragraph (2)
from the time specified in Clause III in this paragraph (2) shall bc
deemed to include the following provision (specified as thc Limited
Exclusion Provision):
Limited Exclusion Provision: *
I. It is agreed that the policy docs not apply under any
liability coverage, (injury, sickness, disease, death or
destruction, bodily injury, or property damage) with respect to
which an insured under the policy is also an insured under a nuclear
energy liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or Nuclear
Insurance Association of Canada, or would bc an insured under any
such policy but for its termination upon exhaustion of its limit of
liability.
II. Family Automobile Policies (liability only), Special
Automobile Policies (private passenger automobiles, liability only),
Farmers Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or
policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated
above, such as the Comprehensive Dwelling Policy and the applicable
types of Homeowners Policies.
III. The inception dates and thereafter of all original policies
as described in II above, whether new, renewal or replacement, being
policies which either (a) become effective on or after 1st
May, 1960, or (b) become effective before that date and contain the
Limited Exclusion Provision set out above; provided
this paragraph (2) shall not be applicable to Family Automobile
Policies. Special Automobile Policies, or policies or combination
policies of a similar nature. issued by the Reassured on New York
risks. until 90 days following approval of the Limited Exclusion
Provision by the Governmental Authority having jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of paragraph
(2) and without in any way restricting the operation of paragraph (1) of
this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal
and replacement) affording the following coverages: Owners. Landlords and
Tenants Liability. Contractual Liability, Elevator Liability. Owners or
Contractors (including railroad) Protective Liability). Manufacturers and
Contractors Liability, Product Liability, Professional and Malpractice
Liability. Storekeepers Liability. Garage Liability. Automobile Liability
(including Massachusetts Motor Vehicle or Garage Liability) shall be
deemed to include. with respect to such coverages. from the time specified
in Clause V of this paragraph (3), the following provision (specified as
the Broad Exclusion Provision):
<PAGE> 18
Broad Exclusion Provision
It is agreed that the Policy does not apply:
I. Under any Liability Coverage, to (injury, sickness, disease,
death or destruction, bodily injury or property damage)
(a) with respect to which an insured under the
policy is also an insured under a nuclear energy liability
policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or
Nuclear Insurance Association of Canada, or would be an
insured under any such policy but for its termination upon
exhaustion of its limit of liability; or
(b) resulting from the hazardous properties of
nuclear material and with respect to which (1) any person or
organization is required to maintain financial protection
pursuant to the Atomic Energy Act of l954, or any law
amendatory thereof, or (2) the insured is, or had this policy
not been issued would be, entitled to indemnity from the
United States of America, or any agency thereof, under any
agreement entered into by the United Stares of America, or
any agency thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments (immediate medical or
Provision relating to surgical relief, to expenses incurred
with respect (first aid,
to (bodily injury, sickness, disease or death
bodily injury resulting from thc hazardous properties
of nuclear material and arising out of thc operation of a
nuclear facility by any person or organization.
III. (injury, sickness, disease, death or
Under any Liability Coverage, to destruction
(bodily injury or property damage
resulting from thc hazardous properties of nuclear material, if
(a) the nuclear material ( I ) is at any nuclear
facility owned by, or operated by or on behalf of, an insured
or (2) has been discharged or dispersed therefrom:
(b) the nuclear material is contained in spent fuel
or waste at any time possessed, handled, used, processed,
stored. transported or disposed of by or on behallf of an
insured: or
(c) the (injury, sickness, disease, death or destruction
(bodily injury or property damage
arises out of the furnishing by an insured of services, materials,
parts or equipment in connection with the planning, construction,
maintenance, operation or use of any nuclear facility, but if such
facility is located within the United States of America. its
territories, or possessions or Canada, this exclusion (c) applies
only
to (injury to or destruction of property at such
Nuclear facility.
(property damage to such nuclear facility and any property
thereat
IV. As used in this endorsement:
"hazardous properties "include, radioactive, toxic or explosive
properties; "nuclear material" means source material special
nuclear material or by-product material; "source material", "special
nuclear material", and "by-product material" have the meanings given
them in the Atomic Energy Act of 1954 or in any law amendatory
thereof "spent fuel" means any fuel element or fuel component solid
or liquid, which has been used or exposed to radiation in a nuclear
reactor: "waste" means any waste material (1) containing by-product
material other than tailings or wastes produced by the extraction or
<PAGE> 19
concentration of uranium or thorium from any ore processed primarily
for its source material content, and (2) resulting from the
operation by any person or organization of any nuclear facility
included under the first two paragraphs of the definition at nuclear
facility; "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating
the isotopes of uranium or plutonium (2) processing or
utilizing spent fuel, or (3) handling, processing or packaging
waste,
(c) any equipment or device designed or used for the processing,
fabricating or alloying of special nuclear material if at any
time the total amount of such material in the custody of the
insured at the premises where such equipment or device is
located consists of or contains more than 25 grams of plutonium
or uranium 233 or any combination thereof, or more than 250
grams of uranium 235.
(d) Any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste.
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations: "nuclear reactor" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to contain
a critical mass of fissionable material;
(With respect to injury to or destruction of property, the word
"injury" or
("destruction"
("property damage" includes all forms of radioactive contamination
of property.
(includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether new,
renewal or replacement, being policies which become effective on or
after 1st May, 1960, provided this paragraph (3) shall not be
applicable to
(i) Garage and Automobile Policies issued by the Reassured
on New York risks, or
(ii) Statutory liability insurance required under Chapter
90 General Laws of Massachusetts,
Until 90 days following approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that paragraphs (2) and
(3) above are not applicable to original liability policies of the
Reassured in Canada and that with respect to such policies this
Clause shall be deemed to include the Nuclear Energy Liability
Exclusion Provisions, adopted by the Canadian Underwriters'
Association or the Independent Insurance Conference of Canada.
*NOTE: The words printed in italics in the Limited Exclusion
Provision and in the Broad Exclusion Provision shall apply
only in relation to original liability policies which include
a Limited Exclusion Provision or a Broad Exclusion Provision
containing those words.
<PAGE> 1
Exhibit 10.32
96/1146/RM
ADDENDUM NO. 1
attaching to and forming part of the
MEDICAL PRACTITIONERS' LIABILITY
COMBINED REINSURANCE CONTRACT
(formerly the Primary Excess Of Loss Reinsurance Contract)
made between
INTERMED INSURANCE COMPANY
of 1903 E.Battlefield, Springfield, Missouri, USA
(hereinafter referred to as "the Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as "the Reinsurers")
With effect from 1st October, 1996, the following amendments are made to this
Contract:
1. PREAMBLE is amended to read as follows:
PREAMBLE
This Contract is made and entered into between Intermed Insurance Company
of 1903 E.Battlefield, Springfield, Missouri, USA (NAIC Code: 33367)
(hereinafter refered to as "the Reassured") and the Reinsurers signatory
hereto (hereinafter referred to as "the Reinsurers"), on the following
terms and conditions:
This COMBINED REINSURANCE CONTRACT (hereinafter referred to as ~this
Contract") comprises two Sections as follows:
SECTION (1): PRIMARY EXCESS OF LOSS REINSURANCE
and
SECTION (2): FIRST EXCESS CESSION REINSURANCE
Unless otherwise specified, the ARTICLES of this Contract shall apply to
both Sections, as mentioned above.
2. ARTICLE 2, COVER LIM1T AND RETENTION is amended to read as follows:
ARTICLE 2
COVER. LIMIT AND RETENTION
SECTION (1)
SECTION (1)(A) below applies to each and every loss, each policy and/or
insured.
SECTION (1)(B) below applies to the sum of the Reassured's SECTION (1)(A)
retentions in respect of two or more policies and/or insureds involved in
the same loss occurrence.
The Reinsurers shall accordingly be liable hereunder -
<PAGE> 2
SECTION (1)(A):
Whenever the Reassured has paid or advanced or agreed to pay or advance,
or become liable to pay on account of a loss under any policy, an amount
in excess of US$400,000 Ultimate Net Loss each and every loss, each
policy and/or insured, the amount recoverable from the Reinsurers
hereunder shall be the amount in excess of US$400,000 Ultimate Net Loss
each and every loss, each policy and/or insured, but such amount
recoverable shall not exceed up to a further US$1,600,000 Ultimate Net
Loss each and every loss, each policy and/or insured.
and/or
SECTION (1)(B):
Whenever two or more policies and/or insureds are involved in the same
loss occurrence the amount recoverable from the Reinsurers hereunder
shall be the amount in excess of US$400,000 Ultimate Net Loss each and
every loss occurrence, but such amount recoverable shall not exceed a
further US$1,600,000 Ultimate Net Loss each and every loss occurrence.
Recoveries by the Reassured under SECTION (1)(A) above shall inure to the
benefit of the Reinsurers under SECTION (1)(B).
It is agreed that the maximum overall recovery under SECTION (1)(A) and
(1)(B) of this Contract combined shall be 300% of the maximum premium
payable hereunder for the Contract Period, as determined in ARTICLE 10,
PREMIUM.
It is warranted that the Maximum Original Policy Limit for the purposes
of SECTION (1) of this Contract is US$1,000,000, or so deemed, except as
respects awards in excess of the Reassured's original policy limits
and/or awards arising out of any extra-contractual obligation, both as
more fully defined in ARTICLES 8 and 9 of this Contract, where coverage
hereon applies to original policies issued for limits up to a maximum of
US$2,000,000.
It is agreed that although the original policies are issued by the
Reassured on an occurrence, claims made and claims paid basis, recoveries
hereunder shall be made on a claims made basis only.
It is further agreed that although original policies may contain
aggregate coverage, no aggregate coverage shall be provided by SECTION
(1) of this Contract.
SECTION (2)
SECTION (2) of this Contract applies to excess policies coming within the
scope of this Contract which are issued by the Reassured for limits in
excess of US$1,000,000 each and every loss, each policy and/or insured
and/or US$3,000,000 in the aggregate each policy and/or insured where
applicable.
The Reassured shall retain the said underlying limits for its own account
but, without projudiee to the above, shall be at liberty to protect that
retention by way of Excess of Loss Reinsurance as detailed in SECTION (1)
of this contract for its own account and benefit.
With respect to each such cession, no claim shall be made under SECTION
(2) of this Contract unless and until the Reassured has paid or advanced,
or agreed to pay or advance, an amount in excess of the said underlying
limits.
96/1146/RM
The Reinsurers shall then be liable for the amount in excess of the said
underlying limits as follows:
<PAGE> 3
(A) up to the difference between US$2,000,000 each and every
loss, each policy and/or insured and/or US$4,000,000 in the
aggregate each policy and/or insured where applicable and the
aforementioned underlying limits of US$1,000,000 each and every
loss, each policy and/or insured and/or US$3,000,000 in the
aggregate each policy and/or insured where applicable, or
(B) up to the difference between US$2,000,000 each and every
loss, each policy and/or insured and/or US$3,000,000 in the
aggregate each policy and/or insured where applicable and the
aforementioned underlying limits of US$1,000,000 each and every
loss, each policy and/or insured and/or USS$3,000,000 in the
aggregate each policy and/or insured where applicable.
Reinsurers shall be further liable for their proportionate share of loss
adjustment expenses as provided for in ARTICLE 12, LOSS REPORTS AND
PAYMENTS, SECTION (2).
In addition to the retention and limits as detailed in SECTIONS (2)(A)
and (2)(B) above, should the Reassured incur additional liability from a
cession made to SECTION (2) of this Contract as the result of an award in
excess of its original policy limit or from any extracontractual
obligation, both as more fully defined herein, the Reinsurers shall
accept as a separate limit hereunder the additional liability incurred,
subject however to the limits available under the underlying Primary
Excess of Loss having first been exhausted and the total amount
recoverable under SECTION (2) of this Contract in respect of any award(s)
in excess of original policy limits and/or extra-contractual obligations
being limited to an amount not exceeding one further cession limit in
all.
The Reassured shall be the sole judge of what constitutes "each excess
policy" or "in the aggregate" as used in SECTION (2) of this Contract.
The amount of the Reinsurers' liability hereunder in respect of any loss
or losses shell not be increased by reason of the inability of the
Reassured to collect from any other Reinsurers, whether specific or
general, any amounts which may have become due from them, whether such
inability arises from the insolvency of such other Reinsurers or
otherwise.
It is agreed that the maximum overall recovery under SECTION (2) of this
Contract shall be limited to US$5,000,000 (exclusive of loss expenses)
for the contract period hereon.
SECTIONS (1) AND (2)
Recoveries under SECTION (1) of this Contract shell be disregarded when
calculating the amount of any loss recoverable under SECTION (2).
However, the coverage provided under SECTION (1) for all losses,
including specific coverage for awards in excess of original policy
limits and/or extracontractual obligations, shall be fully exhausted
before any amount of loss derived from specific coverage for losses in
excess of original policy limits and/or extracontractual obligations can
be recoverable under SECTION (2).
This Contract is a contract of reinsurance separate and distinct from the
original policies written by the Reassured.
3. Items C, D and E of ARTICLE 3, DEFINITIONS are amended to read as follows:
C. For the purposes of this Contract the "claim made" date for any loss
recoverable hereunder shall be deemed to be date of the receipt by the
Reassured of acceptable notice from its original insured or a
representative of its original insured that a claim is being or may be
made against that original insured. The date of such receipt shall
determine the date of loss for the purposes of this Contract.
96/1146/RM
Furthermore, as regards extended reporting endorsements, the date a claim
is made shall determine the date of loss for the purpose of this Contract
<PAGE> 4
With regard to SECTION (1) of this Contract only, in the event that two
or more policies and/or insureds are involved in the same loss occurrence
and there is a difference in the dates claims are made during this
Contract Period, or subsequent renewal thereof, the date on which the
first claim is made shall establish the date of loss for all related
claims arising out of the same loss occurrence. Notwithstanding the
foregoing, in any loss occurrence, should any claim made date(s) fall
prior to 1st October 1993, it is understood and agreed that those specific
loss(es) shall be disregarded for the purposes of determining the
Reassured's Ultimate Net Loss hereunder.
D. The term "Annual Period" as used in respect of SECTION (1) of this
Contract shall mean the period from 1st October, 1996 to 30th September,
1997, both dates inclusive, and each successive 12 month period thereof
within this Contract Period.
E. The term "Contract Period" as used in respect of SECTION (1) of this
Contract shall mean the period commencing at October 1st, 1996 and ending
at September 30th, 1999 both dates inclusive, or any earlier date of
termination as provided for in ARTICLE 11, PERIOD, SECTION (1).
4. The following is added to ARTICLE 5, EXCLUSIONS:
4 Policies written in "The Valley," Texas (applicable to SECTION (2)
only).
5. ARTICLE 6, NET RETAINED LINES, ARTICLE 7, ULTIMATE NET LOSS and ARTICLE
15, COMMUTATION are deemed to apply to SECTION (1) of this contract only.
6. ARTICLE 8, EXCESS OF ORIGINAL POLICY LIMITS, is amended to read as
follows:
ARTICLE 8
EXCESS OF ORIGINAL POLICY LIMITS
SECTION (1)
As provided for in ARTICLE 7. ULTIMATE NET LOSS, this Contract shall
protect the Reassured, within the limits of SECTION (1), in respect of any
additional liability incurred by the Reassured as the result of an award
in excess of their original policy limit as more fully defined below. The
Reinsurers agree that the additional liability so incurred, plus the
Reassured's contractual loss, shall be considered as one combined loss for
the purposes of the Reassured's retention and of the recovery under
SECTION (1) subject always, however, to the amount recoverable hereunder
not exceeding the limit of recovery under SECTION (1) as provided in
ARTICLE 2. COVER LIMIT AND RETENTION.
SECTION (2)
In addition to the coverage afforded under ARTICLE 4, COVER. LIMIT AND
RETENTION, should the Reassured incur additional liability as the result
of an award in excess of its original policy limit as more fully defined
below, and provided the Reassured shall have first sustained a contractual
loss recoverable under SECTION (2) of this Contract, the Reinsurers shall
accept as an additional separate limit hereunder their proportion of the
additional liability incurred, subject always, however, to the additional
amount recoverable hereunder not exceeding the amount of the original
cession to this Contract for each and every original policy.
<PAGE> 5
96/l146/RM
SECTION (1) AND SECTION (2)
Awards in excess of the Reassured's original policy limit are defined as
contractual losses which the Reassured would have been contractually
liable to pay, had it not been for the limit of the original policy and
where such losses in excess of the original policy limit have been
incurred because of failure by the Reassured to settle within the
original 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 their insured or in the
preparation or prosecution of an appeal consequent upon such action.
The claims made date for any such award in excess of the original policy
limit shall be deemed, in all circumstances, to be the same as the claims
made date of the original claim to which such award attaches.
However, this Article shall not apply where such awards in excess of
original policy limit have been incurred due to the fraud of a member of
the Board of Directors or a corporate officer of the Reassured acting
individually or collectively or in collusion with any individual or
corporation or any other organization or party involved in the
presentation, defense or settlement of any claim.
7. ARTICLE 9, EXTRA-CONTRACTUAL OBLIGATIONS, is amended to read as follows:
ARTICLE 9
EXTRA-CONTRACTUAL OBLIGATIONS
SECTION (1)
As provided for in ARTICLE 7, ULTIMATE NET LOSS, this Contract shall
protect the Reassured within the limits of SECTION (1) in respect of any
liability incurred by the Reassured as the result of an award in respect
of any extra-contractual obligation, as more fully defined below. The
Reinsurers agree that the liability so incurred, plus the Reassured's
contractual loss if any, shall be considered as one combined loss for the
purposes of the Reassured's retention and of the recovery under SECTION
(1), subject always, however, to the amount recoverable hereunder not
exceeding the limit of recovery under SECTION (1) as provided in ARTICLE
2. COVER LIMIT AND RETENTION.
SECTION (2)
In addition to the coverage afforded under ARTICLE 2, COVER. LIMIT AND
RETENTION, should the Reassured incur liability as the result of an award
in respect of any extra-contractual obligation, as more fully defined
below, and provided the Reassured shall have effected a cession hereunder
in respect of the policy on which such claim arose, the Reinsurers agree
that the liability so incurred shall be considered as a separate loss for
the purposes of recovery under this Contract. The Reinsurers shall accept
up to one additional separate cession limit hereunder for such
extracontractual obligation.
<PAGE> 6
96/l146/RM
SECTION (1) AND SECTION (2)
"Extra-contractual obligations" are defined as those liabilities of the
Reassured not covered under any other provision of this Contract and
which arise from the handling of any claim on business covered hereunder,
such liabilities arising because of, but not limited to, the following:
failure by the Reassured 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 their insured or in the preparation or prosecution of an
appeal consequent upon such action.
The claims made date for any such extra-contractual obligation shall be
deemed, in all circumstances, to be the same as the claims made date of
the original claim to which such extracontractual obligation attaches.
However, this Article shall not apply where such extra-contractual
obligations have been incurred due to the fraud of a member of the Board
of Directors or a corporate officer of the Reassured acting individually
or collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or
settlement of any claim.
8. ARTICLE 10, PREMIUM. is amended to read as follows:
ARTICLE 10
PREMIUM
SECTION (1)
A. The Reassured shall pay to the Reinsurers for the Annual Periad
commencing 1st October, 1996, a Provisional Premium of US$1,000,000 in
four equal instalments at 1st October 1st, 1996, 1st January, 1997, 1st
April, 1997 and 1st July, 1997.
The Provisional Premium payable for subsequent Annual Periods shall be as
mutually agreed.
B. As soon as practicable after the close of each Annual Period, the
Reassured shall render a statement of its cumulative Gross Net Earned
Premium Income (as defined herein) and the Reassured shall pay or be paid
by the Reinsurers as follows:
1) if the Contract is in effect for one year, the difference
between the annual Provisional Premium and the Premium determined by
applying a rate of 10.00% to the Gross Net Earned Premium Income. 12
months after the expiry of the Contract Period a further premium
adjustment shall be made by applying a rate of 110.00% to the
cumulative Incurred Loss Cost and Expenses recoverable hereunder, to
which shall be added a minimum rate of 4.50% of the Gross Net Earned
Premium Income. In no event however shall the minimum rate plus
110.00% of the cumulative Incurred Loss Cost and Expenses for the
Contract Period exceed a maximum rate of 22.00%;
<PAGE> 7
96/1146/RM
2) if the Contract is in effect for two years, the difference between the
Provisional Premium for the two years and the premium determined by
applying a rate of 10.00% to the cumulative Gross Net Earned Premium
Income. 12 months alter the expiry of the Contract Period a further
premium adjustment shall be made by applying a rate of 110.00% to the
cumulative Incurred Loss Cost and Expenses recoverable hereunder, to which
sha11 be added a minimum rate of 4.50% of the cumulative Gross Net Earned
Premium Income. In no event however shell the minimum rate plus 110.00% of
the cumulative Incurred Loss Cost and Expenses for the Contract Period
exceed a maximum rate of 21.50%;
3) if the Contract is in effect for three years, the difference between the
Provisional Premium for the three years and the premium determined by
applying a rate of 10.00% to the cumulative Gross Net Earned Premium
Income. 12 months alter the expiry of the Contract Period a further
premium adjustment shall be made by applying a rate of 110.00% to the
cumulative Incurred Loss Cost and Expenses recoverable hereunder, to which
shall be added a minimum rate of 3.875% of the cumulative Gross Net Earned
Premium Income. In no event however shall the minimum rate plus 110.00% of
the cumulative Incurred Loss Cost and Expenses for the Contract Period
exceed a maximum rate of 20.00%.
C. In the event of cancellation and non-renewal of this Contract, as defined
in ARTICLE 11, PERIOD, the maximum rate for the last Annual Period hereon
shall be automatically increased by a factor of 1.65, with the resulting
Maximum premium for the Contract Period hereon to be calculated
accordingly, as determined above.
Further, in the event of cancellation and non-renewal of this Contract,
any unearned premium applicable to policies in force at the effective date
of cancellation and non-renewal, including any extended reporting
endorsements attached thereto, shall be applied to the last Annual Period
hereof, and the unearned premium shell be added to the Gross Net Earned
Premium Income accruing to the last Annual Period of this Contract for the
purposes of the rating formula
D. The premium determined for the Contract Period shall be re-calculated
annually thereafter until all losses for the Contract Period are either
settled, or commuted in accordance with ARTICLE 15, COMMUTATION.
E. The term "Gross Net Earned Premium Income. shall, for all purposes of
this Contract, be understood to mean the full gross earned amount of the
premiums charged by the Reassured to its original insureds, for original
policy limits up to US$1,000,000 or so deemed, less cancellations and
return premiums and less premiums paid for reinsurances which inure to the
benefit of this Contract, but including earned premium income for extended
reporting endorsements.
F. For the purpose of this article, the term "cumulative Incurred Loss Cost
and Expenses" shall mean, on business the subject matter of this Contract,
paid and outstanding losses and loss expenses recoverable under this
Contract, and all such incurred losses shall be charged to the Annual
Period of this Contract to which the loss or losses fall for the purpose
of determining the rate applicable to the Contract Period.
G. It is agreed that in the event of commutation in accordance with ARTICLE
15, COMMUTATION, the difference between the premium paid at that time and
the premium adjustment due in consequence of such commutation shall be
immediately payable.
<PAGE> 8
96/1146/RM
SECTION (2)
In consideration of the liabilities undertaken by the Reinsurers in
accordance with the terms of this Contract, the Reassured shall pay to the
Reinsurers the Original Gross Net Written Premium for limits attaching to
this Contract in respect of all policies ceded hereunder.
The term "Original Gross Net Written Premium for limits attaching to this
Contract" shall, for all purposes of this Contract, be understood to mean
the full gross amount of the premium charged by the Reassured to its
original insureds or allocated by the Reassured for limits in excess of
either
(A) up to the difference between US$2,000,000 each and every loss, each
policy and/or insured and/or US$4,000,000 in the aggregate each policy
and/or insured where applicable and the underlying limits of US$1,000,000
each and every loss, each policy and/or insured and/or US$3,000,000 in the
aggregate each policy and/or insured where applicable, or
(B) up to the difference between US$2,000,000 each and every loss, each
policy and/or insured and/or US$3,000,000 in the aggregate each policy
and/or insured where applicable and the underlying limits of US$1,000,000
each and every loss, each policy and/or insured and/or US$3,000,000 in the
aggregate each policy and insured where applicable,
less cancellations and return premiums and less an allowance in respect
of original commission of 15%.
Accounts between the parties shall be rendered and settled by the
Reassured on a quarterly basis within 60 days following the end of each
quarter. Any balance due from the Reinsurers shall be settled by them as
soon as possible after the accounts have been rendered to them.
Such accounts shall detail the transactions during the quarter as
follows:
1. Original Gross Net Written Premiums ceded to the Reinsurers.
2. Original commission allowed by the Reinsurers.
9. ARTICLE 11, PERIOD, is amended to read as follows:
ARTICLE 11
PERIOD
SECTION (1)
This Contract takes effect on 1st October, 1996 and applies to claims
first made on or after that date as respects Medical Practitioners'
Liability (including Dentists' Liability), and all other ancillary
coverages as in the original policies.
This Contract shall remain in full force and effect until 30th September,
1999 but may be terminated at 30th September, 1997, or 30th September,
1998, by either party giving to the other not less than 90 days written
notice prior to anniversary date.
<PAGE> 9
96/1146/RM
In the event of the cancellation and non-renewal of this Contract, the
Reinsurers shall continue to be liable hereunder in respect of all claims
first made against the Reassured during an additional 60 months reporting
period from the effective date of cancellation and non-renewal. In
respect of the foregoing, the maximum rate for the last Annual Period
hereon shall be automatically increased by a factor of 1.65, with the
resulting Maximum premium for the Contract Period hereon to be calculated
accordingly, as detailed in ARTICLE 10, PREMIUM. The 60 months reporting
period provisions provided above shall not apply to claims first made on
new or renewal policies incepting after the effective date of
cancellation and non-renewal of this Contract. Further, in the event of
cancellation and non-renewal of this Contract, all claims first made
against the Reassured during the additional 60 months reporting period
shall be applied to the last Annual Period hereof
The 60 months reporting period provisions provided above shall not be
operative if the Reassured replaces the reinsurance coverage afforded by
this Contract, whether in part or in fall, or if the Reassured retains
the limits provided herein net and for its own account, whether in part
or in full.
If any law or regulation of the Federal, State or Local Government of any
jurisdiction in which the Reassured is doing business shall render
illegal the arrangements made herein, this Contract can be terminated
immediately in so far as it applies to such jurisdiction by the Reassured
giving notice to the Reinsurers to such effect.
SECTION (2)
This Contract takes effect on 1st October, 1996 and applies to claims
made on policies incepting or renewed on or after that date, including
extended reporting endorsements attaching to any such policies.
This contract shall remain in full force and effect unless and until
cancelled on any subsequent 1st October by either party giving to the
other not less than 90 days written prior notice.
In the event of cancellation, Reinsurers shall continue to be liable
hereunder in respect of all claims made on ceded policies, including
extended reporting endorsements attached thereto, in force as of the
effective date of cancellation until the natural expiry, termination or
first anniversary (whichever sooner) of such ceded policies or extended
reporting endorsements, but in no event for longer that twelve months,
plus odd time, except where such extended reporting endorsements are
issued for periods greater than twelve months in which case coverage
hereunder will follow such extended reporting endorsements.
If any law or regulation of the Federal, State or Local Government of any
jurisdiction in which the Reassured is doing business shall render
illegal the arrangements made herein, this Contract can be terminated
immediately in so far as it applies to such jurisdiction by the Reassured
giving notice to the Reinsurers to such effect.
<PAGE> 10
96/1146/RM
10. ARTICLE 12, LOSS REPORTS AND PAYMENTS, is amended to read as follows:
ARTICLE 12
LOSS REPORTS AND PAYMENTS
SECTIONS (1) and (2)
The Reinsurers agree to abide by all loss settlements of the Reassured,
provided such loss settlements are within the terms and conditions of the
Reassured's original policies and of this Contract, which at its sole
discretion Shall adjust, settle or compromise all losses. All such
adjustments, settlements or compromises shall be unconditionally binding
upon the Reinsurers, who shall also benefit in due proportion from any
salvages, recoveries and compromises effected or negotiated by the
Reassured.
SECTION (1)
It is a condition precedent to liability hereunder that the Reassured
shall advise the Reinsurers by quarterly bordereaux of all paid losses
hereunder, and of outstanding losses including any subsequent
developments in connection therewith which are reserved by the Reassured
at or in excess of $400,000 Ultimate Net Loss.
Such bordereaux shall be furnished by the Reassured within 60 days
following the end of each quarter. The information contained therein
shall be in brief summary form but shall be sufficient to enable the
individual losses, the nature of each claim, the claim made date and the
inception or renewal dates of the policies to which such losses relate,
to be readily identified.
The Bordereaux shall detail, for each individual loss:
1. The amounts paid by the Reassured and the amounts outstanding
in their own books for both indemnity and expenses, as at the end of
the quarter under consideration, and the Reinsurers' share thereof.
2. Indemnity and expense payments made by the Reassured during
the quarter under consideration in respect of which reimbursement by
the Reinsurers is then required.
The Reinsurers agree to pay any amount for which they may be liable under
this Contract as soon as possible after the quarterly bordereaux have
been furnished to them; but in the event of the Reassured sustaining a
loss in respect of which the Reinsurers' share amounts to or exceeds
$200,000 Ultimate Net Loss, the Reassured shall have the option of
requiring the Reinsurers to effect immediate payment outside of the
quarterly bordereaux upon submission of proof of loss.
SECTION (2)
It is a condition precedent to liability hereunder that the Reassured
shall advise the Reinsurers promptly of all losses, and of any subsequent
developments in connection therewith, which in the opinion of the
Reassured appear likely to involve the liability of the Reinsurers under
SECTION (2) of this Contract.
The Reinsurers agree to pay any amount for which they may be liable
immediately upon receipt of reasonable evidence of the amount paid or
advanced by the Reassured or scheduled to be paid or advanced by the
Reassured.
<PAGE> 11
96/1146/RM
11. ARTICLE 14, ACCESS TO RECORDS AND CLAlMS REVIEW is amended to read as
follows.
ARTICLE 14
ACCESS TO RECORDS AND CLAIMS REVIEW
SECTIONS (1) AND (2)
All documents and records in the possession of the Reassured concerning
this Contract shall be made available upon reasonable notice at the
request of the Reinsurers for inspection at the Reassured's offices by the
Reinsurers or their nominated representatives for the purposes of
obtaining information concerning this Contract or the subject matter
hereof.
For the avoidance of doubt, it is hereby expressly agreed that the rights
given to the Reinsurers by this Article shall continue in effect
notwithstanding the expiration of this Contract and shall be exercised at
the Reinsurers' own expense.
SECTION (1) ONLY
In accordance with the above provisions, Reinsurers, at their own
expense, shall be afforded the opportunity to appoint an Attorney of their
own choice to carry out, on a timely basis, an independent audit of the
Reassured's Claims information and Claims procedures and to report to the
Reinsurers the result of such review accordingly.
12. ARTICLE 16. LOSS RESERVES, is amended to read as follows:
LOSS AND UNEARNED PREMIUM RESERVES
ARTICLE 16
This Article applies only to those Reinsurers signatory hereto who do not
qualify for credit under the regulations of the State insurance
authorities or departments which have jurisdiction over the Reassured's
loss reserves and unearned premium reserves. Any references to loss
reserves in this Article shall apply to SECTION (1) and SECTION (2) but
references to unearned premium reserves shall only apply to SECTION (2).
The Reassured agree that when, for its Annual Convention Statement
purposes, it files with the authorities or departments mentioned above or
sets up in its books statutory reserves for known outstanding losses and
allocated loss expenses reinsured by this Contract or for unearned premium
in respect of business coming within the scope of this Contract, it shell
forward to the Reinsurers a clear statement of the Reinsurers' proportion
of those reserves detailing separately the amounts involved for known
outstanding losses and allocated loss expenses and for unearned premium
and also how those amounts are calculated.
The Reinsurers, promptly upon receipt of the Reassured's statement, shall
apply for and secure delivery to the Reassured of clean, irrevocable and
unconditional Letters of Credit, in amounts equal to their proportion of
the stated reserves. Under no circumstances shall any amount relating to
reserves in respect of losses or loss expenses Incurred But Not Reported
be included in the amount of the Letter of Credit.
All Letters of Credit procured pursuant to this Contract shall be issued
by a Bank which is a Member of the Federal Reserve and shall be in fall
conformity with the requirements of the authorities or departments
mentioned in the first paragraph of this Article current at the date of
the Reassured's statement. Further, they shall be "Evergreen" in that they
shall be issued for an initial period of not less than one year and shall
be automatically extended for one year from their original expiration
dates and subsequently from their extended expiration dates unless and
until, at
<PAGE> 12
least thirty days before any expiration date, the issuing bank gives
notice to the Reassured by registered mail that the issuing bank elects
not to extend the life of the Letter of Credit in question beyond its
forthcoming expiration date.
In consideration of the agreement of the Reinsurers to furnish such
Letters of Credit to the Reassured to enable it to obtain credit for the
reinsurance provided under this Contract, the Reassured hereby undertake
to hold such Letters of Credit and the proceeds of any drawings made upon
them in trust for the Reinsurers and to use and apply the proceeds of any
such drawings for the following purposes only:
a. To pay the Reinsurers' share or to reimburse the Reassured
for that share of any liability for loss or allocated loss expense
reinsured by this Contract or of any refund of unearned premium;
b. To refund to the Reinsurers any balance by which the amount
of the Letter of Credit exceeds the Reinsurers' proportion of any
liability for loss or allocated loss expense reinsured by this
Contract or of any refund of unearned premium.
c. In the event that one or more of the Reinsurers participating
in the Letter of Credit gives timely notice of cancellation or
non-renewal of their participation in the Letter of Credit and
provided that the obligations secured by the Letter of Credit remain
unliquidated and undischarged at the time of receipt by the
Reassured of such notice, to create a cash deposit account, separate
from their own assets, in an amount equal to the participation of
the canceling or non-renewing Reinsurer(s) in the Letter of Credit.
That cash deposit account may then be used as in sub-paragraphs a
and b above. It is understood and agreed that this procedure may
only be implemented before the expiry of the notice period in
respect of cancellation or non-renewal and that if it is
implemented, the Reassured will ensure that a rate of interest is
obtained for the Reinsurers on such a deposit account that is at
least equal to the rate which would be paid by Citibank N.A. in New
York, and further that the Reassured will account to the Reinsurers
on an annual basis for all interest accruing on the cash deposit
account for the benefit of the Reinsurers.
The issuing bank shall have no responsibility whatsoever in connection
with the propriety of drawings made by the Reassured on the Letters of
Credit issued under this Contract or in connection with the disposition
of any funds so withdrawn, except to ensure that drawings are made only
upon the order of properly authorized representatives of the Reassured.
All Letters of Credit procured for the Reassured under this Contract
shall be adjusted at annual intervals, or more frequently as agreed (but
never more frequently than quarterly), to reflect the current balance of
the Reinsurers' proportion of the Reassured's known outstanding loss and
allocated loss expense reserves and unearned premium reserves and the
Reassured shall produce a statement for this purpose detailed in the same
way as the original statement on the basis of which such Letters of
Credit were first issued. If the statement shows that the Reinsurers'
proportion of such losses and allocated expenses or unearned premium
reserves exceeds the current amount of the Letters of Credit, the
Reinsurers shall, within thirty days after receipt of the statement
secure the amendment of the Letters of Credit increasing their amount to
the amount of the current balance of these items. If, however, the
statement, shows that the Reinsurers' proportion of the current balance
of those items is less than the amount of the Letters of Credit the
Reassured shall, within thirty days of receipt of a written request from
the Reinsurers to do so, facilitate the release of the excessive security
by authorizing the amendment of the Letters of Credit so as to reduce
their amount to the current balance required.
Under no circumstances shall any excessive security so determined be
applied towards securing the Reassured's reserves for losses or loss
expenses Incurred But Not Reported.
All expenses incurred in the establishment or maintenance of such Letters
of Credit shell be for the account of the Reinsurers.
<PAGE> 13
ALL OTHER TERMS AND CONDITIONS REMAIN UNALTERED.
IN WITNESS WHEREOF the parties hereto have, by their duly authorized
representative, executed this Contract as follows:
Signed in Springfield, Missouri, this day of
199
For and on behalf of the Reassured:
INTERMED INSURANCE COMPANY
And for the Reinsurers by means of and in accordance with the attached
schedules which shall be considered to form an integral part of this Contract.
<PAGE> 14
SCHEDULE B
Attaching to and forming part of
ADDENDUM NO. 1
to the
MEDICAL PRACTITIONERS' LIABILITY
COMBINED REINSURANCE CONTRACT
effected between
INTERMED INSURANCE COMPANY
of Springfield, Missouri
(hereinafter referred to as the "Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as the "Reinsurers")
Signed in London, England this ______ day of __________ 199
The London Insurance and Reinsurance Market Association for and on behalf of
the following Reinsurers:
7.08% SPHERE DRAKE (UNDERWRITING) LIMITED
For and on behalf of:
SPHERE DRAKE INSURANCE PLC
Ref: 96MWDCA14284
LIRMA Ref: S0289
<PAGE> 1
Exhibit 10.33
ADDENDUM NO.2
attaching to and forming part of the
MEDICAL PRACTITIONERS' LIABILITY
COMBINED REINSURANCE CONTRACT
(formerly the Primary Excess Of Loss Reinsurance Contract)
made between
INTERMED INSURANCE COMPANY
of 1903 E. Battlefield, Springfield, Missouri, USA
(hereinafter referred to as "the Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as "the Reinsurers")
With effect from 1st October, 1997, the following amendments are made to this
Contract:
1. Item A of SECTION (1) of ARTICLE 10 - PREMIUM is amended to read as
follows:
A. The Reassured shall pay to the Reinsurers for the Annual
Period commencing 1st October, 1997, a Provisional Premium of
US$1,000,000 in four equal instalments at 1st October, 1997, 1st
January, 1998, 1st April, 1998 and 1st July, 1998.
2. The participations of Reinsurers shall be as shown in the attached
Schedules and not as heretofore.
ALL OTHER TERMS AND CONDITIONS REMAIN UNALTERED
IN WITNESS WHEREOF the parties hereto have, by their duly authorised
representative, executed this Contract as follows:
Signed in Springfield, Missouri, this day of 199
------ ------
For and on behalf of the Reassured:
INTERMED INSURANCE COMPANY
And for the Reinsurers by means of and in accordance with the attached
Schedules which shall be considered to form an integral part of this Contract.
<PAGE> 2
SCHEDULE B
Attaching to and forming part of
ADDENDUM NO. 2
to the
MEDICAL PRACTITIONERS' LIABILITY
COMBINED REINSURANCE CONTRACT
(formerly the Primary Excess of Loss Reinsurance Contract)
made between
INTERMED INSURANCE COMPANY
of 1903 E. Battlefield Springfield, Missouri
(hereinafter referred to as the "Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as the "Reinsurers")
Signed in London, England this day of 199
------ ------
The London Insurance and Reinsurance Market Association for and on behalf of
the following Reinsurers:
6.83% SPHERE DRAKE (UNDERWRITING) LIMITED
For and on behalf of:
SPHERE DRAKE INSURANCE PLC
Ref: 97LNCX014284
LIRMA Ref: S0289
<PAGE> 1
Exhibit 10.35
96/1249/IP
TITLE: LAWYERS' PROFESSIONAL LIABILITY
- -----------
PRIMARY EXCESS OF LOSS REINSURANCE CONTRACT
BETWEEN: INTERLEX INSURANCE COMPANY
- -----------
AND
THE REINSURERS SIGNATORY HERETO
COMMENCING: 1ST OCTOBER, 1996
- -----------
U.S. CLASS-
IFICATION: U.S. REINSURANCE
- -----------
<PAGE> 2
INDEX OF ARTICLES
<TABLE>
<S> <C>
PREAMBLE IDENTITY OF PARTIES
ARTICLE 1 BUSINESS REINSURED
ARTICLE 2 COVER, LIMIT AND RETENTION
ARTICLE 3 DEFINITIONS
ARTICLE 4 TERRITORIAL SCOPE
ARTICLE 5 EXCLUSIONS
ARTICLE 6 NET RETAINED LINES
ARTICLE 7 ULTIMATE NET LOSS
ARTICLE 8 EXCESS OF ORIGINAL POLICY LIMITS
ARTICLE 9 EXTRA-CONTRACTUAL OBLIGATIONS
ARTICLE 10 PREMIUM
ARTICLE 11 PERIOD
ARTICLE 12 LOSS REPORTS AND PAYMENTS
ARTICLE 13 CURRENCY
ARTICLE 14 ACCESS TO RECORDS AND CLAIMS REVIEW
ARTICLE 15 LOSS RESERVES
ARTICLE 16 TAX PROVISIONS
ARTICLE 17 DELAYS, ERRORS OR OMISSIONS
ARTICLE 18 INSOLVENCY OF THE REASSURED
ARTICLE 19 AMENDMENTS AND ALTERATIONS
ARTICLE 20 ARBITRATION
ARTICLE 21 SERVICE OF SUIT (NMA 1998)
ARTICLE 22 INTERMEDIARY
ARTICLE 23 PARTICIPATION
ATTACHMENTS NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY
REINSURANCE- U.S.A.
</TABLE>
<PAGE> 3
LAWYERS' PROFESSIONAL LIABILITY
PRIMARY EXCESS OF LOSS REINSURANCE CONTRACT
PREAMBLE
This Contract is made and entered into between Interlex Insurance Company of
1903 E. Battlefield, Springfield, Missouri 65804, U.S.A. (NAIC Code 10037)
hereinafter referred to as the "Reassured") and the Reinsurers signatory hereto
(hereinafter referred to as the "Reinsurers"), on the following terms and
conditions:
BUSINESS REINSURED
ARTICLE 1
For and in consideration of the premium being paid by the Reassured in
accordance with ARTICLE 10, PREMIUM. Reinsurers agree to indemnify the
Reassured in respect of the net excess liability to the Reassured resulting
from losses under Lawyers' Professional Liability policies and all other
ancillary coverages, including State Judges' Liability Policies, as in the
original policies issued by the Reassured, hereinafter referred to as
"policies".
ARTICLE 2
COVER LIMIT AND RETENTION
Whenever the Reassured has paid or advanced, or agreed to pay or advance, or
become liable to pay on account of a loss under any policy an amount in excess
of US$300,000 Ultimate Net Loss each insured, each claim, the amount
recoverable from Reinsurers hereunder shall be the amount in excess of
US$300,000 but such amount recoverable shall not exceed a further US$700,000
Ultimate Net Loss each insured, each claim, except in the event that the
Reassured has issued a Defence Costs Allowance Rider as part of the original
policy, in which event the Ultimate Net Loss covered hereunder may be increased
in respect of defence costs by up to a further US$250,000 each insured, each
claim.
Notwithstanding the foregoing, the fatal amount recoverable from Reinsurers
hereunder shall not exceed the sum of US$2,100,000 except in the event that the
Premium Income payable to Reinsurers hereo4 as further defined in ARTICLE 10,
PREMIUM shall exceed US$500,000, in which event the maximum amount recoverable
hereon from Reinsurers shell automatically be increased to US$3,500,000.
The specific coverage afforded under this Contract for awards in excess of
original policy limits and/or awards arising out of any extra-contractual
obligation, subject to the limits set forth above is to apply to all losses
regardless of original policy limit, prior to recoveries if any.
ARTICLE 3
DEFINITIONS
A. The term "Policy" or "Policies" as used in this Contract shall mean any
binder, policy, endorsement, extended reporting endorsement or contract of
insurance issued, accepted or held covered by the Reassured.
B. For the purposes of this Contract the "claim made" date shall be as
defined under the original policy. Furthermore, as regards extended
reporting endorsements, the date a claim is made shall determine the date
of loss for the purpose of this contract.
C. The term "retention" as used in this Contract shall mean the amount
retained by the Reassured in respect of each and every loss hereunder and
which amount shall be retained net by the Reassured.
<PAGE> 4
ARTICLE 4
TERRITORIAL SCOPE
This Contract shall cover wherever the Reassured's policies cover.
ARTICLE 5
EXCLUSIONS
This Contract does not apply to and absolutely excludes the following:
1. Nuclear Incidents, in accordance with the attached Nuclear Incident
Exclusion Clause -Liability - Reinsurance - U.S.A.
2. All liability of the Reassured arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any Insolvency Fund. "Insolvency Fund" includes any
Guaranty Fund, Insolvency Fund, Plan, Pool, Association, Fund or other
arrangement, howsoever denominated, established or governed which provides
for any assessment of or payment or assumption by the Reassured of part or
all of any claim, debt, charge, fee or other obligation of an insurer, or
its successors or assigns, which has been declared by any competent
authority to be insolvent or which is otherwise deemed unable to meet any
claim, debt, charge, fee or other obligation in whole or in part.
3. Reinsurance Assumed.
ARTICLE 6
NET RETAINED LINES
Subject always to the provisions of ARTICLE 7, ULTIMATE NET LOSS, this Contract
applies only to that portion of any insurance covered by this Contract which
the Reassured retains net for its own account and in calculating the amount of
any loss hereunder and also in computing the amount or amounts in excess of
which this Contract attaches, only loss or losses in respect of that portion of
any insurance which the Reassured retains net for its own account shall be
included.
It is understood and agreed that the amount of the Reinsurers' liability
hereunder in respect of any loss or losses shall not be increased by reason of
the inability of the Reassured to collect from any other reinsurers, whether
specific or general, any amounts which may have become due from them, whether
such inability arises from the insolvency of such other reinsurers or
otherwise.
ARTICLE 7
ULTIMATE NET LOSS
The term "Ultimate Net Loss" as used in this Contract shall mean the sum
actually paid or payable by the Reassured in settlement of any loss or losses
for which it is liable under its original policy or policies, including any
Pre-Judgement interest awarded by any Trial Court or Appeal Court, and/or any
additional liability incurred by the Reassured as a result of an award in
excess of their original policy limits, and/or any additional liability
incurred by the Reassured from any extra-contractual obligation, both as more
fully defined in ARTICLES 8 and 9 below.
The amount of the Reassured's Ultimate Net Loss shall also include all loss
adjustment expenses incurred by the Reassured in connection with the
adjustment, settlement or compromise of any loss including expenses of
litigation, if any, and all subrogation, salvage and recovery expenses, but
excluding the
<PAGE> 5
salaries of employees and all office expenses of the Reassured. For the
purposes hereof, loss adjustment expenses shall include Post-Judgement Interest
awarded by any Trial Court or Appeal Court.
All salvages and recoveries, including recoveries under all reinsurances which
inure to the benefit of this Contract, whether collected or not, shall first be
deducted from such loss to arrive at the amount of the Reassured's actual Loss
for the purposes of this Contract.
All salvages, recoveries and payments recovered or received subsequent to a
loss settlement under this Contract shall be applied as if recovered or
received prior to the aforesaid settlement and all necessary adjustments shall
be made by the parties hereto. However, nothing in the foregoing shall be
construed as meaning that losses are not recoverable hereunder until the
Reassured's Ultimate Net Loss has been ascertained.
ARTICLE 8
EXCESS OF ORIGINAL POLICY LIMITS
As provided in ARTICLE 7, ULTIMATE NET LOSS, this Contract shall protect the
Reassured, within the limits of this Contract, in respect of any additional
liability incurred by the Reassured as the result of an award in excess of
their original policy limit as more fully defined below. The Reinsurers agree
that the additional liability so incurred, plus the Reassured's contractual
loss, shall be considered as one combined loss for the purposes of the
Reassured's retention and of the recovery under this Contract subject always,
however, to the amount recoverable hereunder not exceeding the limit of
recovery under this Contract as provided in ARTICLE 2. COVER LIMIT AND
RETENTION.
Awards in excess of the Reassured's original policy limit are defined as losses
which the Reassured would have been contractually liable to pay, had it not
been for the limit of the original policy and where such losses in excess of
the original policy limit have been incurred because of failure by the
Reassured to settle within the original 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 defence or in the trial of any action against their
insured or in the preparation or prosecution of an appeal consequent upon such
action.
The claims made date for any such award in excess of the original policy limit
shall be deemed, in all circumstances, to be the same as the claims made date
of the original claim to which such award attaches.
However, this Article shall not apply where such awards in excess of original
policy limit have been incurred due to the fraud of a member of the Board of
Directors or a corporate officer of the Reassured acting individually or
collectively or in collusion with any individual or corporation or any other
organisation or party involved in the presentation, defence or settlement of
any claim.
ARTICLE 9
EXTRA-CONTRACTUAL OBLIGATIONS
As provided in ARTICLE 7, ULTIMATE NET LOSS, this Contract shall protect the
Reassured, within the limits of this Contract, in respect of any liability
incurred by the Reassured as the result of an award in respect of any
extra-contractual obligation, as more fully defined below. The Reinsurers agree
that the liability so incurred, plus the Reassured's contractual loss if any,
shall be considered as one combined loss for the purposes of the Reassured's
retention and of the recovery under this Contract subject always, however, to
the amount recoverable hereunder not exceeding the limit of recovery under this
Contract as provided in ARTICLE 2, COVER LIMIT AND RETENTION.
"Extra-contractual obligations" are defined as those liabilities of the
Reassured not covered under any other provision of this Contract and which
arise from the handling of any claim on business covered hereunder, such
liabilities arising because of, but not limited to, the following: failure by
the Reassured to settle within the policy limit, or by reason of alleged or
actual negligence, fraud or bad faith in rejecting
<PAGE> 6
an offer of settlement or in the preparation of the defence or in the trial
of any action against their insured or in the preparation or prosecution of an
appeal consequent upon such action.
The claims made date for any such extra-contractual obligation shall be deemed,
in all circumstances, to be the same as the claims made date of the original
claim to which such extra-contractual obligation attaches.
However, this Article shall not apply where such extra-contractual obligations
have been incurred due to the fraud of a member of the Board of Directors or a
corporate officer of the Reassured acting individually or collectively or in
collusion with any individual or corporation or any other organisation or party
involved in the presentation, defence or settlement of any claim.
ARTICLE 10
PREMIUM
A. In consideration of the liabilities undertaken by the Reinsurers in
accordance with the terms of this Contract, the Reassured shall pay to the
Rcinsurer:
1) a Minimum and Deposit Premium of US$35,000, payable in
advance in four equal instalments at 1st October 1996, 1st January
1997, 1st April 1997 and 1st July 1997.
As soon as possible after the expiry of this Contract, the Reassured
shall determine the adjusted reinsurance premium due hereon by
applying a rate of 5.00% to the total Gross Net Written Premium
Income applicable to original each claim policy limits of up to and
including US$300,000, including Premium in respect of the
Reassured's Defence Costs Allowance Rider issued on original each
claim policy limits of US$100,000, but subject always to the
application of the Minimum Premium due for the period hereon. Any
additional premium due in excess of the previously paid Minimum and
Deposit Premium due for the period hereon shall be remitted to
Reinsurers.
2) an Additional Reinsurance Premium to be determined quarterly
within 60 days of the close of each quarter at a rate determined by
reference to the original Gross Net Written Premium Income for all
policies incepting or renewed during the applicable quarter,
according to the following scale;
a) 36.00% of the Original Gross Net Written Premium
Income for original policies with an each claim limit of US$
1,000,000;
b) 16.50% of the Original Gross Net Written Premium
Income for original policies with an each claim limit of
US$500,000.
The Reinsurers agree to allow the Reassured to deduct and
retain for their own benefit as Ceding Commission 15.00% of
the additional Gross Reinsurance Premium so determined.
The Additional Reinsurance Premium so determined shall
be payable in addition to that determined under 1) above.
3) further Additional Reinsurance Premium in respect of
additional limits issued under the Reassured's Defence Costs
Allowance Rider, according to the following scale;
a) US$112 per lawyer on original policies with an
each claim limit of US$250,000 and an additional Defence Costs
Allowance limit of US$125,000;
<PAGE> 7
b) US$250 per lawyer on original policies with an
each claim limit of US$500,000 and an additional Defence Costs
Allowance limit of US$250,000;
c) US$220 per lawyer on original policies with an
each claim limit of US$1,000,000 and an additional Defence
Costs Allowance limit of US$250,000.
The Reinsurers agree to allow the Reassured to deduct and retain
for their own benefit as Ceding Commission 15.00% of the Additional
Gross Reinsurance Premium so determined.
The Additional Reinsurance Premium so determined shall be payable
in addition to that determined under 1) and 2) above.
B. The Premium Income payable hereon for the purposes of determining the
Maximum Recoverable hereunder, shall comprise the sum of
a) The adjusted Premium payable under Section 1) above, plus
b) The net Additional Reinsurance Premium payable under Section
2) above, after deduction of Ceding Commission, plus
c) The net Additional Reinsurance premium payable under Section
3) above, after deduction of Ceding Commission.
The term "Gross Net Written Premium Income" shall for all purposes of this
Contract, be understood to mean the full gross amount of the premiums charged
by the Reassured to their original insureds less cancellation and return
premiums, and less premiums paid for reinsurances which inure to the benefit of
this Contract.
ARTICLE 11
PERIOD
This Contract takes effect on 1st October, 1996 and applies to claims made on
original policies attaching during the period from 1st October, 1996 to 30th
September 1997, both days inclusive, including extended reporting endorsements
issued by the Reassured attached thereto.
In the event of the non-renewal of this Contract, Reinsurers shall continue to
be liable hereunder in respect of all claims made on original policies,
including discovery period coverage and/or extended reporting endorsements
attached thereto, in force on the date of non-renewal under the natural expiry
or first anniversary (whichever sooner) of such policies but in no event for
longer than twelve months plus odd time, except in the case of discovery period
coverage and/or extended reporting endorsements which may have up to an
unlimited period.
For all purposes of this Article, any extent reporting endorsement attaching to
a policy covered hereunder shall be considered as part of the period of the
said policy, subject to the provision that a separate limit of liability may
apply in respect thereof. Any claim or incident reported under any extended
reporting endorsement shall be deemed to have been made on the last day
coverage was in force prior to the issuance of such endorsement.
LOSS REPORTS AND PAYMENTS
The Reinsurers agree to abide by all loss settlements of the Reassured which,
at its sole discretion, shall adjust, settle or compromise all losses. All such
adjustments, settlements or compromises shall be
<PAGE> 8
unconditionally binding upon the Reinsurers, who shall also benefit in due
proportion from any salvages, recoveries and compromises effected or negotiated
by the Reassured.
The Reassured shall advise the Reinsurers of all paid losses and outstanding
losses hereunder, and of any subsequent developments in connection therewith,
which are reserved by the Reassured at, or in excess of US$300,000 Ultimate Net
Loss.
The information provided by the Reassured shall be sufficient to enable the
individual losses, the nature of each claim, the claim made date and the
inception or renewal dates of the policies to which such losses relate, to be
readily identified.
The Reinsurers agree to pay any amount for which they may be liable under this
Contract as soon as possible after the settlement request has been furnished to
them.
ARTICLE 13
CURRENCY
The currency to be used for all purposes of this Contract shall be United
States Dollars.
ARTICLE 14
ACCESS TO RECORDS AND CLAIMS REVIEW
All documents and records in the possession of the Reassured concerning this
Contract shall be made available upon reasonable notice at the request of the
Reinsurers for inspection at the Reassured's offices by the Reinsurers or their
nominated representatives for the purposes of obtaining information concerning
this Contract or the subject matter hereof.
Specifically, the Reinsurers shall be entitled to nominate a representative to
assess the Reassured's claims and claims procedures.
For the avoidance of doubt, it is hereby expressly agreed that the rights given
to the Reinsurers' by this Article shall continue in effect notwithstanding the
expiration of this Contract and shell be exercised at the Reinsurers' own
expense.
ARTICLE 15
LOSS RESERVES
This Article applies only to those Reinsurers signatory hereto who do not
qualify for credit under the regulations of the State insurance authorities or
departments which have jurisdiction over the Reassured's loss reserves.
The Reassured agrees that when, for its Annual Convention Statement purposes,
it files with the authorities or departments mentioned above or sets up in its
books statutory reserves for known outstanding losses and allocated loss
expenses reinsured by this Contract it shall forward to the Reinsurers a clear
statement of the Reinsurers' proportion of those reserves detailing the amounts
involved for known outstanding losses and allocated loss expenses and also how
those amounts are calculated.
The Reinsurers, promptly upon receipt of the Reassured's statement, shall apply
for and secure delivery to the Reassured of a clean, irrevocable and
unconditional Letter of Credit, in an amount equal to their proportion stated
reserves. Under no circumstances shall any amount relating to reserves in
respect of losses or loss expenses Incurred But Not Reported be included in the
amount of the Letter of Credit.
<PAGE> 9
All Letters of Credit procured pursuant to this Contract shall be issued by a
Bank which is a Member of the Federal Reserve and shall be in full conformity
with the requirements of the authorities or departments mentioned in the first
paragraph of this Article current at the date of the Reassured's statement.
Further, they shall be "Evergreen" in that they shall be issued for an initial
period of not less than one year and shall be automatically extended for one
year from their original expiration dates and subsequently from their extended
expiration dates unless and until, at least thirty days before any expiration
date, the issuing bank gives notice to the Reassured by registered mail that
the issuing bank elects not to extend the Life of the Letter of Credit in
question beyond its forthcoming expiration date.
In consideration of the agreement of the Reinsurers to furnish such Letters of
Credit to the Reassured to enable it to obtain credit for the reinsurance
provided under this Contract, the Reassured hereby undertakes to hold such
Letters of Credit and the proceeds of any drawings made upon them in trust for
the Reinsurers and to use and apply the proceeds of any such drawings for the
following purposes only:
a. To pay the Reinsurers' share or to reimburse the Reassured
for that share of any Liability for loss or allocated loss expense
reinsured by this Contract;
b. To refund to the Reinsurers any balance by which the amount
of the Letter of Credit exceeds the Reinsurers' proportion of any
Liability for loss or allocated loss expense reinsured by this
Contract.
c. In the event that one or more of the Reinsurers participating
in the Letter of Credit gives timely notice of cancellation or
non-renewal of their participation in the Letter of Credit and
provided that the obligations secured by the Letter of Credit remain
unliquidated and undischarged at the time of receipt by the
Reassured of such notice, to create a cash deposit account, separate
from its own assets, in an amount equal to the participation of the
canceling or non-renewing Reinsurer(s) in the Letter of Credit. That
cash deposit account may then be used only as in subparagraphs a and
b above. It is understood and agreed that this procedure may only be
implemented before the expiry of the notice period in respect of
cancellation or non-renewal and that if it is implemented, the
Reassured will ensure that a rate of interest is obtained for the
Reinsurers on such a deposit account that is at least equal to the
rate which would be paid by Citibank N.A. in New York, and further
that the Reassured will account to the Reinsurers on an annual basis
for all interest accruing on the cash deposit account for the
benefit of the Reinsurers.
The issuing bank shall have no responsibility whatsoever in connection with the
propriety of drawings made by the Reassured on the Letters of Credit issued
under This Contract or in connection with the disposition of any funds so
withdrawn, except to ensure that drawings are made only upon the order of
properly authorized representatives of the Reassured.
All Letters of Credit procured for the Reassured under this Contract shall be
adjusted at annual intervals, or more frequently as agreed (but never more
frequently than quarterly), to reflect the current balance of the Reinsurers'
proportion of the Reassured's known outstanding loss and allocated loss expense
reserves and the Reassured shall produce a statement for this purpose detailed
in the same way as the origina1 statement on the basis of which such Letters of
Credit were first issued. If the statement shows that the Reinsurers'
proportion of such losses and allocated expenses exceeds the current amount of
the Letters of Credit, the Reinsurers shall, within thirty days after receipt
of the statement secure the amendment of the Letters of Credit increasing their
amount to the amount of the current balance of those items. If, however, the
statement shows that the Reinsurers' proportion of the current balance of those
items is less than the amount of the Letters of Credit the Reassured shall,
within thirty days of receipt of a written request from the Reinsurers to do
so, facilitate the release of the excessive security by authorizing the
amendment of the Letters of Credit so as to reduce their amount to the current
balance required.
Under no circumstances shall any excessive security so determined be applied
towards securing the Reassured reserves for losses or loss expenses Incurred
But Not Reported.
<PAGE> 10
All expenses incurred in the establishment or maintenance of such Letters of
Credit shall be for the account of the Reinsurers.
ARTICLE 16
TAX PROVISIONS
The Reassured shell be Liable for all taxes (except Federal Excise Tax) levied
on premiums payable to the Reinsurers hereunder. Federal Excise Tax applies
only to those Reinsurers, excepting Underwriters at Lloyd's, London and other
Reinsurers exempt from the Federal Excise Tax, who are domiciled outside the
United States of America.
To the extent that such premium is subject to Federal Excise Tax, the
Reinsurers hereby agree to allow as a deduction from the premium, for the
purpose of paying Federal Excise Tax, 1% of the premium payable hereon.
In the event of any return premium becoming due hereunder the Reinsurers will
deduct 1% from the amount of the return, and the Reassured or their agents
shall take stops to recover the tax from the Government of the United States of
America.
Notwithstanding the above, any changes in the Federal Excise Tax rate or the
exemption status of Reinsurers shall be automatically applicable to this
Contract.
In consideration of the terms under which this Contract is issued, the
Reassured undertake not to claim any deduction in respect of premium payable
hereon when making tax returns, other than Income or Profits tax returns, to
any fiscal authority of the United States of America or any State or Territory
thereof.
ARTICLE 17
DELAYS. ERRORS OR OMISSIONS
No inadvertent delay, error or omission shall be held to relieve either party
hereto of any liability which would have attached to them under this Contract
if such delay, error or omission had not been made, provided that rectification
is made immediately upon discovery.
ARTICLE 18
INSOLVENCY OF THE REASSURED
Amounts due to the Reassured under this Contract shall be payable by the
Reinsurers on the basis of the liability of the Reassured under the original
policies reinsured hereunder without diminution because of the insolvency of
the Reassured.
In the event of the insolvency of the Reassured, the Liquidator or Receiver or
Statutory Successor of the Reassured shall give written notice to the
Reinsurers of the pendency of any claim against the insolvent Reassured on the
origina1 policies reinsured hereunder within a reasonable time after such claim
is filed in the insolvency proceedings. During the pendency of such claim the
Reinsurers may investigate such claim and intervene, at their own expense, in
the proceedings where such claim is to be adjudicated and interpose any defense
or defenses which they may deem available to the Reassured or its Liquidator or
Receiver or Statutory Successor. The expense thus incurred by the Reinsurers
shall be chargeable, subject to court approval, against the insolvent Reassured
as part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Reassured solely as a result of the defence
so undertaken by the Reinsurers.
<PAGE> 11
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to investigate the claim and/or to interpose defence to such
claim, the expense shell be apportioned in accordance with the terms of the
above paragraph as though such expense had been incurred by the Reassured.
Should the Reassured go into liquidation or should a Receiver be appointed,
Reinsurers shall be entitled to deduct from any sums which may be or may become
due to the Reassured under this Contract any sums which are due to Reinsurers
from the Reassured under this Contract and which are expressed herein to be
payable at a fixed or stated date, as well as any other sums due to the
Reinsurers which are permitted to be offset under applicable law.
In the event of the insolvency of the Reassured, the amounts due to the
Reassured under this Contract shall be payable by the Reinsurers directly to
the Reassured or to its Liquidator, Receiver or Statutory Successor.
ARTICLE 19
AMENDMENTS AND ALTERATIONS
The terms herein contained comprise the whole Contract between the Reassured
and the Reinsurers and may only be changed in writing, signed by or on behalf
of both parties.
ARTICLE 20
ARB1TRATION
As a condition precedent to any right of action hereunder, all disputes or
differences arising out of or connected with this Contract (whether or not
arising before or after cancellation) including interpretation or
implementation of its terms, shall be referred to arbitration, in the City in
which the Reassured's principal office is located.
The party which desires to refer a matter to Arbitration ("the Claimant") shall
so notify the other party ("the Respondent") in writing and at the time of so
doing shall request the Respondent to agree as sole Arbitrator one of a list of
three individuals whom the Claimant shall name. The Respondent shall, within 30
days of receipt of the said notice, notify the Claimant either (a) that it
agrees one of those three individuals as sole Arbitrator, thus completing the
constitution of the Arbitral Tribunal, or (b) that it nominates another person
as its own Arbitrator.
In the event that the Respondent nominates its own Arbitrator, the Claimant
shall itself nominate its own Arbitrator within 30 days of receipt by it of the
Respondent's notice. The two Arbitrators so nominated shall, within 30 days of
the appointment of the second of them, themselves appoint a third Arbitrator to
complete the constitution of the Arbitral Tribunal.
Should the Respondent or the two chosen Arbitrators fail to make the
appointment required of them, then on application of the Claimant, the American
Arbitration Association will appoint the third arbitrator, and such appointment
will be made in accordance with the qualifications set forth in this Article
without regard to any of the American Arbitration Association's commercial
arbitration rules, including its rules concerning the qualifications and/or
nationality of arbitrators.
All Arbitrators shall be active or former disinterested officials of Insurance
or Reinsurance Companies or Lloyd's Underwriters who have experience of the
class of business which is the subject matter of this Contract.
The Arbitral Tribunal shall interpret this Contract as if it wore an honorable
engagement and not as merely a legal obligation; it is relieved of all judicial
formalities and may abstain from following the strict
<PAGE> 12
rules of law, and shall make its award with a view to effecting the general
purpose of this Contract in a reasonable manner with due regard to the custom
and usage of the insurance and reinsurance business.
The Arbitral Tribunal shall have fall discretion to make such orders as it
thinks fit in connection with all procedural matters in the Arbitration,
including but not limited to the conduct of the reference by written or oral
submissions, the production of documents, the examination of witnesses, and the
imposition of time limits for the taking of necessary procedural stops. The
Arbitral Tribunal shall also have fall discretion to make such orders as it
thinks fit with regard to the payment of the costs of the Arbitration including
attorneys' costs and fees. Punitive damages shall not be awarded, however the
Arbitral Tribunal may, at its discretion, award such other costs and expenses
as it deems appropriate, including but not limited to attorneys' fees, to the
extent permitted by law.
If more than one Reinsurer is involved in the same dispute, all such Reinsurers
shall constitute and act as one party for purposes of this clause, and
communications shall be made by the Reassured to each of the Reinsurers
constituting the one party, provided that nothing therein shall impair the
rights of such Reinsurers to assert several, rather than joint, defenses or
claims, nor be construed as changing the liability of the Reinsurers under the
terms of this Contract from several to joint.
Any Award or order of the Arbitral Tribunal or a majority thereof shall be
binding on the parties and there shall be no right of appeal therefrom For the
purpose of enforcement of any Final Award7 such; ~>
Final Award may be made a Rule of any Court of competent jurisdiction.
ARTICLE 21
SERVICE OF SUIT (NMA 1998)
This Article applies only to those Reinsurers signatory hereto who are
domiciled outside the United States of America or, should the Reassured be
authorized to do business in the State of New York, those Reinsurers who are
unauthorized in New York as respects suits instituted in New York.
It is agreed that in the event of the failure of the Reinsurers hereon to pay
any amount claimed to be due hereunder, the Reinsurers hereon, at the request
of the Reassured, will submit to the jurisdiction of a Court of competent
jurisdiction within the United States. Nothing in this Article constitutes or
should be understood to constitute a waiver of Reinsurers' rights to commence
an action in any Court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer of a
case to another Court as permitted by the laws of the United States or of any
State in the United States.
It is further agreed that service of process in such suit may be made upon
Mendes and Mount, 750 Seventh Avenue, New York N.Y. 10019-6829, and that in any
suit instituted against any one of them upon this Contract, Reinsurers will
abide by the final decision of such Court or of any Appellate Court in the
event of any appeal.
The above-named are authorized and directed to accept service of process on
behalf of Reinsurers in any such suit and/or upon the request of the Reassured
to give a written undertaking to the Reassured that they will enter a general
appearance upon Reinsurers' behalf in the event such a suit shall be instituted
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, Reinsurers hereon hereby
designate the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reassured or any beneficiary hereunder arising out of this Contract of
Reinsurance, and hereby designate the above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof
<PAGE> 13
ARTICLE 22
INTERMEDIARY
Carvill America, 180 North Stetson Avenue, Suite 5100, Chicago, Illinois,
60601, is hereby recognized as the Intermediary negotiating this Contract. All
communications (including but not limited to notices, statements, premiums,
return premiums, commissions, taxes, losses, loss adjustment expenses, salvages
and loss settlements) relating thereto shall be transmitted to the Reassured or
the Reinsurers through Carvill America. Payments by the Reassured to the
Intermediary shall be deemed to constitute payment to the Reinsurers. Payments
by the Reinsurers to the Intermediary shall be deemed to constitute payment to
the Reassured only to the extent that such payments are actually received by
the Reassured.
ARTICLE 23
PARTICIPATION
This Contract obligates each of the Reinsurers for their proportion of the
interests and liabilities set forth under this Contract, such proportions being
shown in the attached Schedules.
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for any
reason does not satisfy all or part of its obligations.
IN WITNESS WHEREOF the parties hereto have, by their duly authorized
representative, executed this Contract as follows:
Signed in Springfield, Missouri this day of 1997
For and on behalf of the Reassured:
INTERLEX INSURANCE COMPANY
And for the Reinsurers by means of and in accordance with the attached
schedules which shall be considered to form an integral part of this Contract.
<PAGE> 14
SCHEDULE A
Attaching to and forming part of the
LAWYERS' PROFESSIONAL LIABILITY
PRIMARY EXCESS OF LOSS REINSURANCE CON=ACT
effected between
INTERLEX INSURANCE COMPANY
of Springfield, Missouri
(hereinafter referred to as the "Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as the "Reinsurers")
Signed in London, England, this day of 199
93.01% VARIOUS UNDERWRITING MEMBERS OF LLOYD'S
per schedule attached hereto
<PAGE> 15
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for thc purpose of covering Nuclear Energy Risks or as a
direct or indirect reinsurer of any such member, subscriber or
association.
(2) Without in any way restricting thc operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this
reinsurance all thc original policies of thc Reassured (new, renewal and
replacement) of the classes specified in Clause II of this paragraph (2)
from the time specified in Clause III in this paragraph (2) shall bc
deemed to include the following provision (specified as thc Limited
Exclusion Provision):
Limited Exclusion Provision: *
I. It is agreed that the policy docs not apply under any
liability coverage, (injury, sickness, disease, death or
destruction, bodily injury, or property damage) with respect to
which an insured under the policy is also an insured under a nuclear
energy liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or Nuclear
Insurance Association of Canada, or would bc an insured under any
such policy but for its termination upon exhaustion of its limit of
liability.
II. Family Automobile Policies (liability only), Special
Automobile Policies (private passenger automobiles, liability only),
Farmers Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or
policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated
above, such as the Comprehensive Dwelling Policy and the applicable
types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the
Limited Exclusion Provision set out above;
provided this paragraph (2) shall not be applicable to
Family Automobile Policies. Special Automobile
Policies, or policies or combination policies of a similar
nature. issued by the Reassured on New York risks. until 90
days following approval of the Limited Exclusion Provision
by the Governmental Authority having jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of paragraph
(2) and without in any way restricting the operation of paragraph (1) of
this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal
and replacement) affording the following coverages:
Owners. Landlords and Tenants Liability. Contractual Liability, Elevator
Liability. Owners or Contractors (including railroad) Protective
Liability). Manufacturers and Contractors Liability, Product Liability,
Professional and Malpractice Liability. Storekeepers Liability. Garage
Liability. Automobile Liability (including Massachusetts Motor Vehicle or
Garage Liability) shall be deemed to include with respect to such
coverages from the time specified in Clause V of this paragraph (3), the
following provision (specified as the Broad Exclusion Provision):
Broad Exclusion Provision
<PAGE> 16
It is agreed that the Policy does not apply:
I. Under any Liability Coverage, to (injury, sickness, disease,
death or destruction, bodily injury or property damage)
(a) with respect to which an insured under the policy
is also an insured under a nuclear energy liability policy
issued by Nuclear Energy Liability Insurance Association,
Mutual Atomic Energy Liability Underwriters or Nuclear
Insurance Association of Canada, or would be an insured under
any such policy but for its termination upon exhaustion of its
limit of liability; or
(b) resulting from the hazardous properties of
nuclear material and with respect to which (1) any person or
organization is required to maintain financial protection
pursuant to the Atomic Energy Act of l954, or any law
amendatory thereof, or (2) the insured is, or had this policy
not been issued would be, entitled to indemnity from the
United States of America, or any agency thereof, under any
agreement entered into by the United Stares of America, or any
agency thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments (immediate medical or
Provision relating to surgical relief, to expenses incurred with
respect (first aid,
to (bodily injury, sickness, disease or death
bodily injury resulting from thc hazardous properties
of nuclear material and arising out of thc operation of a
nuclear facility by any person or organization.
III. (injury, sickness, disease, death or
Under any Liability Coverage, to destruction
(bodily injury or property damage
resulting from thc hazardous properties of nuclear material, if
(a) the nuclear material ( I ) is at any nuclear
facility owned by, or operated by or on behalf of, an insured
or (2) has been discharged or dispersed therefrom:
(b) the nuclear material is contained in spent fuel
or waste at any time possessed, handled, used, processed,
stored. transported or disposed of by or on behallf of an
insured: or
(c) the (injury, sickness, disease, death or destruction
(bodily injury or property damage
arises out of the furnishing by an insured of services, materials,
parts or equipment in connection with the planning, construction,
maintenance, operation or use of any nuclear facility, but if such
facility is located within the United States of America. its
territories, or possessions or Canada, this exclusion (c) applies
only
to (injury to or destruction of property at such
Nuclear facility.
(property damage to such nuclear facility and any
property thereat
IV. As used in this endorsement:
"hazardous properties "include, radioactive, toxic or explosive
properties; "nuclear material" means source material special nuclear
material or by-product material; "source material", "special nuclear
material", and "by-product material" have the meanings given them in
the Atomic Energy Act of 1954 or in any law amendatory thereof "spent
fuel" means any fuel element or fuel component solid or liquid, which
has been used or exposed to radiation in a nuclear reactor: "waste"
means any waste material (1) containing by-product material other
than tailings or wastes produced by the extraction or concentration
of uranium or thorium from any ore processed primarily for its source
material content, and (2) resulting from the operation by any person
or organization of
<PAGE> 17
any nuclear facility included under the first two paragraphs of
the definition at nuclear facility; "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste,
c) any equipment or device designed or used for the processing,
fabricating or alloying of special nuclear material if at any
time the total amount of such material in the custody of the
insured at the premises where such equipment or device is located
consists of or contains more than 25 grams of plutonium or
uranium 233 or any combination thereof, or more than 250 grams of
uranium 235.
d) Any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste.
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations: "nuclear reactor" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to contain
a critical mass of fissionable material;
(With respect to injury to or destruction of property, the word
"injury" or ("destruction"
("property damage" includes all forms of radioactive contamination
of property.
(includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether new,
renewal or replacement, being policies which become effective on or
after 1st May, 1960, provided this paragraph (3) shall not be
applicable to
(i) Garage and Automobile Policies issued by the Reassured
on New York risks, or
(ii) Statutory liability insurance required under Chapter 90
General Laws of Massachusetts,
Until 90 days following approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that paragraphs (2) and
(3) above are not applicable to original liability policies of the
Reassured in Canada and that with respect to such policies this
Clause shall be deemed to include the Nuclear Energy Liability
Exclusion Provisions, adopted by the Canadian Underwriters'
Association or the Independent Insurance Conference of Canada.
*NOTE: The words printed in italics in the Limited Exclusion
Provision and in the Broad Exclusion Provision shall apply
only in relation to original liability policies which include
a Limited Exclusion Provision or a Broad Exclusion Provision
containing those words.
<PAGE> 1
Exhibit 10.36
97/1249/IP
TITLE: LAWYERS' PROFESSIONAL LIABILITY
- -----------
PRIMARY EXCESS OF LOSS REINSURANCE CONTRACT
BETWEEN: INTERLEX INSURANCE COMPANY
- -----------
AND
THE REINSURERS SIGNATORY HERETO
COMMENCING: 1ST OCTOBER, 1997
- -----------
U.S. CLASSIFICATION: U.S. REINSURANCE
- --------------------
<PAGE> 2
<TABLE>
<CAPTION>
INDEX OF ARTICLES
<S> <C>
PREAMBLE IDENTITY OF PARTIES
ARTICLE 1 BUSINESS REINSURED
ARTICLE 2 COVER, LIMIT AND RETENTION
ARTICLE 3 DEFINITIONS
ARTICLE 4 TERRITORIAL SCOPE
ARTICLE 5 EXCLUSIONS
ARTICLE 6 NET RETAINED LINES
ARTICLE 7 ULTIMATE NET LOSS
ARTICLE 8 EXCESS OF ORIGINAL POLICY LIMITS
ARTICLE 9 EXTRA-CONTRACTUAL OBLIGATIONS
ARTICLE 10 PREMIUM
ARTICLE 11 PERIOD
ARTICLE 12 LOSS REPORTS AND PAYMENTS
ARTICLE 13 CURRENCY
ARTICLE 14 ACCESS TO RECORDS AND CLAIMS REVIEW
ARTICLE 15 LOSS RESERVES
ARTICLE 16 TAX PROVISIONS
ARTICLE 17 DELAYS, ERRORS OR OMISSIONS
ARTICLE 18 INSOLVENCY OF THE REASSURED
ARTICLE 19 AMENDMENTS AND ALTERATIONS
ARTICLE 20 ARBITRATION
ARTICLE 21 SERVICE OF SUIT (NMA 1998)
ARTICLE 22 INTERMEDIARY
ARTICLE 23 PARTICIPATION
ATTACHMENTS NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY
REINSURANCE- U.S.A.
</TABLE>
<PAGE> 3
LAWYERS' PROFESSIONAL LIABIL1TY
PRIMARY EXCESS OF LOSS REINSURANCE CONTRACT
PREAMBLE
This Contract is made and entered into between Interlex Insurance Company of
1903 E. Battlefield, Springfield, Missouri 65804, U.S.A. (NAIC Code 10037)
hereinafter referred to as the "Reassured") and the Reinsurers signatory hereto
(hereinafter referred to as the "Reinsurers"), on the following terms and
conditions:
BUSINESS REINSURED
ARTICLE 1
For and in consideration of the premium being paid by the Reassured in
accordance with ARTICLE 10, PREMIUM. Reinsurers agree to indemnify the
Reassured in respect of the net excess liability to the Reassured resulting
from losses under Lawyers' Professional Liability policies and all other
ancillary coverages, including State Judges' Liability Policies, as in the
original policies issued by the Reassured, hereinafter referred to as
"policies".
ARTICLE 2
COVER LIMIT AND RETENTION
Whenever the Reassured has paid or advanced, or agreed to pay or advance, or
become liable to pay on account of a loss under any policy an amount in excess
of US$300,000 Ultimate Net Loss each insured, each claim, the amount
recoverable from Reinsurers hereunder shall be the amount in excess of
US$300,000 but such amount recoverable shall not exceed a further US$700,000
Ultimate Net Loss each insured, each claim, except in the event that the
Reassured has issued a Defence Costs Allowance Rider as part of the original
policy, in which event the Ultimate Net Loss covered hereunder may be increased
in respect of defence costs by up to a further US$250,000 each insured, each
claim.
Notwithstanding the foregoing, the fatal amount recoverable from Reinsurers
hereunder shall not exceed the sum of US$2,100,000 except in the event that the
Premium Income payable to Reinsurers hereo4 as further defined in ARTICLE 10,
PREMIUM shall exceed US$500,000, in which event the maximum amount recoverable
hereon from Reinsurers shell automatically be increased to US$3,500,000.
The specific coverage afforded under this Contract for awards in excess of
original policy limits and/or awards arising out of any extra-contractual
obligation, subject to the limits set forth above is to apply to all losses
regardless of original policy limit, prior to recoveries if any.
ARTICLE 3
DEFINITIONS
A. The term "Policy" or "Policies" as used in this Contract shall mean any
binder, policy, endorsement, extended reporting endorsement or contract of
insurance issued, accepted or held covered by the Reassured.
B. For the purposes of this Contract the "claim made" date shall be as
defined under the original policy. Furthermore, as regards extended
reporting endorsements, the date a claim is made shall determine the date
of loss for the purpose of this contract.
C. The term "retention" as used in this Contract shall mean the amount
retained by the Reassured in respect of each and every loss hereunder and
which amount shall be retained net by the Reassured.
<PAGE> 4
ARTICLE 4
TERRITORIAL SCOPE
This Contract shall cover wherever the Reassured's policies cover.
ARTICLE 5
EXCLUSIONS
This Contract does not apply to and absolutely excludes the following:
1. Nuclear Incidents, in accordance with the attached Nuclear Incident
Exclusion Clause - Liability - Reinsurance - U.S.A.
2. All liability of the Reassured arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any Insolvency Fund. "Insolvency Fund" includes any
Guaranty Fund, Insolvency Fund, Plan, Pool, Association, Fund or other
arrangement, howsoever denominated, established or governed which provides
for any assessment of or payment or assumption by the Reassured of part or
all of any claim, debt, charge, fee or other obligation of an insurer, or
its successors or assigns, which has been declared by any competent
authority to be insolvent or which is otherwise deemed unable to meet any
claim, debt, charge, fee or other obligation in whole or in part.
3. Reinsurance Assumed.
ARTICLE 6
NET RETAINED LINES
Subject always to the provisions of ARTICLE 7, ULTIMATE NET LOSS, this Contract
applies only to that portion of any insurance covered by this Contract which
the Reassured retains net for its own account and in calculating the amount of
any loss hereunder and also in computing the amount or amounts in excess of
which this Contract attaches, only loss or losses in respect of that portion of
any insurance which the Reassured retains net for its own account shall be
included.
It is understood and agreed that the amount of the Reinsurers' liability
hereunder in respect of any loss or losses shall not be increased by reason of
the inability of the Reassured to collect from any other reinsurers, whether
specific or general, any amounts which may have become due from them, whether
such inability arises from the insolvency of such other reinsurers or
otherwise.
ARTICLE 7
ULTIMATE NET LOSS
The term "Ultimate Net Loss" as used in this Contract shall mean the sum
actually paid or payable by the Reassured in settlement of any loss or losses
for which it is liable under its original policy or policies, including any
Pre-Judgement interest awarded by any Trial Court or Appeal Court, and/or any
additional liability incurred by the Reassured as a result of an award in
excess of their original policy limits, and/or any additional liability
incurred by the Reassured from any extra-contractual obligation, both as more
fully defined in ARTICLES 8 and 9 below.
The amount of the Reassured's Ultimate Net Loss shall also include all loss
adjustment expenses incurred by the Reassured in connection with the
adjustment, settlement or compromise of any loss including expenses of
litigation, if any, and all subrogation, salvage and recovery expenses, but
excluding the
<PAGE> 5
salaries of employees and all office expenses of the Reassured. For the
purposes hereof, loss adjustment expenses shall include Post-Judgement Interest
awarded by any Trial Court or Appeal Court.
All salvages and recoveries, including recoveries under all reinsurances which
inure to the benefit of this Contract, whether collected or not, shall first be
deducted from such loss to arrive at the amount of the Reassured's actual Loss
for the purposes of this Contract.
All salvages, recoveries and payments recovered or received subsequent to a
loss settlement under this Contract shall be applied as if recovered or
received prior to the aforesaid settlement and all necessary adjustments shall
be made by the parties hereto. However, nothing in the foregoing shall be
construed as meaning that losses are not recoverable hereunder until the
Reassured's Ultimate Net Loss has been ascertained.
ARTICLE 8
EXCESS OF ORIGINAL POLICY LIMITS
As provided in ARTICLE 7, ULTIMATE NET LOSS, this Contract shall protect the
Reassured, within the limits of this Contract, in respect of any additional
liability incurred by the Reassured as the result of an award in excess of
their original policy limit as more fully defined below. The Reinsurers agree
that the additional liability so incurred, plus the Reassured's contractual
loss, shall be considered as one combined loss for the purposes of the
Reassured's retention and of the recovery under this Contract subject always,
however, to the amount recoverable hereunder not exceeding the limit of
recovery under this Contract as provided in ARTICLE 2. COVER LIMIT AND
RETENTION.
Awards in excess of the Reassured's original policy limit are defined as losses
which the Reassured would have been contractually liable to pay, had it not
been for the limit of the original policy and where such losses in excess of
the original policy limit have been incurred because of failure by the
Reassured to settle within the original 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 defence or in the trial of any action against their
insured or in the preparation or prosecution of an appeal consequent upon such
action.
The claims made date for any such award in excess of the original policy limit
shall be deemed, in all circumstances, to be the same as the claims made date
of the original claim to which such award attaches.
However, this Article shall not apply where such awards in excess of original
policy limit have been incurred due to the fraud of a member of the Board of
Directors or a corporate officer of the Reassured acting individually or
collectively or in collusion with any individual or corporation or any other
organisation or party involved in the presentation, defence or settlement of
any claim.
ARTICLE 9
EXTRA-CONTRACTUAL OBLIGATIONS
As provided in ARTICLE 7, ULTIMATE NET LOSS, this Contract shall protect the
Reassured, within the limits of this Contract, in respect of any liability
incurred by the Reassured as the result of an award in respect of any
extra-contractual obligation, as more fully defined below. The Reinsurers agree
that the liability so incurred, plus the Reassured's contractual loss if any,
shall be considered as one combined loss for the purposes of the Reassured's
retention and of the recovery under this Contract subject always, however, to
the amount recoverable hereunder not exceeding the limit of recovery under this
Contract as provided in ARTICLE 2, COVER LIMIT AND RETENTION.
"Extra-contractual obligations" are defined as those liabilities of the
Reassured not covered under any other provision of this Contract and which
arise from the handling of any claim on business covered hereunder, such
liabilities arising because of, but not limited to, the following: failure by
the Reassured to settle within the policy limit, or by reason of alleged or
actual negligence, fraud or bad faith in rejecting
<PAGE> 6
an offer of settlement or in the preparation of the defence or in the trial
of any action against their insured or in the preparation or prosecution of an
appeal consequent upon such action.
The claims made date for any such extra-contractual obligation shall be deemed,
in all circumstances, to be the same as the claims made date of the original
claim to which such extra-contractual obligation attaches.
However, this Article shall not apply where such extra-contractual obligations
have been incurred due to the fraud of a member of the Board of Directors or a
corporate officer of the Reassured acting individually or collectively or in
collusion with any individual or corporation or any other organisation or party
involved in the presentation, defence or settlement of any claim.
ARTICLE 10
PREMIUM
A. In consideration of the liabilities undertaken by the Reinsurers in
accordance with the terms of this Contract, the Reassured shall pay to the
Rcinsurer:
1) a Minimum and Deposit Premium of US$35,000, payable in
advance in four equal instalments at 1st October 1997, 1st January
1998, 1st April 1998 and 1st July 1998.
As soon as possible after the expiry of this Contract, the
Reassured shall determine the adjusted reinsurance premium due
hereon by applying a rate of 5.00% to the total Gross Net Written
Premium Income applicable to original each claim policy limits of
up to and including US$300,000, including Premium in respect of the
Reassured's Defence Costs Allowance Rider issued on original each
claim policy limits of US$100,000, but subject always to the
application of the Minimum Premium due for the period hereon. Any
additional premium due in excess of the previously paid Minimum and
Deposit Premium due for the period hereon shall be remitted to
Reinsurers.
2) an Additional Reinsurance Premium to be determined quarterly
within 60 days of the close of each quarter at a rate determined by
reference to the original Gross Net Written Premium Income for all
policies incepting or renewed during the applicable quarter,
according to the following scale;
a) 36.00% of the Original Gross Net Written Premium
Income for original policies with an each claim limit of US$
1,000,000;
b) 16.50% of the Original Gross Net Written Premium
Income for original policies with an each claim limit of
US$500,000.
The Reinsurers agree to allow the Reassured to deduct and
retain for their own benefit as Ceding Commission 15.00% of
the additional Gross Reinsurance Premium so determined.
The Additional Reinsurance Premium so determined shall be
payable in addition to that determined under 1) above.
3) further Additional Reinsurance Premium in respect of
additional limits issued under the Reassured's Defence Costs
Allowance Rider, according to the following scale;
a) US$112 per lawyer on original policies with an
each claim limit of US$250,000 and an additional Defence Costs
Allowance limit of US$125,000;
<PAGE> 7
b) US$250 per lawyer on original policies with an each claim
limit of US$500,000 and an additional Defence Costs Allowance
limit of US$2S0,000;
c) US$220 per lawyer on original policies with an each claim
limit of US$1,000,000 and an additional Defence Costs
Allowance limit of US$250,000.
The Reinsurers agree to allow the Reassured to deduct and retain
for their own benefit as Ceding Commission 15.00% of the Additional
Gross Reinsurance Premium so determined.
The Additional Reinsurance Premium so determined shall be payable
in addition to that determined under 1) and 2) above.
B. The Premium Income payable hereon for the purposes of determining the
Maximum Recoverable hereunder, shall comprise the sum of
a) The adjusted Premium payable under Section 1) above, plus
b) The net Additional Reinsurance Premium payable under Section
2) above, after deduction of Ceding Commission, plus
c) The net Additional Reinsurance premium payable under Section
3) above, after deduction of Ceding Commission.
The term "Gross Net Written Premium Income" shall for all purposes of this
Contract, be understood to mean the full gross amount of the premiums charged
by the Reassured to their original insureds less cancellation and return
premiums, and less premiums paid for reinsurances which inure to the benefit of
this Contract.
ARTICLE 11
PERIOD
This Contract takes effect on 1st October, 1997 and applies to claims made on
original policies attaching during the period from 1st October, 1997 to 30th
September 1998, both days inclusive, including extended reporting endorsements
issued by the Reassured attached thereto.
In the event of the non-renewal of this Contract, Reinsurers shall continue to
be liable hereunder in respect of all claims made on original policies,
including discovery period coverage and/or extended reporting endorsements
attached thereto, in force on the date of non-renewal under the natural expiry
or first anniversary (whichever sooner) of such policies but in no event for
longer than twelve months plus odd time, except in the case of discovery period
coverage and/or extended reporting endorsements which may have up to an
unlimited period.
For all purposes of this Article, any extent reporting endorsement attaching to
a policy covered hereunder shall be considered as part of the period of the
said policy, subject to the provision that a separate limit of liability may
apply in respect thereof. Any claim or incident reported under any extended
reporting endorsement shall be deemed to have been made on the last day
coverage was in force prior to the issuance of such endorsement.
LOSS REPORTS AND PAYMENTS
The Reinsurers agree to abide by all loss settlements of the Reassured which,
at its sole discretion, shall adjust, settle or compromise all losses. All such
adjustments, settlements or compromises shall be
<PAGE> 8
unconditionally binding upon the Reinsurers, who shall also benefit in due
proportion from any salvages, recoveries and compromises effected or negotiated
by the Reassured.
The Reassured shall advise the Reinsurers of all paid losses and outstanding
losses hereunder, and of any subsequent developments in connection therewith,
which are reserved by the Reassured at, or in excess of US$300,000 Ultimate Net
Loss.
The information provided by the Reassured shall be sufficient to enable the
individual losses, the nature of each claim, the claim made date and the
inception or renewal dates of the policies to which such losses relate, to be
readily identified.
The Reinsurers agree to pay any amount for which they may be liable under this
Contract as soon as possible after the settlement request has been furnished to
them.
ARTICLE 13
CURRENCY
The currency to be used for all purposes of this Contract shall be United
States Dollars.
ARTICLE 14
ACCESS TO RECORDS AND CLAIMS REVIEW
All documents and records in the possession of the Reassured concerning this
Contract shall be made available upon reasonable notice at the request of the
Reinsurers for inspection at the Reassured's offices by the Reinsurers or their
nominated representatives for the purposes of obtaining information concerning
this Contract or the subject matter hereof.
Specifically, the Reinsurers shall be entitled to nominate a representative to
assess the Reassured's claims and claims procedures.
For the avoidance of doubt, it is hereby expressly agreed that the rights given
to the Reinsurers' by this Article shall continue in effect notwithstanding the
expiration of this Contract and shell be exercised at the Reinsurers' own
expense.
ARTICLE 15
LOSS RESERVES
This Article applies only to those Reinsurers signatory hereto who do not
qualify for credit under the regulations of the State insurance authorities or
departments which have jurisdiction over the Reassured's loss reserves.
The Reassured agrees that when, for its Annual Convention Statement purposes,
it files with the authorities or departments mentioned above or sets up in its
books statutory reserves for known outstanding losses and allocated loss
expenses reinsured by this Contract it shall forward to the Reinsurers a clear
statement of the Reinsurers' proportion of those reserves detailing the amounts
involved for known outstanding losses and allocated loss expenses and also how
those amounts are calculated.
The Reinsurers, promptly upon receipt of the Reassured's statement, shall apply
for and secure delivery to the Reassured of a clean, irrevocable and
unconditional Letter of Credit, in an amount equal to their proportion stated
reserves. Under no circumstances shall any amount relating to reserves in
respect of losses or loss expenses Incurred But Not Reported be included in the
amount of the Letter of Credit.
<PAGE> 9
All Letters of Credit procured pursuant to this Contract shall be issued by a
Bank which is a Member of the Federal Reserve and shall be in full conformity
with the requirements of the authorities or departments mentioned in the first
paragraph of this Article current at the date of the Reassured's statement.
Further, they shall be "Evergreen" in that they shall be issued for an initial
period of not less than one year and shall be automatically extended for one
year from their original expiration dates and subsequently from their extended
expiration dates unless and until, at least thirty days before any expiration
date, the issuing bank gives notice to the Reassured by registered mail that
the issuing bank elects not to extend the Life of the Letter of Credit in
question beyond its forthcoming expiration date.
In consideration of the agreement of the Reinsurers to furnish such Letters of
Credit to the Reassured to enable it to obtain credit for the reinsurance
provided under this Contract, the Reassured hereby undertakes to hold such
Letters of Credit and the proceeds of any drawings made upon them in trust for
the Reinsurers and to use and apply the proceeds of any such drawings for the
following purposes only:
a. To pay the Reinsurers' share or to reimburse the Reassured
for that share of any Liability for loss or allocated loss expense
reinsured by this Contract;
b. To refund to the Reinsurers any balance by which the amount
of the Letter of Credit exceeds the Reinsurers' proportion of any
Liability for loss or allocated loss expense reinsured by this
Contract.
c. In the event that one or more of the Reinsurers participating
in the Letter of Credit gives timely notice of cancellation or
non-renewal of their participation in the Letter of Credit and
provided that the obligations secured by the Letter of Credit remain
unliquidated and undischarged at the time of receipt by the
Reassured of such notice, to create a cash deposit account, separate
from its own assets, in an amount equal to the participation of the
canceling or non-renewing Reinsurer(s) in the Letter of Credit. That
cash deposit account may then be used only as in subparagraphs a and
b above. It is understood and agreed that this procedure may only be
implemented before the expiry of the notice period in respect of
cancellation or non-renewal and that if it is implemented, the
Reassured will ensure that a rate of interest is obtained for the
Reinsurers on such a deposit account that is at least equal to the
rate which would be paid by Citibank N.A. in New York, and further
that the Reassured will account to the Reinsurers on an annual basis
for all interest accruing on the cash deposit account for the
benefit of the Reinsurers.
The issuing bank shall have no responsibility whatsoever in connection with the
propriety of drawings made by the Reassured on the Letters of Credit issued
under This Contract or in connection with the disposition of any funds so
withdrawn, except to ensure that drawings are made only upon the order of
properly authorized representatives of the Reassured.
All Letters of Credit procured for the Reassured under this Contract shall be
adjusted at annual intervals, or more frequently as agreed (but never more
frequently than quarterly), to reflect the current balance of the Reinsurers'
proportion of the Reassured's known outstanding loss and allocated loss expense
reserves and the Reassured shall produce a statement for this purpose detailed
in the same way as the origina1 statement on the basis of which such Letters of
Credit were first issued. If the statement shows that the Reinsurers'
proportion of such losses and allocated expenses exceeds the current amount of
the Letters of Credit, the Reinsurers shall, within thirty days after receipt
of the statement secure the amendment of the Letters of Credit increasing their
amount to the amount of the current balance of those items. If, however, the
statement shows that the Reinsurers' proportion of the current balance of those
items is less than the amount of the Letters of Credit the Reassured shall,
within thirty days of receipt of a written request from the Reinsurers to do
so, facilitate the release of the excessive security by authorizing the
amendment of the Letters of Credit so as to reduce their amount to the current
balance required.
Under no circumstances shall any excessive security so determined be applied
towards securing the Reassured reserves for losses or loss expenses Incurred
But Not Reported.
<PAGE> 10
All expenses incurred in the establishment or maintenance of such Letters of
Credit shall be for the account of the Reinsurers.
ARTICLE 16
TAX PROVISIONS
The Reassured shell be Liable for all taxes (except Federal Excise Tax) levied
on premiums payable to the Reinsurers hereunder. Federal Excise Tax applies
only to those Reinsurers, excepting Underwriters at Lloyd's, London and other
Reinsurers exempt from the Federal Excise Tax, who are domiciled outside the
United States of America.
To the extent that such premium is subject to Federal Excise Tax, the
Reinsurers hereby agree to allow as a deduction from the premium, for the
purpose of paying Federal Excise Tax, 1% of the premium payable hereon.
In the event of any return premium becoming due hereunder the Reinsurers will
deduct 1% from the amount of the return, and the Reassured or their agents
shall take stops to recover the tax from the Government of the United States of
America.
Notwithstanding the above, any changes in the Federal Excise Tax rate or the
exemption status of Reinsurers shall be automatically applicable to this
Contract.
In consideration of the terms under which this Contract is issued, the
Reassured undertake not to claim any deduction in respect of premium payable
hereon when making tax returns, other than Income or Profits tax returns, to
any fiscal authority of the United States of America or any State or Territory
thereof.
ARTICLE 17
DELAYS. ERRORS OR OMISSIONS
No inadvertent delay, error or omission shall be held to relieve either party
hereto of any liability which would have attached to them under this Contract
if such delay, error or omission had not been made, provided that rectification
is made immediately upon discovery.
ARTICLE 18
INSOLVENCY OF THE REASSURED
Amounts due to the Reassured under this Contract shall be payable by the
Reinsurers on the basis of the liability of the Reassured under the original
policies reinsured hereunder without diminution because of the insolvency of
the Reassured.
In the event of the insolvency of the Reassured, the Liquidator or Receiver or
Statutory Successor of the Reassured shall give written notice to the
Reinsurers of the pendency of any claim against the insolvent Reassured on the
origina1 policies reinsured hereunder within a reasonable time after such claim
is filed in the insolvency proceedings. During the pendency of such claim the
Reinsurers may investigate such claim and intervene, at their own expense, in
the proceedings where such claim is to be adjudicated and interpose any defense
or defenses which they may deem available to the Reassured or its Liquidator or
Receiver or Statutory Successor. The expense thus incurred by the Reinsurers
shall be chargeable, subject to court approval, against the insolvent Reassured
as part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Reassured solely as a result of the defence
so undertaken by the Reinsurers.
<PAGE> 11
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to investigate the claim and/or to interpose defence to such
claim, the expense shell be apportioned in accordance with the terms of the
above paragraph as though such expense had been incurred by the Reassured.
Should the Reassured go into liquidation or should a Receiver be appointed,
Reinsurers shall be entitled to deduct from any sums which may be or may become
due to the Reassured under this Contract any sums which are due to Reinsurers
from the Reassured under this Contract and which are expressed herein to be
payable at a fixed or stated date, as well as any other sums due to the
Reinsurers which are permitted to be offset under applicable law.
In the event of the insolvency of the Reassured, the amounts due to the
Reassured under this Contract shall be payable by the Reinsurers directly to
the Reassured or to its Liquidator, Receiver or Statutory Successor.
ARTICLE 19
AMENDMENTS AND ALTERATIONS
The terms herein contained comprise the whole Contract between the Reassured
and the Reinsurers and may only be changed in writing, signed by or on behalf
of both parties.
ARTICLE 20
ARB1TRATION
As a condition precedent to any right of action hereunder, all disputes or
differences arising out of or connected with this Contract (whether or not
arising before or after cancellation) including interpretation or
implementation of its terms, shall be referred to arbitration, in the City in
which the Reassured's principal office is located.
The party which desires to refer a matter to Arbitration ("the Claimant") shall
so notify the other party ("the Respondent") in writing and at the time of so
doing shall request the Respondent to agree as sole Arbitrator one of a list of
three individuals whom the Claimant shall name. The Respondent shall, within 30
days of receipt of the said notice, notify the Claimant either (a) that it
agrees one of those three individuals as sole Arbitrator, thus completing the
constitution of the Arbitral Tribunal, or (b) that it nominates another person
as its own Arbitrator.
In the event that the Respondent nominates its own Arbitrator, the Claimant
shall itself nominate its own Arbitrator within 30 days of receipt by it of the
Respondent's notice. The two Arbitrators so nominated shall, within 30 days of
the appointment of the second of them, themselves appoint a third Arbitrator to
complete the constitution of the Arbitral Tribunal.
Should the Respondent or the two chosen Arbitrators fail to make the
appointment required of them, then on application of the Claimant, the American
Arbitration Association will appoint the third arbitrator, and such appointment
will be made in accordance with the qualifications set forth in this Article
without regard to any of the American Arbitration Association's commercial
arbitration rules, including its rules concerning the qualifications and/or
nationality of arbitrators.
All Arbitrators shall be active or former disinterested officials of Insurance
or Reinsurance Companies or Lloyd's Underwriters who have experience of the
class of business which is the subject matter of this Contract.
The Arbitral Tribunal shall interpret this Contract as if it wore an honorable
engagement and not as merely a legal obligation; it is relieved of all judicial
formalities and may abstain from following the strict
<PAGE> 12
rules of law, and shall make its award with a view to effecting the general
purpose of this Contract in a reasonable manner with due regard to the custom
and usage of the insurance and reinsurance business.
The Arbitral Tribunal shall have fall discretion to make such orders as it
thinks fit in connection with all procedural matters in the Arbitration,
including but not limited to the conduct of the reference by written or oral
submissions, the production of documents, the examination of witnesses, and the
imposition of time limits for the taking of necessary procedural stops. The
Arbitral Tribunal shall also have fall discretion to make such orders as it
thinks fit with regard to the payment of the costs of the Arbitration including
attorneys' costs and fees. Punitive damages shall not be awarded, however the
Arbitral Tribunal may, at its discretion, award such other costs and expenses
as it deems appropriate, including but not limited to attorneys' fees, to the
extent permitted by law.
If more than one Reinsurer is involved in the same dispute, all such Reinsurers
shall constitute and act as one party for purposes of this clause, and
communications shall be made by the Reassured to each of the Reinsurers
constituting the one party, provided that nothing therein shall impair the
rights of such Reinsurers to assert several, rather than joint, defenses or
claims, nor be construed as changing the liability of the Reinsurers under the
terms of this Contract from several to joint.
Any Award or order of the Arbitral Tribunal or a majority thereof shall be
binding on the parties and there shall be no right of appeal therefrom For the
purpose of enforcement of any Final Award7 such;->
Final Award may be made a Rule of any Court of competent jurisdiction.
ARTICLE 21
SERVICE OF SUIT (NMA 1998)
This Article applies only to those Reinsurers signatory hereto who are
domiciled outside the United States of America or, should the Reassured be
authorized to do business in the State of New York, those Reinsurers who are
unauthorized in New York as respects suits instituted in New York.
It is agreed that in the event of the failure of the Reinsurers hereon to pay
any amount claimed to be due hereunder, the Reinsurers hereon, at the request
of the Reassured, will submit to the jurisdiction of a Court of competent
jurisdiction within the United States. Nothing in this Article constitutes or
should be understood to constitute a waiver of Reinsurers' rights to commence
an action in any Court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer of a
case to another Court as permitted by the laws of the United States or of any
State in the United States.
It is further agreed that service of process in such suit may be made upon
Mendes and Mount, 750 Seventh Avenue, New York N.Y. 10019-6829, and that in any
suit instituted against any one of them upon this Contract, Reinsurers will
abide by the final decision of such Court or of any Appellate Court in the
event of any appeal.
The above-named are authorized and directed to accept service of process on
behalf of Reinsurers in any such suit and/or upon the request of the Reassured
to give a written undertaking to the Reassured that they will enter a general
appearance upon Reinsurers' behalf in the event such a suit shall be instituted
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, Reinsurers hereon hereby
designate the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reassured or any beneficiary hereunder arising out of this Contract of
Reinsurance, and hereby designate the above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof
<PAGE> 13
ARTICLE 22
INTERMEDIARY
Carvill America, 180 North Stetson Avenue, Suite 5100, Chicago, Illinois,
60601, is hereby recognized as the Intermediary negotiating this Contract. All
communications (including but not limited to notices, statements, premiums,
return premiums, commissions, taxes, losses, loss adjustment expenses, salvages
and loss settlements) relating thereto shall be transmitted to the Reassured or
the Reinsurers through Carvill America. Payments by the Reassured to the
Intermediary shall be deemed to constitute payment to the Reinsurers. Payments
by the Reinsurers to the Intermediary shall be deemed to constitute payment to
the Reassured only to the extent that such payments are actually received by
the Reassured.
ARTICLE23
PARTICIPATION
This Contract obligates each of the Reinsurers for their proportion of the
interests and liabilities set forth under this Contract, such proportions being
shown in the attached Schedules.
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for any
reason does not satisfy all or part of its obligations.
IN WITNESS WHEREOF the parties hereto have, by their duly authorized
representative, executed this Contract as follows:
Signed in Springfield, Missouri this day of 1997
For and on behalf of the Reassured:
INTERLEX INSURANCE COMPANY
And for the Reinsurers by means of and in accordance with the attached
schedules which shall be considered to form an integral part of this Contract.
<PAGE> 14
SCHEDULE A
Attaching to and forming part of the
LAWYERS' PROFESSIONAL LIABILITY
PRIMARY EXCESS OF LOSS REINSURANCE CON=ACT
effected between
INTERLEX INSURANCE COMPANY
of Springfield, Missouri
(hereinafter referred to as the "Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as the "Reinsurers")
Signed in London, England, this day of 199
93.01% VARIOUS UNDERWRITING MEMBERS OF LLOYD'S
per schedule attached hereto
<PAGE> 1
Exhibit 10.37
TITLE: LAWYERS' PROFESSIONAL LIABILITY
PRIOR AGREEMENT EXCESS REINSURANCE
CONTRACT
BETWEEN: INTERLEX INSURANCE COMPANY
AND
THE REINSURERS SIGNATORY HERETO
COMMENCING: 1ST OCTOBER, 1996
U. S. CLASSIFICATION: U.S. REINSURANCE
<PAGE> 2
INDEX
PREAMBLE IDENTITY OF PARKS
ARTICLE 1 BUSINESS REINSURED
ARTICLE 2 COVER, LIMIT AND RETENTION
ARTICLE 3 DEFINITIONS
ARTICLE 4 TERRITORTIAL SCOPE
ARTICLE 5 EXCLUSIONS
ARTICLE 6 EXTRA-CONTRACTUAL OBLIGATIONS
ARTICLE 7 PREMIUM
ARTICLE 8 PERIOD
ARTICLE 9 LOSS REPORTS AND PAYMENTS
ARTICLE 10 CURRENCY
ARTICLE 11 ACCESS TO RECORDS AND CLAIMS REVIEW
ARTICLE 12 LOSS RESERVES
ARTICLE 13 TAX PROVISIONS
ARTICLE 14 DELAYS, ERRORS OR OMISSIONS
ARTICLE 15 INSOLVENCY OF THE REASSURED
ARTICLE 16 AMENDMENTS AND ALTERATIONS
ARTICLE 17 ARB1TRATION
ARTICLE 18 SERVICE OF SUIT (NMA 1998)
ARTICLE 19 INTERMEDIARY
ARTICLE 20 PARTICIPATION
ATTACHMENTS NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY
REINSURANCE - U.S.A.
<PAGE> 3
LAWYERS' PROFESSIONAL LIABILITY
PRIOR AGREEMENT EXCESS OF LOSS REINSURANCE CONTRACT
PREAMBLE
This Contract is made and entered into between Interlex Insurance Company of
1903 E. Battlefield, Springfield, Missouri 65804, U.S.A. (NAIC Code 10037)
(hereinafter referred to as the "Reassured") and the Reinsurers signatory
hereto (hereinafter referred to as the "Reinsurers"), on the following terms
and conditions:
ARTICLE 1
BUSINESS REINSURED
Claims made against the Reassured as hereinafter provided and specified on any
policies written or renewed by the Reassured covering Lawyers' Professional
Liability and all other ancillary coverages as original and as declared and
agreed prior to binding by Reinsurers.
ARTICLE 2
COVER LIMIT AND RETENTION
This Contract applies to excess policies coming within the scope of this
Contract which are issued by the Reassured for limits in excess of either
US$1,000,000 each and every insured each claim and/or US$3,000,000 in the
aggregate each policy where applicable.
In respect of all such excess policies the Reassured shall cede, and the
Reinsurers shall accept by way of reinsurance under this Contract, liability in
excess of minimum underlying limits of either US$1,000,000 each and every
insured each claim and/or US$3,000,000 in the aggregate each policy where
applicable.
The Reassured shall retain the said underlying limits for their own account
but, without prejudice to the above, shall be at liberty to protect that
retention by way of reinsurance for their own account and benefit.
With respect to each such cession, no claim shall be made under this Contract
unless and until the Reassured have paid or advanced, or agreed to pay or
advance, an amount in excess of the said underlying limits.
The Reinsurers shall then be liable for the amount in excess of the said
underlying limits, but the amount recoverable hereunder shall not exceed the
difference between up to US$5,000,000 each and every insured each claim and/or
US$5,000,000 in the aggregate each policy where applicable and the
aforementioned underlying limit of US$1,000,000 each and every insured each
claim and/or US$3,000,000 in the aggregate each policy where applicable.
ARTICLE 3
DEFINITIONS
A. The terms "Policy" or "Policies", as used in this Contract shall mean any
binder, policy, endorsement or contract of insurance, including any
certificates issued thereunder, issued, accepted or held covered by the
Reassured.
<PAGE> 4
B. For the purposes of this Contract the "claim made" date shall be as
defined under the original policy. Furthermore, as regards extended
reporting endorsements, the date a claim is made shall determine the date
of loss for the purpose of this contract.
ARTICLE 4
TERRITORLAL SCOPE
This Contract shall cover wherever the Reassured's original policies cover.
ARTICLE 5
EXCLUSIONS
This Contract does not apply to and absolutely excludes the following:
1. Nuclear Incidents, in accordance with the attached Nuclear Incident
Exclusion Clause Liability- Reinsurance- U.S.A.
2. All liability of the Reassured arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any Insolvency Fund. "Insolvency Fund" includes any Guaranty
Fund, Insolvency Fund, Plan, Pool, Association, Fund or other arrangement,
howsoever denominated, established or governed which provides for any
assessment of or payment or assumption by the Reassured of part or aU of any
claim, debt, charge, fee or other obligation of an insurer, or its
successors or assigns which has been declared by any competent authority to
be insolvent or which is otherwise deemed unable to meet any claim, debt,
charge, fee or other obligation in whole or in part.
3. Reinsurance Assumed
ARTICLE 6
EXTRA-CONTRACTUAL OBLIGATIONS
This Contract shall protect the Reassured, within the limits of the original
policy, in respect of any liability incurred by the Reassured as the result of
an award in respect of any extra contractual obligation as more full defined
below. The Reinsurers agree that the liability so incurred, plus the
Reassured's contractual loss if any, shall be considered as one combined loss
for the purposes of the Reassured's retention and of the recovery under this
Contract subject always, however, to the amount recoverable hereunder not
exceeding the limit of the original policy.
"Extra-contractual obligations" are defined as those liabilities of the
Reassured not covered under any other provision of this Contract and which
arises from the handling of any claim on business covered hereunder, such
liabilities arising because of, but no limited to, the following: failure by
the Reassured 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 defence or in the trial of any action against their
insured or in the preparation or prosecution of an appeal consequent upon such
action.
The date of which any extra-contractual obligation is incurred by the Reassured
shall be deemed, in all circumstances, to be the date the original claim was
made.
However, this Article shall not apply where such extra-contractual obligations
have been incurred due to the fraud of a member of the Board of Directors or a
corporate officer of the Reassured acting individually or collectively or in
collusion with any individual or corporation.
<PAGE> 5
ARTICLE 7
PERIOD
This Contract takes effect on 1st October, 1996 and applies to claims made
against the Reassured on original policies attaching during the period from 1st
October, 1996 to 30th September, 1997 both days inclusive, including extended
reporting endorsements attaching to any said policies.
In the event of non-renewal of this Contract, all policies, including extended
reporting endorsements attaching thereto, in force as of the effective time and
date of non-renewal shall continue to be covered until their individual natural
expiration termination or next anniversary dates, whichever comes first, but in
no event for longer than twelve months plus odd time from the effective time
and date of cancellation, except in the case of extended reporting endorsements
coverage which may be unlimited.
For all purposes of this Article, any extended reporting endorsement attaching
to a policy covered hereunder shall be considered as part of the period of the
said policy, subject to the provision that a separate limit of liability may
apply in respect thereof. Any claim or incident reported under any extended
reporting endorsement shall be deemed to have been made on the last day
coverage was in force prior to the issuance of such endarsement.
ARTICLE 8
PREMIUM
The Reassured shall pay to the Reinsurers the Original net premiums for limits
attaching to this Contract. Original net premium is the Original Gross Premium
of the Individual Policy as determined and agreed by Reinsurers, less 10%.
Accounts between the parties shall be rendered and settled by the Reassured on
a quarterly basis within 60 days following the end of each quarter. Any balance
due from the Reinsurers shall be settled by them as soon as possible after the
accounts have been rendered to them.
ARTICLE 9
LOSS REPORTS AND PAYMENTS
The Reinsurers agree to abide by all loss settlements of the Reassured subject
to such settlements being within the terms and conditions of the policies and
of this Contract. The Reassured at its sole discretion shall adjust, settle or
compromise all losses and all such adjustments, settlements or compromises
shall be unconditionally binding upon the Reinsurers, who shall also benefit in
due proportion from any salvages, recoveries and compromises effected or
negotiated by the Reassured.
The Reassured shall advise the Reinsurers promptly of all losses, and of any
subsequent developments in connection therewith, which are reserved by the
Reassured at $1,000,000 Ultimate Net Loss or more, from the ground up.
The information provided by the Reassured shall be sufficient to enable the
individual losses, the nature of each claim, the claim made date and the
inception or renewal dates of the policies to which such losses relate, to be
readily identified.
The Reinsurers agree to pay any amount for which they may be liable under this
Contract as soon as possible after the settlement request has been furnished to
them.
<PAGE> 6
ARTICLE IO
CURRENCY
The currency to be used for all purposes of this Contract shall be United
States Dollars.
ARTICLE I 1
ACCESS TO RECORDS AND CLAIMS REVIEW
All documents and records in the possession of the Reassured conceming this
Contract shall be made available upon reasonable notice at the request of the
Reinsurers for inspection at the Reassured's offices by the Reinsurers or their
nominated representatives for the purposes of obtaining information concerning
this Contract or the subject matter hereof.
Specifically, the Reinsurers shall be entitled to nominate a representative to
assess the Reassured's claims and claims procedures.
For the avoidance of doubt, it is hereby expressly agreed that the rights given
to the Reinsurers by this Article shall continue in effect notwithstanding the
expiration of this Contract and shall be exercised at the Reinsurers' own
expense.
ARTICLE 12
LOSS RESERVES
This Article applies only to those Reinsurers signatory hereto who do not
qualify for credit under the regulations of the State insurance authorities or
departments which have jurisdiction over the Reassured's loss reserves.
The Reassured agree that when, for its Annual Convention Statement purposes, it
files with the authorities or departments mentioned above or sets up in its
books statutory reserves for known outstanding losses and allocated loss
expenses reinsured by this Contract it shall forward to the Reinsurers a clear
statement of the Reinsurers' proportion of those reserves detailing the amounts
involved for known outstanding losses and allocated loss expenses and also how
those amounts are calculated.
The Reinsurers, promptly upon receipt of the Reassured's statement, shall apply
for and secure delivery to the Reassured of clean, irrevocable and
unconditional Letters of Credit, in amounts equal to their proportion of the
stated reserves. Under no circumstances shall any amount relating to reserves
in respect of losses or loss expenses Incurred But Not Reported be included in
the amount of the Letter of Credit.
All Letters of Credit procured pursuant to this Contract shall be issued by a
Bank which is a Member of the Federal Reserve and shall be in full conformity
with the requirements of the authorities or departments mentioned in the first
paragraph of this Article current at the date of the Reassured's statement.
Further, they shall be "Evergreenn in that they shall be issued for an initial
period of not less than one year and shall be automatically extended for one
year from their original expiration dates and subsequently from their extended
expiration dates unless and until, at least thirty days before any expiration
date, the issuing bank gives notice to the Reassured by registered mail that
the issuing bank elects not to extend the life of the Letter of Credit in
question beyond its forthcoming expiration date.
In consideration of the agreement of the Reinsurers to furnish such Letters of
Credit to the Reassured to enable it to obtain credit for the reinsurance
provided under this Contract, the Reassured hereby
<PAGE> 7
undertakes to hold such Letters of Credit and the proceeds of any drawings made
upon them in trust for the Reinsurers and to use and apply the procesds of any
such drawings for the following purposes only:
a. To pay the Reinsurers' share or to reimburse the Reassured for that
share of any liability for loss or allocated loss expense reinsured by
this Contract;
b. To refund to the Reinsurers any balance by which the amount of the
Letter of Credit exceeds the Reinsurers' proportion of any liability for
loss or aUocated loss expense reinsured by this Contract;
c. In the event that one or more of the Reinsurers participating in the
Letter of Credit gives timely notice of cancellation or non-renewal
of their participation in the Letter of Credit and provided that in respect
of cancellation or non-renewal and that if it is implemented, the Reassured
will ensure that a rate of interest is obtained for the Reinsurers on such
a deposit account that is at least equal to the rate which would be paid by
Citibank N.A. in New York, and further that the Reassured with account to
the Reinsurers on an annual basis for all interest accruing on the cash
deposit account for the banefit of the Reinsurers.
The issuing bank shall have no responsibility whatsoever in connection with the
propriety of drawings made by the Reassured on the Letters of Credit issued
under this Contract or in connection with the disposition of any funds so
withdrawn, except to ensure that drawings are made only upon the order of
properly authorized representatives of the Reassured.
All Letters of Credit procured for the Reassured under this Contract shall be
adjusted at annual intervals, or more frequently as agreed (but never more
frequently than quarterly), to reflect the current balance of the Reinsurers'
proportion of the Reassured's known outstanding loss and allocated loss expense
reserves and the Reassured shall produce a statement for this purpose detailed
in the same way as the original statement on the basis of which such Letters of
Credit were first issued. If the statement shows that the Reinsurers'
proportion of such losses and allocated expenses reserves exceeds the current
amount of the Letters of Credit, the Reinsurers shall, within thirty days after
receipt of the statement secure the amendment of the Letters of Credit
increasing their amount to the amount of the current balance of these items.
If, however, the statement, shows that the Reinsurers' proportion of the
current balance of those items is less than the amount of the Letters of Credit
the Reassured shall, within thirty days of receipt of a written request from
the Reinsurers to do so, facilitate the release of the excessive security by
authorizing the amendment of the Letters of Credit so as to reduce their amount
to the current balance required.
Under no circumstances shall any excessive secutity so determined be applied
towards securing the Reassured's reserves for losses or loss expenses Incurred
But Not Reported.
All expenses incurred in the establishment or maintenance of such Letters of
Credit shall be for the account of the Reinsurers.
ARTICLE 13
TAX PROVISIONS
The Reassured shall be liable for all taxes (except Federal Excise Tax) levied
on premiums payable to the Reinsurers hereunder. Federal Excise Tax applies
only to those Reinsurers, excepting Underwriters at Lloyd's, London and other
Reinsurers exempt from the Federal Excise Tax, who are domiciled outside the
United States of America.
To the extent that such premium is subject to Federal Excise Tax, the
Reinsurers hereby agree to allow as a deduction from the premium, for the
purpose of paying Federal Excise Tax, 1% of the premium payable hereon.
<PAGE> 8
In the event of any return premium becoming due hereunder the Reinsurers with
deduct 1% from the amount of the return, and the Reassured or their agents
shall take stops to recover the tax from the Government of the United States of
America.
Notwithstanding the above, any changes in the Federal Excise Tax rate or the
exemption status of Reinsurers shall be automatically applicable to this
Contract.
In consideration of the terms under which this Contract is issued, the
Reassured undertake not to claim any deduction in respect of premium payable
hereon when mailing tax returns, other than Income or Profits tax returns, to
any fiscal authority of the United States of America or any State or Territory
thereof.
ARTICLE 14
DELAYS, ERRORS OR OMISSIONS
No inadvertent delay, error or omission shall be held to relieve either party
hereto of any liability which would have attached to them under this Contract
if such delay, error or omission had not been made, provided that
recitification is made immediately upon discovery.
ARTICLE 15
INSOLVENCY OF THE REASSURED
Amounts due to the Reassured under this Contract shall be payable by the
Reinsurers on the basis of the liability of the Reassured under the original
policies reinsured hereunder without diminution because of the insolvency of
the Reassured.
In the event of the insolvency of the Reassured, the Liquidator or Receiver or
Statutory Successor of the Reassured shall give written notice to the
Reinsurers of the pendency of any claim against the insolvent Reassured on the
original policies reinsured hereunder within a reasonable time after such claim
is filed in the insolvency proceedings. During the pendency of such claim the
Reinsurers may investigate such claim and intervene, at their own expense, in
the proceedings where such claim is to be adjudicated and interpose any defence
or defences which they may deem available to the Reassured or their Liquidator
or Receiver or Statutory Successor. The expense thus incurred by the Reinsurers
shall be chargeable, subject to court approval, against the insolvent Reassured
as part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Reassured solely as a result of the defence
so undertaken by the Reinsurers.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to investigate the claim and/or to interpose defence to such
claim, the expense shall be apportioned in accordance with the terms of the
above paragraph as though such expense had been incurred by the Reassured.
Should the Reassured go into liquidation or should a receiver be appointed, the
Reinsurers shall be entitled to deduct from any sums which may be or may become
due to the Reassured under this Contract any sums which are due to the
Reinsurers from the Reassured under this Contract and which are expressed
herein to be payable at a fixed or stated date, as well as any other sums due
to the Reinsurers which are permitted to be offset under applicable law.
In the event of the insolvency of the Reassured, the amounts due to the
Reassured under this Contract shell be payable by the Reinsurers directly to
the Reassured or to their Liquidator, Receiver or Statutory Successor.
<PAGE> 9
ARTICLE 16
AMENDMENTS AND ALTERATIONS
The terms herein contained comprise the whole Contract between the Reassured
and the Reinsurers and may only be changed in writing, signed by or on behalf
of both parties.
ARTICLE 17
ARBITRATION
As a condition precedent to any right of action hereunder, all disputes or
differences arising out of or conlnected with this Contract (whether or not
arising before or after cancellation) including interpretation or
implementation of its terms, shall be referred to arbitration, in the City in
which the Reassured's principal office is located.
The party which desires to refer a matter to Arbitration (.the Claimant") shall
so notify the other party ("the Respondent") in writing and at the time of so
doing shall request the Respondent to agree as sole Arbitrator one of a list of
three individuals whom the Claimant shall name. The Respondent shall, within 30
days of receipt of the said notice, notify the Claimant either (a) that it
agrees one of those three individuals as sole Arbitrator, thus completing the
constitution of the Arbitral Tribunal, or (b) that it nominates another person
as its own Arbitrator.
In the event that the Respondent nominates its own Arbitrator, the Claimant
shall itself nominate its own Arbitrator within 30 days of receipt by it of the
Respondent's notice. The two Arbitrators so nominated shall, within 30 days of
the appointment of the second of them, themselves appoint a third Arbitrator to
complete the constitution of the Arbitral Tribunal.
Should the Respondent or the two chosen Arbitrators fail to make the
appointment required of them, then on application of the Claimant, the American
Arbitration Association will appoint the third arbitrator, and such appointment
wiU be made in accordance with the qualifications set forth in this Article
without regard to any of the American Arbitration Association's commercial
arbitration rales, including its rules conceming the qualifications and/or
nationality of arbitrators.
All Arbitrators shall be active or former disinterested officials of Insurance
or Reinsurance Companies or Lloyd's Underwriters who have experience of the
class of business which is the subject matter of this Contract.
The Arbitral Tribunal shall interpret this Contract as if it were an honourable
engagement and not as merely a legal obligation; it is relieved of all judicial
formalities and may abstain from following the strict rules of law, and shall
make its award with a view to effecting the general purpose of this Contract in
a reasonable manner with due regard to the custom and usage of the insurance
and reinsurance business.
The Arbitral Tribunal shall have full discretion to make such orders as it
thinks fit in connection with all procedural matters in the Arbitration,
including but not limited to the conduct of the reference by written or oral
submissions, the production of documents, the examination of witnesses, and the
imposition of time limits for the taking of necessary procedural steps. The
Arbitral Tribunal shall also have full discretion to make such orders as it
thinks fit with regard to the payment of the costs of the Arbitration including
attorneys' costs and fees. Punitive damages shall not be awarded, however the
Arbitral Tribunal may, at its discretion, award such other costs and expenses
as it deems appropriate, including but not limited to attorneys' fees, to the
extent permitted by law.
If more than one Reinsurer is involved in the same dispute, all such Reinsurers
shall constitute and act as one party for purposes of this clause, and
communications shall be made by the Reassured to each of the
<PAGE> 10
Reinsurers constituting the one party, provided that nothing therein shall
impair the rights of such Reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability of the
Reinsurers under the terms of this Contract from several to joint.
Any Award or order of the Arbitral Tribunal or a majority thereof shall be
binding on the parties and there shall be no right of appeal therefrom. For the
purpose of enforcement of any Final Award, such Final Award may be made a Rule
of any Court of competent jurisdiction.
ARTICLE 18
SERVICE OF SUIT (USA - NMA 1998)
This Article applies only to those Reinsurers signatory hereto who are
domiciled outside the United States of America or, should the Reassured be
authorized to do business in the State of New York, those Reinsurers who are
unauthorized in New York as respects suits instituted in New York.
It is agreed that in the event of the failure of the Reinsurers hereon to pay
any amount claimed to be due hereunder, the Reinsurers hereon, at the request
of the Reassured, will submit to the jurisdiction of a Court of competent
jurisdiction within the United States. Nothing in this Article constitutes or
should be understood to constitute a waiver of Reinsurers' rights to commence
an action in any Court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer of a
case to another Court as permitted by the laws of the United States or of any
State in the United States.
It is further agreed that service of process in such suit may be made upon
Mendes & Mount, 750 Seventh Avenue, New York NY, 10019 - 6829, and that in any
suit instituted against any one of them upon this Contract, Reinsurers will
abide by the final decision of such Court or of any Appellate Court in the
event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of Reinsurers in any such suit and/or upon the request of the Reassured
to give a written undertaking to the Reassured that they will enter a general
appearance upon Reinsurers' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, Reinsurers hereon hereby
designate the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the Statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reassured or any beneficiary hereunder arising out of this Contract, and
hereby designate the above-named as the person to whom the said officer is
authorised to mail such process or a true copy thereof.
ARTICLE 19
INTERMEDIARY
Carvill America, 180 North North Stetson Avenue, Suite 5100, Chicago, Illinois
60601, is hereby recognized as the Intermediary negotiating this Agreement. All
communications (including but not limited to notices, statements, premiums,
return premiums, commissions, taxes, losses, loss adjustment expenses,
salvages, and loss settlements) relating thereto shall be transmitted to the
Reassured or the Reinsurers through Carvill America. Payments by the Reassured
to the Intermediary shall be deemed to constitute payment to the Reinsurers.
Payments by the Reinsurers to the Intermediary shall be deemed to constitute
payment to the Reassured only to the extent that such payments are actually
received by the Reinsurer.
<PAGE> 11
ARTICLE 20
PARTICIPATION
This Contract obligates each of the Reinsurers for their proportion of the
interests and liabilities set forth under this Contract, such proportions being
shown in the attached Schedules.
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for any
reason does not satisfy all or part of its obligations. - Ref: LSW 1001
(Reinsurance).
IN WlTNESS WHEREOF the parties hereto have, by their duly authorised
representative, executed this Contract as follows:
Signed in Springfield, Missouri this day of
1996
For and on behalf of the Reassured:
INTERLEX INSURANCE COMPANY
And for the Reinsurers by means of and in accordance with the attached
schedules which shall be considered to form an integral part of this Contract.
<PAGE> 12
SCHEDULE A
l
Attaching to and forming part of the
LAWYERS' PROFESSIONAL LIABILITY
PRIOR AGREEMENT EXCESS REINSURANCE CONTRACT
effected between
INTERLEX INSURANCE COMPANY
of Springfield, Missouri
(hereinafter referred to as the "Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as the "Reinsurers")
Signed in London, England, this day of 199
% VARIOUS UNDERWR1TING MEMBERS OF LLOYD'S
per schedule attached hereto
<PAGE> 13
SCHEDULE B
Attaching to and forming part of the
LAWYERS' PROFESSIONAL LIABILITY
PRIOR AGREEMENT EXCESS REINSURANCE CONTRACT
effected between
INTERLEX INSURANCE COMPANY
of Springfield, Missouri
(hereinafter referred to as the "Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as the "Reinsurers")
Signed in London, England this day of 199
The London Insurance and Reinsurance Market Association for and on behalf of
the following Reinsurers:
% SPHERE DRAKE (UNDERWR1TING) LIMITED
For and on behalf of:
SPHERE DRAKE INSURANCE PLC
ReL. 960JHCA00245
LIRMA Ref: S0289
<PAGE> 14
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE
(l) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering Nuclear Energy Risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agrecd that for all purposes of this reinsurance
all the orginal policies of the Reassured (new, renewal and replacement) of the
classes specified Clause II of this paragraph (2) from the time specified in
Clause III in this paragraph (2) shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION: *
I. It is agreed that the policy does not apply under any liability
coverage,
to (injury, sickness, disease, death or destruction
(bodily injury or property damage with respect to which an
insured under the policy is also an insured under a nuclear energy
liability policy issued by Nuclear Energy Liability Insurance Association,
Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of
Canada. or would be an insured under any such policy but for its termination
upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only), Comprehensive
Personal Liability Policies (liability only) or policics of a similar
nature; and thc liability portion of combination forms related to the
four classes of policies stated above, such as the Comprehensive Dwelling
Policy and the applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either
(a) become effective on or atter 1st May, 1960, or
(b) become effective before that date and contain the Limited Exclusion
Provision set out above:
provided this paragraph (2) shall not be applicable to Family Automobile
Policies. Special Automobile Policies, or policies or combination
policies of a similar nature. issued by the Reassured on New York risks,
until 90 days following approval of the Limited Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (l)
of this Clause. it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured
(new. renewal and replacement) affording the following coverages:
Owners. Landords and Tenants Liability. Contractual Liability, Elevator
Liability. Owners or Contractors (including railroad) Protective
Liability. Manufacturers and Contractors Liability. Product Liability.
Professional and Malpractice Liability. Storekeepers Liability. Garage
Liability. Automobile Liability (including Massachusetts Motor Vehicle or
Garage Liability)
shall be deemed to include with respect to sucth coverages from the
time specified in Clause V of this paragraph (3), the following provision
(specified as the Broad Exclusion Provision):
<PAGE> 15
Broad Exclusion Provision
It is agreed that the Policy does not apply:
I. Under any Liability Coverage, to (injury, sickness, disease, death or
destruction, bodily injury or property damage)
(a) with respect to which an insured under the policy is
also an insured under a nuclear energy liability policy issued
by Nuclear Energy Liability Insurance Association, Mutual Atomic
Energy Liability Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the Atomic
Energy Act of l954, or any law amendatory thereof, or (2) the
insured is, or had this policy not been issued would be, entitled
to indemnity from the United States of America, or any agency
thereof, under any agreement entered into by the United Stares of
America, or any agency thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments
(immediate medical or
Provision relating to surgical relief, to expenses incurred
with respect
(first aid,
to (bodily injury, sickness, disease or death
bodily injury resulting from thc hazardous properties
of nuclear material and arising out of thc operation of a
nuclear facility by any person or organization.
III. (injury, sickness, disease, death or
Under any Liability Coverage, to destruction
(bodily injury or property damage
resulting from thc hazardous properties of nuclear material, if
(a) the nuclear material ( I ) is at any nuclear
facility owned by, or operated by or on behalf of, an insured
or (2) has been discharged or dispersed therefrom:
(b) the nuclear material is contained in spent fuel
or waste at any time possessed, handled, used, processed,
stored. transported or disposed of by or on behallf of an
insured: or
(c) the (injury, sickness, disease, death or destruction
(bodily injury or property damage
arises out of the furnishing by an insured of services,
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility, but if such facility is located within the United
States of America. its territories, or possessions or Canada,
this exclusion (c) applies only
to (injury to or destruction of property at such
Nuclear facility.
(property damage to such nuclear facility and
any property thereat
IV. As used in this endorsement:
"hazardous properties "include, radioactive, toxic or
explosive properties; "nuclear material" means source material
special nuclear material or by-product material; "source
material", "special nuclear material", and "by-product
material" have the meanings given them in the Atomic Energy Act
of 1954 or in any law amendatory thereof "spent fuel" means any
fuel element or fuel component solid or liquid, which has been
used or exposed to radiation in a nuclear reactor: "waste"
means any waste material (1) containing by-product material
other than tailings or wastes produced by the extraction or
concentration of uranium or thorium from any ore processed
primarily for its source material content, and (2) resulting
from the operation by any person or organization of any nuclear
facility included under the first two paragraphs of the
definition at nuclear facility; "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device
designed or used for (1) separating the isotopes of uranium or
plutonium (2) processing or utilizing spent fuel, or (3)
handling, processing or packaging waste,
<PAGE> 16
c) any equipment or device designed or used for the
processing, fabricating or alloying of special nuclear material
if at any time the total amount of such material in the custody
of the insured at the premises where such equipment or device
is located consists of or contains more than 25 grams of
plutonium or uranium 233 or any combination thereof, or more
than 250 grams of uranium 235.
d) Any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of waste.
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations: "nuclear reactor" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to contain a
critical mass of fissionable material;
(With respect to injury to or destruction of property,
the word "injury" or
("destruction"
("property damage" includes all forms of radioactive
contamination of property.
(includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether
new, renewal or replacement, being policies which
become effective on or after 1st May, 1960, provided this
paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the
Reassured on New York risks, or
(ii) Statutory liability insurance required under
Chapter 90 General
Laws of Massachusetts,
Until 90 days following approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of
paragraph (1) of this Clause, it is understood and agreed that
paragraphs (2) and (3) above are not applicable to original
liability policies of the Reassured in Canada and that with
respect to such policies this Clause shall be deemed to include
the Nuclear Energy Liability Exclusion Provisions, adopted by
the Canadian Underwriters Association or the Independent
Insurance Conference of Canada.
*NOTE: The words printed in italics in the Limited
Exclusion Provision and in the Broad Exclusion Provision shall
apply only in relation to original liability policies which
include a Limited Exclusion Provision or a Broad Exclusion
Provision containing those words.
<PAGE> 1
Exhibit 10.38
TITLE: LAWYERS' PROFESSIONAL LIABILITY
PRIOR AGREEMENT EXCESS REINSURANCE
CONTRACT
BETWEEN: INTERLEX INSURANCE COMPANY
AND
THE REINSURERS SIGNATORY HERETO
COMMENCING: 1ST OCTOBER, 1996
U. S. CLASS-
IFICATION: U.S. REINSURANCE
<PAGE> 2
INDEX
<TABLE>
<S> <C>
PREAMBLE IDENTITY OF PARKS
ARTICLE 1 BUSINESS REINSURED
ARTICLE 2 COVER, LIMIT AND RETENTION
ARTICLE 3 DEFINITIONS
ARTICLE 4 TERRITORTIAL SCOPE
ARTICLE 5 EXCLUSIONS
ARTICLE 6 EXTRA-CONTRACTUAL OBLIGATIONS
ARTICLE 7 PREMIUM
ARTICLE 8 PERIOD
ARTICLE 9 LOSS REPORTS AND PAYMENTS
ARTICLE 10 CURRENCY
ARTICLE 11 ACCESS TO RECORDS AND CLAIMS REVIEW
ARTICLE 12 LOSS RESERVES
ARTICLE 13 TAX PROVISIONS
ARTICLE 14 DELAYS, ERRORS OR OMISSIONS
ARTICLE 15 INSOLVENCY OF THE REASSURED
ARTICLE 16 AMENDMENTS AND ALTERATIONS
ARTICLE 17 ARB1TRATION
ARTICLE 18 SERVICE OF SUIT (NMA 1998)
ARTICLE 19 INTERMEDIARY
ARTICLE 20 PARTICIPATION
ATTACHMENTS NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY
REINSURANCE - U.S.A.
</TABLE>
<PAGE> 3
LAWYERS' PROFESSIONAL LIABILITY
PRIOR AGREEMENT EXCESS OF LOSS REINSURANCE CONTRACT
PREAMBLE
This Contract is made and entered into between Interlex Insurance Company of
1903 E. Battlefield, Springfield, Missouri 65804, U.S.A. (NAIC Code 10037)
(hereinafter referred to as the "Reassured") and the Reinsurers signatory
hereto (hereinafter referred to as the "Reinsurers"), on the following terms
and conditions:
ARTICLE 1
BUSINESS REINSURED
Claims made against the Reassured as hereinafter provided and specified on any
policies written or renewed by the Reassured covering Lawyers' Professional
Liability and all other ancillary coverages as original and as declared and
agreed prior to binding by Reinsurers.
ARTICLE 2
COVER LIMIT AND RETENTION
This Contract applies to excess policies coming within the scope of this
Contract which are issued by the Reassured for limits in excess of either
US$1,000,000 each and every insured each claim and/or US$3,000,000 in the
aggregate each policy where applicable.
In respect of all such excess policies the Reassured shall cede, and the
Reinsurers shall accept by way of reinsurance under this Contract, liability in
excess of minimum underlying limits of either US$1,000,000 each and every
insured each claim and/or US$3,000,000 in the aggregate each policy where
applicable.
The Reassured shall retain the said underlying limits for their own account
but, without prejudice to the above, shall be at liberty to protect that
retention by way of reinsurance for their own account and benefit.
With respect to each such cession, no claim shall be made under this Contract
unless and until the Reassured have paid or advanced, or agreed to pay or
advance, an amount in excess of the said underlying limits.
The Reinsurers shall then be liable for the amount in excess of the said
underlying limits, but the amount recoverable hereunder shall not exceed the
difference between up to US$5,000,000 each and every insured each claim and/or
US$5,000,000 in the aggregate each policy where applicable and the
aforementioned underlying limit of US$1,000,000 each and every insured each
claim and/or US$3,000,000 in the aggregate each policy where applicable.
ARTICLE 3
DEFINITIONS
A. The terms "Policy" or "Policies", as used in this Contract shall mean any
binder, policy, endorsement or contract of insurance, including any
certificates issued thereunder, issued, accepted or held covered by the
Reassured.
<PAGE> 4
B. For the purposes of this Contract the "claim made" date shall be as
defined under the original policy. Furthermore, as regards extended
reporting endorsements, the date a claim is made shall determine the date
of loss for the purpose of this contract.
ARTICLE 4
TERRITORIAL SCOPE
This Contract shall cover wherever the Reassured's original policies cover.
ARTICLE 5
EXCLUSIONS
This Contract does not apply to and absolutely excludes the following:
1. Nuclear Incidents, in accordance with the attached Nuclear Incident
Exclusion Clause Liability- Reinsurance- U.S.A.
2. All liability of the Reassured arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any Insolvency Fund. "Insolvency Fund" includes any Guaranty
Fund, Insolvency Fund, Plan, Pool, Association, Fund or other arrangement,
howsoever denominated, established or governed which provides for any
assessment of or payment or assumption by the Reassured of part or aU of any
claim, debt, charge, fee or other obligation of an insurer, or its
successors or assigns which has been declared by any competent authority to
be insolvent or which is otherwise deemed unable to meet any claim, debt,
charge, fee or other obligation in whole or in part.
3. Reinsurance Assumed
ARTICLE 6
EXTRA-CONTRACTUAL OBLIGATIONS
This Contract shall protect the Reassured, within the limits of the original
policy, in respect of any liability incurred by the Reassured as the result of
an award in respect of any extra contractual obligation as more full defined
below. The Reinsurers agree that the liability so incurred, plus the
Reassured's contractual loss if any, shall be considered as one combined loss
for the purposes of the Reassured's retention and of the recovery under this
Contract subject always, however, to the amount recoverable hereunder not
exceeding the limit of the original policy.
"Extra-contractual obligations" are defined as those liabilities of the
Reassured not covered under any other provision of this Contract and which
arises from the handling of any claim on business covered hereunder, such
liabilities arising because of, but no limited to, the following: failure by
the Reassured 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 defence or in the trial of any action against their
insured or in the preparation or prosecution of an appeal consequent upon such
action.
The date of which any extra-contractual obligation is incurred by the Reassured
shall be deemed, in all circumstances, to be the date the original claim was
made.
However, this Article shall not apply where such extra-contractual obligations
have been incurred due to the fraud of a member of the Board of Directors or a
corporate officer of the Reassured acting individually or collectively or in
collusion with any individual or corporation or any other organisation or party
involved in the presentation, defense or settlement of any claim.
<PAGE> 5
ARTICLE 7
PERIOD
This Contract takes effect on 1st October, 1996 and applies to claims made
against the Reassured on original policies attaching during the period from 1st
October, 1996 to 30th September, 1997 both days inclusive, including extended
reporting endorsements attaching to any said policies.
In the event of non-renewal of this Contract, all policies, including extended
reporting endorsements attaching thereto, in force as of the effective time and
date of non-renewal shall continue to be covered until their individual natural
expiration termination or next anniversary dates, whichever comes first, but in
no event for longer than twelve months plus odd time from the effective time
and date of cancellation, except in the case of extended reporting endorsements
coverage which may be unlimited.
For all purposes of this Article, any extended reporting endorsement attaching
to a policy covered hereunder shall be considered as part of the period of the
said policy, subject to the provision that a separate limit of liability may
apply in respect thereof. Any claim or incident reported under any extended
reporting endorsement shall be deemed to have been made on the last day
coverage was in force prior to the issuance of such endarsement.
ARTICLE 8
PREMIUM
The Reassured shall pay to the Reinsurers the Original net premiums for limits
attaching to this Contract. Original net premium is the Original Gross Premium
of the Individual Policy as determined and agreed by Reinsurers, less 10%.
Accounts between the parties shall be rendered and settled by the Reassured on
a quarterly basis within 60 days following the end of each quarter. Any balance
due from the Reinsurers shall be settled by them as soon as possible after the
accounts have been rendered to them.
ARTICLE 9
LOSS REPORTS AND PAYMENTS
The Reinsurers agree to abide by all loss settlements of the Reassured subject
to such settlements being within the terms and conditions of the policies and
of this Contract. The Reassured at its sole discretion shall adjust, settle or
compromise all losses and all such adjustments, settlements or compromises
shall be unconditionally binding upon the Reinsurers, who shall also benefit in
due proportion from any salvages, recoveries and compromises effected or
negotiated by the Reassured.
The Reassured shall advise the Reinsurers promptly of all losses, and of any
subsequent developments in connection therewith, which are reserved by the
Reassured at $1,000,000 Ultimate Net Loss or more, from the ground up.
The information provided by the Reassured shall be sufficient to enable the
individual losses, the nature of each claim, the claim made date and the
inception or renewal dates of the policies to which such losses relate, to be
readily identified.
The Reinsurers agree to pay any amount for which they may be liable under this
Contract as soon as possible after the settlement request has been furnished to
them.
<PAGE> 6
ARTICLE 10
CURRENCY
The currency to be used for all purposes of this Contract shall be United
States Dollars.
ARTICLE I 1
ACCESS TO RECORDS AND CLAIMS REVIEW
All documents and records in the possession of the Reassured conceming this
Contract shall be made available upon reasonable notice at the request of the
Reinsurers for inspection at the Reassured's offices by the Reinsurers or their
nominated representatives for the purposes of obtaining information concerning
this Contract or the subject matter hereof.
Specifically, the Reinsurers shall be entitled to nominate a representative to
assess the Reassured's claims and claims procedures.
For the avoidance of doubt, it is hereby expressly agreed that the rights given
to the Reinsurers by this Article shall continue in effect notwithstanding the
expiration of this Contract and shall be exercised at the Reinsurers' own
expense.
ARTICLE 12
LOSS RESERVES
This Article applies only to those Reinsurers signatory hereto who do not
qualify for credit under the regulations of the State insurance authorities or
departments which have jurisdiction over the Reassured's loss reserves.
The Reassured agree that when, for its Annual Convention Statement purposes, it
files with the authorities or departments mentioned above or sets up in its
books statutory reserves for known outstanding losses and allocated loss
expenses reinsured by this Contract it shall forward to the Reinsurers a clear
statement of the Reinsurers' proportion of those reserves detailing the amounts
involved for known outstanding losses and allocated loss expenses and also how
those amounts are calculated.
The Reinsurers, promptly upon receipt of the Reassured's statement, shall apply
for and secure delivery to the Reassured of clean, irrevocable and
unconditional Letters of Credit, in amounts equal to their proportion of the
stated reserves. Under no circumstances shall any amount relating to reserves
in respect of losses or loss expenses Incurred But Not Reported be included in
the amount of the Letter of Credit.
All Letters of Credit procured pursuant to this Contract shall be issued by a
Bank which is a Member of the Federal Reserve and shall be in full conformity
with the requirements of the authorities or departments mentioned in the first
paragraph of this Article current at the date of the Reassured's statement.
Further, they shall be "Evergreenn in that they shall be issued for an initial
period of not less than one year and shall be automatically extended for one
year from their original expiration dates and subsequently from their extended
expiration dates unless and until, at least thirty days before any expiration
date, the issuing bank gives notice to the Reassured by registered mail that
the issuing bank elects not to extend the life of the Letter of Credit in
question beyond its forthcoming expiration date.
In consideration of the agreement of the Reinsurers to furnish such Letters of
Credit to the Reassured to enable it to obtain credit for the reinsurance
provided under this Contract, the Reassured hereby
<PAGE> 7
undertakes to hold such Letters of Credit and the proceeds of any drawings made
upon them in trust for the Reinsurers and to use and apply the procesds of any
such drawings for the following purposes only:
a. To pay the Reinsurers' share or to reimburse the Reassured for that
share of any liability for loss or allocated loss expense reinsured by
this Contract;
b. To refund to the Reinsurers any balance by which the amount of the
Letter of Credit exceeds the Reinsurers' proportion of any liability for
loss or aUocated loss expense reinsured by this Contract;
c. In the event that one or more of the Reinsurers participating in the
Letter of Credit gives timely notice of cancellation or non-renewal
of their participation in the Letter of Credit and provided that in respect
of cancellation or non-renewal and that if it is implemented, the Reassured
will ensure that a rate of interest is obtained for the Reinsurers on such
a deposit account that is at least equal to the rate which would be paid by
Citibank N.A. in New York, and further that the Reassured with account to
the Reinsurers on an annual basis for all interest accruing on the cash
deposit account for the banefit of the Reinsurers.
The issuing bank shall have no responsibility whatsoever in connection with the
propriety of drawings made by the Reassured on the Letters of Credit issued
under this Contract or in connection with the disposition of any funds so
withdrawn, except to ensure that drawings are made only upon the order of
properly authorized representatives of the Reassured.
All Letters of Credit procured for the Reassured under this Contract shall be
adjusted at annual intervals, or more frequently as agreed (but never more
frequently than quarterly), to reflect the current balance of the Reinsurers'
proportion of the Reassured's known outstanding loss and allocated loss expense
reserves and the Reassured shall produce a statement for this purpose detailed
in the same way as the original statement on the basis of which such Letters of
Credit were first issued. If the statement shows that the Reinsurers'
proportion of such losses and allocated expenses reserves exceeds the current
amount of the Letters of Credit, the Reinsurers shall, within thirty days after
receipt of the statement secure the amendment of the Letters of Credit
increasing their amount to the amount of the current balance of these items.
If, however, the statement, shows that the Reinsurers' proportion of the
current balance of those items is less than the amount of the Letters of Credit
the Reassured shall, within thirty days of receipt of a written request from
the Reinsurers to do so, facilitate the release of the excessive security by
authorizing the amendment of the Letters of Credit so as to reduce their amount
to the current balance required.
Under no circumstances shall any excessive secutity so determined be applied
towards securing the Reassured's reserves for losses or loss expenses Incurred
But Not Reported.
All expenses incurred in the establishment or maintenance of such Letters of
Credit shall be for the account of the Reinsurers.
ARTICLE 13
TAX PROVISIONS
The Reassured shall be liable for all taxes (except Federal Excise Tax) levied
on premiums payable to the Reinsurers hereunder. Federal Excise Tax applies
only to those Reinsurers, excepting Underwriters at Lloyd's, London and other
Reinsurers exempt from the Federal Excise Tax, who are domiciled outside the
United States of America.
To the extent that such premium is subject to Federal Excise Tax, the
Reinsurers hereby agree to allow as a deduction from the premium, for the
purpose of paying Federal Excise Tax, 1% of the premium payable hereon.
<PAGE> 8
In the event of any return premium becoming due hereunder the Reinsurers with
deduct 1% from the amount of the return, and the Reassured or their agents
shall take stops to recover the tax from the Government of the United States of
America.
Notwithstanding the above, any changes in the Federal Excise Tax rate or the
exemption status of Reinsurers shall be automatically applicable to this
Contract.
In consideration of the terms under which this Contract is issued, the
Reassured undertake not to claim any deduction in respect of premium payable
hereon when mailing tax returns, other than Income or Profits tax returns, to
any fiscal authority of the United States of America or any State or Territory
thereof.
ARTICLE 14
DELAYS, ERRORS OR OMISSIONS
No inadvertent delay, error or omission shall be held to relieve either party
hereto of any liability which would have attached to them under this Contract
if such delay, error or omission had not been made, provided that
recitification is made immediately upon discovery.
ARTICLE 15
INSOLVENCY OF THE REASSURED
Amounts due to the Reassured under this Contract shall be payable by the
Reinsurers on the basis of the liability of the Reassured under the original
policies reinsured hereunder without diminution because of the insolvency of
the Reassured.
In the event of the insolvency of the Reassured, the Liquidator or Receiver or
Statutory Successor of the Reassured shall give written notice to the
Reinsurers of the pendency of any claim against the insolvent Reassured on the
original policies reinsured hereunder within a reasonable time after such claim
is filed in the insolvency proceedings. During the pendency of such claim the
Reinsurers may investigate such claim and intervene, at their own expense, in
the proceedings where such claim is to be adjudicated and interpose any defence
or defences which they may deem available to the Reassured or their Liquidator
or Receiver or Statutory Successor. The expense thus incurred by the Reinsurers
shall be chargeable, subject to court approval, against the insolvent Reassured
as part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Reassured solely as a result of the defence
so undertaken by the Reinsurers.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to investigate the claim and/or to interpose defence to such
claim, the expense shall be apportioned in accordance with the terms of the
above paragraph as though such expense had been incurred by the Reassured.
Should the Reassured go into liquidation or should a receiver be appointed, the
Reinsurers shall be entitled to deduct from any sums which may be or may become
due to the Reassured under this Contract any sums which are due to the
Reinsurers from the Reassured under this Contract and which are expressed
herein to be payable at a fixed or stated date, as well as any other sums due
to the Reinsurers which are permitted to be offset under applicable law.
In the event of the insolvency of the Reassured, the amounts due to the
Reassured under this Contract shell be payable by the Reinsurers directly to
the Reassured or to their Liquidator, Receiver or Statutory Successor.
<PAGE> 9
ARTICLE 16
AMENDMENTS AND ALTERATIONS
The terms herein contained comprise the whole Contract between the Reassured
and the Reinsurers and may only be changed in writing, signed by or on behalf
of both parties.
ARTICLE 17
ARBITRATION
As a condition precedent to any right of action hereunder, all disputes or
differences arising out of or conlnected with this Contract (whether or not
arising before or after cancellation) including interpretation or
implementation of its terms, shall be referred to arbitration, in the City in
which the Reassured's principal office is located.
The party which desires to refer a matter to Arbitration (.the Claimant") shall
so notify the other party ("the Respondent") in writing and at the time of so
doing shall request the Respondent to agree as sole Arbitrator one of a list of
three individuals whom the Claimant shall name. The Respondent shall, within 30
days of receipt of the said notice, notify the Claimant either (a) that it
agrees one of those three individuals as sole Arbitrator, thus completing the
constitution of the Arbitral Tribunal, or (b) that it nominates another person
as its own Arbitrator.
In the event that the Respondent nominates its own Arbitrator, the Claimant
shall itself nominate its own Arbitrator within 30 days of receipt by it of the
Respondent's notice. The two Arbitrators so nominated shall, within 30 days of
the appointment of the second of them, themselves appoint a third Arbitrator to
complete the constitution of the Arbitral Tribunal.
Should the Respondent or the two chosen Arbitrators fail to make the
appointment required of them, then on application of the Claimant, the American
Arbitration Association will appoint the third arbitrator, and such appointment
wiU be made in accordance with the qualifications set forth in this Article
without regard to any of the American Arbitration Association's commercial
arbitration rales, including its rules conceming the qualifications and/or
nationality of arbitrators.
All Arbitrators shall be active or former disinterested officials of Insurance
or Reinsurance Companies or Lloyd's Underwriters who have experience of the
class of business which is the subject matter of this Contract.
The Arbitral Tribunal shall interpret this Contract as if it were an honourable
engagement and not as merely a legal obligation; it is relieved of all judicial
formalities and may abstain from following the strict rules of law, and shall
make its award with a view to effecting the general purpose of this Contract in
a reasonable manner with due regard to the custom and usage of the insurance
and reinsurance business.
The Arbitral Tribunal shall have full discretion to make such orders as it
thinks fit in connection with all procedural matters in the Arbitration,
including but not limited to the conduct of the reference by written or oral
submissions, the production of documents, the examination of witnesses, and the
imposition of time limits for the taking of necessary procedural steps. The
Arbitral Tribunal shall also have full discretion to make such orders as it
thinks fit with regard to the payment of the costs of the Arbitration including
attorneys' costs and fees. Punitive damages shall not be awarded, however the
Arbitral Tribunal may, at its discretion, award such other costs and expenses
as it deems appropriate, including but not limited to attorneys' fees, to the
extent permitted by law.
If more than one Reinsurer is involved in the same dispute, all such Reinsurers
shall constitute and act as one party for purposes of this clause, and
communications shall be made by the Reassured to each of the
<PAGE> 10
Reinsurers constituting the one party, provided that nothing therein shall
impair the rights of such Reinsurers to assert several, rather than joint,
defenses or claims, nor be construed as changing the liability of the
Reinsurers under the terms of this Contract from several to joint.
Any Award or order of the Arbitral Tribunal or a majority thereof shall be
binding on the parties and there shall be no right of appeal therefrom. For the
purpose of enforcement of any Final Award, such Final Award may be made a Rule
of any Court of competent jurisdiction.
ARTICLE 18
SERVICE OF SUIT (USA - NMA 1998)
This Article applies only to those Reinsurers signatory hereto who are
domiciled outside the United States of America or, should the Reassured be
authorized to do business in the State of New York, those Reinsurers who are
unauthorized in New York as respects suits instituted in New York.
It is agreed that in the event of the failure of the Reinsurers hereon to pay
any amount claimed to be due hereunder, the Reinsurers hereon, at the request
of the Reassured, will submit to the jurisdiction of a Court of competent
jurisdiction within the United States. Nothing in this Article constitutes or
should be understood to constitute a waiver of Reinsurers' rights to commence
an action in any Court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer of a
case to another Court as permitted by the laws of the United States or of any
State in the United States.
It is further agreed that service of process in such suit may be made upon
Mendes & Mount, 750 Seventh Avenue, New York NY, 10019 - 6829, and that in any
suit instituted against any one of them upon this Contract, Reinsurers will
abide by the final decision of such Court or of any Appellate Court in the
event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of Reinsurers in any such suit and/or upon the request of the Reassured
to give a written undertaking to the Reassured that they will enter a general
appearance upon Reinsurers' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, Reinsurers hereon hereby
designate the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the Statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reassured or any beneficiary hereunder arising out of this Contract, and
hereby designate the above-named as the person to whom the said officer is
authorised to mail such process or a true copy thereof.
ARTICLE 19
INTERMEDIARY
Carvill America, 180 North North Stetson Avenue, Suite 5100, Chicago, Illinois
60601, is hereby recognized as the Intermediary negotiating this Agreement. All
communications (including but not limited to notices, statements, premiums,
return premiums, commissions, taxes, losses, loss adjustment expenses,
salvages, and loss settlements) relating thereto shall be transmitted to the
Reassured or the Reinsurers through Carvill America. Payments by the Reassured
to the Intermediary shall be deemed to constitute payment to the Reinsurers.
Payments by the Reinsurers to the Intermediary shall be deemed to constitute
payment to the Reassured only to the extent that such payments are actually
received by the Reinsurer.
<PAGE> 11
ARTICLE 20
PARTICIPATION
This Contract obligates each of the Reinsurers for their proportion of the
interests and liabilities set forth under this Contract, such proportions being
shown in the attached Schedules.
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing reinsurers are not
responsible for the subscription of any co-subscribing reinsurer who for any
reason does not satisfy all or part of its obligations. - Ref: LSW 1001
(Reinsurance).
IN WlTNESS WHEREOF the parties hereto have, by their duly authorised
representative, executed this Contract as follows:
Signed in Springfield, Missouri this day of
1996
For and on behalf of the Reassured:
INTERLEX INSURANCE COMPANY
And for the Reinsurers by means of and in accordance with the attached
schedules which shall be considered to form an integral part of this Contract.
<PAGE> 12
SCHEDULE B
Attaching to and forming part of the
LAWYERS' PROFESSIONAL LIABILITY
PRIOR AGREEMENT EXCESS REINSURANCE CONTRACT
effected between
INTERLEX INSURANCE COMPANY
of Springfield, Missouri
(hereinafter referred to as the "Reassured")
and
REINSURERS SIGNATORY HERETO
(hereinafter referred to as the "Reinsurers")
Signed in London, England this day of 199
The London Insurance and Reinsurance Market Association for and on behalf of
the following Reinsurers:
8.26% SPHERE DRAKE (UNDERWRITING) LIMITED
For and on behalf of:
SPHERE DRAKE INSURANCE PLC
ReL. 960JHCA00245
LIRMA Ref: S0289
<PAGE> 1
Exhibit 13
CORPORATE PROFILE
The Tenere Group, Inc., a publicly held insurance holding company, was
organized on April 27, 1995, when the demutualization of RCA Mutual Insurance
Company was completed. Policyholders of RCA Mutual on that date became
shareholders of The Tenere Group, Inc. in proportion to their premiums over the
previous five years.
The Tenere Group, Inc. is composed of Intermed Insurance Co. (formerly RCA
Mutual Insurance Company), which markets professional liability insurance to
physicians, surgeons, dentists, oral surgeons and ancillary healthcare
professionals in the States of Missouri and Kansas; Interlex Insurance Co.,
which markets professional liability insurance to lawyers and judges in
Missouri and Kansas; and Insurance Services, Inc., a management company.
Intermed Insurance Co. markets professional liability insurance to physicians
in Texas through a purchasing group, Intermedical of Texas, Inc., and to
dentists through a second purchasing group, Dental Defense Specialists, Inc.
The Tenere Group, Inc. had its origin in 1976 when three physicians in
Springfield, Missouri organized Risk Control Associates, Inc., an assessable
mutual insurance company, to provide defense for themselves and their
associates against claims of medical malpractice. In 1991, the Company was
reorganized as a non-assessable mutual property and casualty insurance company,
RCA Mutual Insurance Company, and, in 1995, was reorganized as a stock property
and casualty insurance company known as Intermed Insurance Co. Intermed is a
wholly-owned subsidiary of The Tenere Group, Inc.; Interlex Insurance Co. and
Insurance Services, Inc. are wholly-owned subsidiaries of Intermed.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Corporate Profile............... 1
Financial Highlights............ 2
Selected Operating Statistics... 2
President's Report.............. 3
Management's Discussion and
Analysis..................... 4
Independent Auditors' Report.... 8
Consolidated Financial
Statements................... 9
Notes to Consolidated
Financial Statements......... 13
Statement of Management's
Responsibility............... 25
Selected Financial Information.. 26
Directors and Officers.......... 27
Corporate Information........... 28
</TABLE>
1
<PAGE> 2
FINANCIAL HIGHLIGHTS*
<TABLE>
<CAPTION>
DECEMBER 31 CHANGE
----------- ------
1996 TO 1995 TO
------- -------
1997 1996 1995 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and invested assets $47,488,000 46,306,000 53,585,000 +2.6% -13.6%
Total assets 65,726,000 61,820,000 62,614,000 +6.3% -1.3%
Total reserves, including unearned premiums 38,748,000 39,188,000 37,070,000 -1.1% +5.7%
Stockholders' equity 20,980,000 21,390,000 24,537,000 -1.9% -12.8%
Direct premiums written 10,541,000 8,124,000 9,874,000 +29.8% -17.7%
Net premiums written 5,802,000 3,469,000 8,369,000 +67.3% -58.5%
Net premiums earned 4,498,000 7,646,000 11,901,000 -41.2% -35.8%
Net investment income 2,623,000 2,627,000 2,654,000 -0.2% -1.0%
Net portfolio yield 5.8% 5.5% 5.1% +0.3% +0.4%
Total revenues 7,107,000 10,256,000 14,519,000 -30.7% -29.4%
Losses and loss adjustment expenses 4,478,000 11,226,000 7,676,000 -60.1% +46.2%
Loss ratio 99.6% 146.8% 64.5% -47.2% +82.3%
Sales, marketing and other underwriting
expenses 3,990,000 3,543,000 2,393,000 +12.6% +48.1%
Expense ratio 37.9% 43.6% 24.2% -5.7% +19.4%
Combined ratio 137.5% 190.4% 88.7% -52.9% +101.7%
Net income (loss) (953,000) (2,934,000) 2,510,000 +67.5% -216.9%
Basic and diluted net income (loss) per share (.48) (1.47) 1.26 +67.3% -216.7%
Book value per share 10.49 10.70 12.27 -2.0% -12.8%
</TABLE>
* Amounts rounded to nearest thousand, except per share items.
SELECTED OPERATING STATISTICS
<TABLE>
<CAPTION>
1997 1996 1995 1997 1996 1995
----- ----- ----- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of claims
settled with
Number of insureds Indemnity
Intermed 1,476 1,228 1,317 Intermed 38 49 49
Interlex 693 428 196 Interlex 2 1 0
----- ----- ----- -------- ------- ------
Total 2,169 1,656 1,513 Total 40 50 49
Number of claims reported Average indemnity paid
Intermed 190 166 240 Intermed $177,500 165,200 98,000
Interlex 36 11 4 Interlex 13,300 500 0
----- ----- -----
Total 226 177 244
Number of claims settled Trial experience
without indemnity Intermed
Intermed 183 192 157 Tried 9 10 16
Interlex 11 3 0 Won 7 9 14
----- ----- ----- Lost 1 1 2
Total 194 195 159 Interlex (none)
</TABLE>
2
<PAGE> 3
PRESIDENT'S REPORT
1997 was a year of successes and disappointment. Among the positive
developments were:
- - Interlex Insurance Co., Tenere's legal malpractice insurance subsidiary,
increased premiums written in 1997 by 83% over the prior year. The number
of lawyers insured increased from 428 at December 31, 1996 to 693 at the
current year end. I believe that the marketplace in Missouri and Kansas
will continue to be receptive to our products, and we anticipate premiums
written of $1,600,000 in 1998, an increase of 41% over 1997.
- - Intermed Insurance Co., Tenere's medical malpractice subsidiary, entered
the State of Texas in 1996 as a surplus lines carrier where it markets
professional liability insurance to physicians and dentists through two
purchasing groups. Premiums written in Texas increased from $250,000 in
1996 to $2,620,000 in 1997. The Company's marketing efforts in Texas are
comprised of marketing representatives and several carefully selected
brokers in key geographical locations who specialize in medical
malpractice insurance. I continue to be optimistic about the Company's
potential in Texas and anticipate premiums written of $6,000,000 in 1998,
an increase of 129% over the current year.
While these two developments were extremely encouraging, Intermed continued to
face difficulty in Missouri, its primary market:
- - The market for medical malpractice insurance in the State of Missouri
continues to be extremely competitive and hampered by the presence of
several competitors who use extremely aggressive pricing to gain market
share. While one of these competitors failed in 1997, several more have
stepped forward to take its place. As a result of these intense
competitive pressures, premiums written in the State of Missouri fell from
$7,177,000 in 1996 to $6,707,000 in 1997, a decrease of $470,000 or 7%.
That we have been able to maintain as much of our business as we have in
what many consider to be the most competitive market in the United States
is a tribute to your Company's dedicated marketing and policy services
staffs and to the superior claim service provided to our insureds when
they are faced with a claim. I anticipate premiums written in Missouri
in 1998 will be approximately $7,000,000.
While we are excited over the bright prospects of Interlex in the Missouri
marketplace and Intermed in Texas, your Board of Directors and the management
of the Company are mindful of the consolidation that is underway in the
property/casualty industry, especially among medical malpractice carriers.
Merger mania swept through the insurance industry in 1997. A.M. Best reports
there were over 200 insurance deals in 1997 with 68 of those being in the
property/casualty field. Since we are in the property/casualty field, the
Board of Directors has directed management to develop strategies to address the
issues posed by the consolidation trend. The establishment of Interlex
Insurance Co. in 1994 and Intermed's expansion into Texas in 1996 were
strategies initiated by your Company to diversify beyond one state and one
product.
I want to assure you that through all of this, the long-term interests of our
stockholders and insureds are paramount.
I appreciate your continued loyalty to the Company and your expression of
confidence by keeping your professional liability insurance with us, and I want
to assure you that we will continue to provide the quality professional
services that you deserve.
/s/ Raymond A. Christy
Raymond A. Christy, M.D.
President and Chief Executive Officer
Springfield, Missouri
March 27, 1998
3
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
ASSETS
The Company's investment portfolio increased from $44,260,000 at December
31, 1996 to $47,386,000 at the current year end, an increase of $3,126,000
or 7%. $10,811,000 held in short-term investments at the prior year end was
reinvested in long-term bonds during 1997. Over a three year period
beginning in the spring of 1995, the Company sold $35,100,000 of
low-yielding bonds and held the proceeds in short-term investments until
interest rates improved. At December 31, 1997, $30,219,000 had been
reinvested in long-term bonds with an improvement of approximately 160 basis
points in portfolio yield. The one remaining low-yielding bond was sold in
January, 1998. Approximately $5,000,000 currently held in short-term
investments will be reinvested long-term when interest rates improve above
current levels.
The bond portfolio is invested solely in U.S. Treasury Notes, obligations of
U.S. government agencies and high-grade state and municipal bonds. There
are no known credit risks in the portfolio. At December 31, 1997, the
portfolio (including short-term investments) had an average
yield-to-maturity of 6.2% and there was an unrealized gain of $1,068,000
compared to an average yield of 5.9% and an unrealized gain of $252,000 at
December 31, 1996. At the current year end approximately 34% of the
portfolio will mature in one to five years and 66% in five to ten years.
Cash decreased from $2,045,000 at December 31, 1996 to $102,000 at December
31, 1997 due to changes in cash management practices in December 1997 when
there was a change in banking relationships.
The reinsurance recoverable increased from $7,198,000 at December 31, 1996
to $10,414,000 at the current year end primarily due to an increase in ceded
losses over the prior year.
The federal income tax recoverable decreased from $1,680,000 at December 31,
1996 to $300,000 at the current year end due to net cash recoveries of
$1,304,000 in 1997.
Primarily as a result of the increase in reinsurance recoverable, total
assets increased from $61,820,000 at December 31, 1996 to $65,726,000 at the
current year end, an increase of $3,906,000 or approximately 6% over the
prior year end.
LIABILITIES
Reserves for losses and loss adjustment expenses declined slightly in 1997,
from $32,887,000 at the prior year end to $31,030,000 at December 31, 1997.
The decrease of $1,857,000 or approximately 6% was primarily attributable to
a re-evaluation of and release from reserves held for prior years.
Management and the Company's consulting actuarial firm believe that reserves
at December 31, 1997 are adequate to meet claims and defense costs
attributable to 1997 and prior years.
Premiums are earned over the one-year lives of policies written by the
Company's insurance subsidiaries and unearned premiums are held in a reserve
account. The reserve for unearned premiums increased from $6,300,000 at
December 31, 1996 to $7,717,000 at the current year end. The increase of
$1,417,000 or 22% was due to the substantial increase in premiums written in
1997 discussed in greater detail in the Results of Operations section of
this analysis.
The reinsurance payable increased from $506,000 at December 31, 1996 to
$4,435,000 at December 31, 1997 due to the increase in premiums and losses
ceded to the Company's reinsurers in 1997 compared to cessions in the prior
year.
4
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
Other liabilities increased from $737,000 at December 31, 1996 to $1,563,000
at the current year end due primarily to the accrual of retirement benefits
for the Board of Directors and Chief Executive Officer.
Due to the factors discussed above, total liabilities increased from
$40,430,000 at December 31, 1996 to $44,746,000 at the current year end, an
increase of $4,316,000 or approximately 11%.
STOCKHOLDERS' EQUITY
Stockholders' equity declined from $21,390,000 at December 31, 1996 to
$20,980,000 at December 31, 1997. The components of the $410,000 decrease
were:
<TABLE>
<S> <C>
$(953,000) Net loss
543,000 Change in unrealized gains on investment securities, net of
--------- federal income taxes
$(410,000) Decrease in Stockholders' Equity
</TABLE>
The net loss of $953,000 is discussed in greater detail in the Results of
Operations section of this report.
RESULTS OF OPERATIONS
Direct premiums written in 1997 totaled $10,541,000, an increase of
$2,417,000 or approximately 30% over the prior year:
<TABLE>
<CAPTION>
1997 1996 CHANGE
---- ---- ------
<S> <C> <C> <C>
Medical malpractice premiums written
Missouri $ 6,707,000 7,176,000 (469,000)
Kansas 77,000 77,000 -0-
Texas 2,620,000 250,000 2,370,000
----------- --------- ---------
Total medical $ 9,404,000 7,503,000 1,901,000
Legal malpractice premiums written
Missouri $ 1,082,000 588,000 494,000
Kansas 55,000 33,000 22,000
----------- ---------- ---------
Total legal $ 1,137,000 621,000 516,000
----------- ---------- ---------
Total premiums written $10,541,000 $8,124,000 2,417,000
</TABLE>
The significant increase in premiums written occurred in Texas where
Intermed markets professional liability insurance to physicians and dentists
through two purchasing groups, Intermedical of Texas, Inc. and Dental
Defense Specialists, Inc., and in Missouri where Interlex markets
professional liability insurance to lawyers. The medical malpractice market
in Missouri continues to suffer from intense competitive pressure due to the
large number of companies active in the state, several of whom engage in
extremely aggressive pricing in order to gain market share. The Company has
continued its long-standing policy of actuarially sound premium rates even
though this has resulted in a loss of market share. One of our principal
competitors, which built market share over the past decade by charging
inadequate rates failed in 1997 and is now under state supervision. While
this competitor is no longer present in the Missouri market, several other
companies have stepped in with premium rates as aggressive as those of the
company which failed. Intermed continues to price its products responsibly
and to provide outstanding defense when our insureds are sued. This has
enabled the Company to hold our attrition rate to approximately 10%.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
Your management believes that the Missouri market for medical malpractice
insurance will continue to be extremely competitive in 1998 and the growth of
Intermed Insurance Co. will be in Texas where we expect to write an
additional $3,000,000 in premiums. The prospects for Interlex Insurance Co.
in Missouri in 1998 appear to be extremely positive and we expect to write an
additional $500,000 in premiums.
Premiums ceded to reinsurers totaled $4,739,000 in 1997 compared to
$4,655,000 in 1996. Net premiums written were $5,802,000 in 1997 compared
to $3,469,000 in the prior year, an increase of $2,333,000 or 67%.
Due primarily to the 30% increase in direct premiums written in 1997, there
was an increase of $1,304,000 in the unearned premium reserve compared to a
decrease of $4,178,000 in 1996. The decrease in the UPR in 1996 was due to
the decrease in premiums written in 1996 compared to 1995 and to a release
of $3,128,000 from the death, disability and retirement component of the
reserve caused by the conversion of claims-paid policyholders to claims-made
coverages in 1996.
As a result of the significant changes in the UPR in 1997 and 1996, net
premiums earned in 1997 were $4,498,000 compared to $7,646,000 in 1996.
However, the significant increase in the UPR in 1997 will result in an
increase in premiums earned in 1998 as these premiums are taken into income.
Net investment income in 1997 was approximately level with prior years,
$2,623,000 compared to $2,627,000 in 1996 and $2,654,000 in 1995. Net
investment losses of $14,000 in 1997, $17,000 in 1996 and $36,000 in 1995
were attributable to the portfolio yield improvement project discussed in
the Asset section of this report.
Sales, marketing and other underwriting expenses totaled $3,990,000 in 1997,
$3,543,000 in 1996 and $2,393,000 in 1995. The growth in expenses over the
three-year period was due to expansion of the direct marketing staff of
Intermed, start-up costs of Interlex, the establishment of a sales office in
Austin, Texas to support the marketing efforts of the two purchasing groups
discussed above and the accrual of certain post-retirement benefits for
Directors and the Chief Executive Officer.
Losses and loss adjustment expenses totaled $4,478,000 in 1997 compared to
$11,226,000 in 1996 and $7,676,000 in 1995. Loss ratios were 99.6% in 1997,
146.8% in 1996 and 64.5% in 1995. Losses and loss adjustment expenses in
1996 were significantly impacted by the establishment of reserves for
reported claims on claims-paid policies that were non-renewed during the
eight-month period ended August 31, 1996. The impact on 1996 earnings was
$2,119,000.
Primarily because of the non-renewal of claims-paid policies in 1995 and
1996, there were significant variations in operating results between years.:
- Total losses and expenses were $8,468,000 in 1997, $14,755,000 in
1996 and $10,686,000 in 1995.
- There was a loss before income taxes of $1,362,000 in 1997 compared
to a loss before income taxes of $4,499,000 in 1996 and income before
income taxes of $3,833,000 in 1995.
- There was an income tax benefit of $409,000 in 1997 and $1,564,000
in 1996. There was a tax expense of $1,323,000 in 1995.
- There was a net loss of $953,000 in 1997 compared to a net loss of
$2,934,000 in 1996 and net income of $2,510,000 in 1995.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
There was a positive cash flow from operations of $476,000 in 1997 compared
to a negative cash flow of $5,811,000 in 1996 and a positive cash flow of
$1,175,000 in 1995. The significant improvement in 1997 compared to 1996
was primarily attributable to the following factors:
- An increase of $870,000 in premium receipts in 1997.
- Net payments to reinsurers of $751,000 in 1997 compared to
$3,315,000 in 1996.
- A reduction of $147,000 in dividends to policyholders in 1997.
- A reduction of $1,446,000 in loss and loss adjustment expenses
in 1997.
- Net cash recoveries of $1,304,000 of federal income taxes in 1997.
Cash and short-term investments of $6,550,000 at December 31, 1997 and
projected net investment income of $2,600,000 in 1998 provide ample
assurance that bonds will not have to be sold to meet unexpected cash
requirements in the coming year.
YEAR 2000 ISSUE
While many companies face enormous costs in resolving the Year 2000 issue,
Tenere has only one line of business, professional liability insurance, and
only issues policies with one-year lives. Based on a preliminary survey of
computer equipment and automated systems, the Company's Management does not
believe that Tenere's cost of addressing this issue will be material. A
plan has been designed to address and resolve these issues in 1998.
Computer consultants have been engaged to assist in all stages of this
project.
EFFECT OF INFLATION
Inflation has an impact on Tenere's general and administrative expenses
through higher wages and the costs of goods and services. Inflation also
impacts loss adjustment expenses as attorneys and other consultants pass on
their increased costs through increased fees.
FORWARD LOOKING INFORMATION
This report contains forward-looking statements with respect to the
Company's future operations, including statements with respect to increases
in premiums written by Intermed in Texas and by Interlex in Missouri. The
Company's actual results may vary materially from those projected in the
forward-looking statements due to risks and uncertainties that exist in the
Company's operations and in the business environment generally.
7
<PAGE> 8
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Tenere Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Tenere
Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity/policyholders'
surplus and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Tenere Group,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
March 17, 1998
8
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
<S> <C> <C>
Investments:
Bonds held available for sale, at
fair value (amortized cost - $39,863,330
in 1997; $29,117,835 in 1996) $40,930,956 29,370,067
Common stock, at fair value 7,057 340
Short-term investments, at cost
which approximates fair value 6,447,758 14,889,744
---------- ----------
Total investments 47,385,771 44,260,151
Cash, primarily compensating balances 102,175 2,045,378
Premiums receivable 3,124,660 2,580,691
Reinsurance recoverable 10,413,593 7,197,901
Ceded unearned premiums 369,727 260,397
Accrued investment income 674,843 527,139
Deferred policy acquisition costs 183,253 84,550
Deferred income taxes 2,304,087 2,098,792
Income taxes recoverable 300,000 1,680,190
Other 867,543 1,084,992
---------- ----------
Total assets $65,725,652 61,820,181
=========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Reserves for losses and loss adjustment expenses $31,030,412 32,887,407
Unearned premium reserve 7,717,308 6,300,111
Reinsurance premiums payable 4,435,317 506,381
Other 1,563,056 736,579
---------- ----------
Total liabilities 44,746,093 40,430,478
Stockholders' equity:
Common stock, $.01 par value; 7,000,000 shares
authorized; 1,999,774 shares issued
and outstanding 19,998 19,998
Contributed capital 21,940,828 21,940,828
Accumulated deficit (1,690,370) (737,596)
Unrealized gain on investment
securities, net of tax 709,103 166,473
Commitments and contingencies
(see notes 8 & 10)
---------- ----------
Total stockholders' equity 20,979,559 21,389,703
---------- ----------
Total liabilities and stockholders' equity $65,725,652 61,820,181
=========== ==========
</TABLE>
See notes to consolidated financial statements
9
<PAGE> 10
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Direct premiums written $10,541,048 8,124,319 9,874,270
Premiums ceded to reinsurers (4,739,209) (4,655,382) (1,505,427)
----------- ---------- ----------
Net premiums written 5,801,839 3,468,937 8,368,843
(Increase) decrease in unearned
premium reserve (1,304,002) 4,177,545 3,532,480
----------- ---------- ----------
Net premiums earned 4,497,837 7,646,482 11,901,323
Net investment income 2,623,033 2,626,983 2,654,037
Net realized investment losses (14,049) (17,135) (36,263)
----------- ---------- ----------
Total revenues 7,106,821 10,256,330 14,519,097
Losses and expenses:
Losses and loss adjustment expenses 4,478,424 11,226,461 7,676,488
Sales and marketing expenses 1,790,215 1,758,312 955,021
Other underwriting expenses 2,199,776 1,784,324 1,437,718
Dividends to policyholders - (13,921) 616,948
----------- ---------- ----------
Total losses and expenses 8,468,415 14,755,176 10,686,175
----------- ---------- ----------
Income (loss) before income taxes (1,361,594) (4,498,846) 3,832,922
Income tax benefit (expense) 408,820 1,564,360 (1,323,066)
----------- ---------- ----------
Net income (loss) $ (952,774) (2,934,486) 2,509,856
=========== ========== ==========
Basic and diluted net income
(loss) per share $ (0.48) (1.47) 1.26
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements
10
<PAGE> 11
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/POLICYHOLDERS' SURPLUS
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Unrealized
Retained gain (loss)
earnings/ on investment
Common Contributed (accumulated securities, net Unassigned
stock capital deficit) of tax surplus Total
----- ------- ------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ - - - (2,279,304) 21,647,860 19,368,556
Demutualization (note 1) 19,998 21,940,828 (312,966) - (21,647,860) -
Change in unrealized
investment gains - - - 2,658,866 - 2,658,866
Net income - - 2,509,856 - - 2,509,856
------- ---------- ---------- ------- ----------- ----------
Balance at December 31, 1995 19,998 21,940,828 2,196,890 379,562 - 24,537,278
Change in unrealized
investment losses - - - (213,089) - (213,089)
Net loss - - (2,934,486) - - (2,934,486)
------- ---------- ---------- ------- ----------- ----------
Balance at December 31, 1996 19,998 21,940,828 (737,596) 166,473 - 21,389,703
Change in unrealized
investment gains - - - 542,630 - 542,630
Net loss - - (952,774) - - (952,774)
------- ---------- ---------- ------- ----------- ----------
Balance at December 31, 1997 $19,998 21,940,828 (1,690,370) 709,103 - 20,979,559
======= ========== ========== ======= =========== ==========
</TABLE>
See notes to consolidated financial statements
11
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ----------
<S> <C> <C> <C>
Net income (loss $ (952,774) (2,934,486) 2,509,856
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Net realized investment losses 14,049 17,135 36,263
Depreciation and amortization expense 170,374 187,418 160,634
Net change in deferred policy acquisition costs (98,703) 55,900 147,172
Deferred income tax expense (benefit) (484,833) (216,705) 487,427
Net amortization of discount on bonds 51,714 105,218 516,508
Change in operating assets and liabilities
Premiums receivable (543,969) 1,139,511 423,063
Reinsurance balances 603,914 (4,752,048) (1,308,346)
Accrued investment income (147,704) 40,167 795,427
Income taxes recoverable 1,380,190 (1,894,634) 650,715
Other assets 94,441 241,485 1,208
Reserve for losses and loss adjustment expenses (1,856,995) 6,244,114 245,816
Unearned premium reserve 1,417,197 (4,146,895) (3,299,570)
Policyholder dividends payable - (152,042) (277,596)
Other liabilities 828,678 254,507 86,240
------------ ----------- ----------
Net cash provided by (used in) operating activities 475,579 (5,811,355) 1,174,817
Cash flows from investing activities:
Maturity of bonds held to maturity or available for sale 1,450,000 1,700,000 1,360,000
Sale of bonds held to maturity - 1,826,094 -
Sale of bonds available for sale 4,269,066 2,750,826 27,246,304
Purchase of bonds held to maturity or available for sale (16,530,324) (13,688,573) -
Redemption on stock rights 56 - -
Purchase of intangible asset - (400,000) -
Purchase of furniture and equipment (49,566) (622,795) (250,255)
------------ ----------- ----------
Net cash provided by (used in) investing activities (10,860,768) (8,434,448) 28,356,049
Net increase (decrease) in cash and short-term investments (10,385,189) (14,245,803) 29,530,866
Cash and short-term investments at beginning of year 16,935,122 31,180,925 1,650,059
------------ ----------- ----------
Cash and short-term investments at end of year $ 6,549,933 16,935,122 31,180,925
============ =========== ==========
</TABLE>
See notes to consolidated financial statements
12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of The Tenere Group, Inc.
(Tenere, the Company) and its wholly-owned subsidiaries, Intermed
Insurance Company (Intermed), Interlex Insurance Company (Interlex) and
Insurance Services, Inc. (ISI), is presented to assist in understanding
the Company's consolidated financial statements. The consolidated
financial statements herein represent the operations of Intermed and its
subsidiaries, Interlex and ISI. Tenere, the holding company, currently
has no operations other than ownership of Intermed.
The consolidated financial statements and notes thereto are
representations of the Company's management, which is responsible for
their integrity and objectivity. The consolidated financial statements
have been prepared on the basis of generally accepted accounting
principles. All significant intercompany transactions and accounts have
been eliminated in consolidation. Certain reclassifications to 1996 and
1995 amounts were made to conform with 1997 presentation.
DESCRIPTION OF COMPANY
Effective April 27, 1995, RCA Mutual Insurance Company (RCA), a
non-assessable mutual property and casualty insurance company, completed
the demutualization process which began in 1993 and became a stock
property and casualty insurance company. The Company's name was changed
from RCA Mutual Insurance Company to Intermed Insurance Company. Also
effective April 27, 1995, Intermed became a wholly-owned subsidiary of
The Tenere Group, Inc., an insurance holding company organized under the
laws of the State of Missouri, and the policyholders of RCA became the
stockholders of Tenere. This transaction was accounted for using
policyholders' equity as of April 1, 1995. Issued in exchange for
$21,960,826 of membership interests were 1,999,774 shares of Tenere Group
stock which approximated one share of $.01 par value Tenere Group stock
for every $10.98 of policyholder surplus attributable to the
policyholder.
Intermed writes medical and dental professional liability insurance on
occurrence and claims-made bases in the States of Missouri and Kansas.
Prior to September 1, 1995, the Company also wrote coverages on a
claims-paid basis in the State of Missouri. Effective August 1, 1996
Intermed was recognized as a surplus lines carrier in the State of Texas
and began writing professional liability insurance on physicians through
a physician-sponsored purchasing group, Intermedical of Texas, Inc. In
1997, the Company began to write professional liability insurance on
dentists in Texas through a second physician-sponsored purchasing group,
Dental Defense Specialists, Inc. Coverages in Texas are written on both
occurrence and claims-made policy forms. Interlex writes legal
professional liability insurance on a claims-made basis in the States of
Missouri and Kansas. Since operations are currently conducted in only
three states, they are subject to changes in the legal and economic
climates of those states.
CASH
Cash balances are primarily compensating balances required to pay for
banking services. Excess cash is reinvested in a variety of short-term
investments.
INVESTMENTS
Investments in bonds and common stocks are classified as "available for
sale" and are accordingly reported at fair value. Unrealized gains and
losses are included as a separate component of stockholders' equity, net
of income tax. Short-term investments are reported at cost which
approximates fair value. Gains and losses from the sale of investments
are calculated using the specific identification method.
13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EARNINGS (LOSS) PER SHARE
The Company has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," which requires
the presentation of basic and diluted earnings per share (EPS). Basic
EPS is computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised, unless there is a net loss and the exercise would be
anti-dilutive. Implementation of SFAS No. 128 resulted in no change in
EPS for prior periods.
PREMIUMS RECEIVABLE
Premiums receivable represent unpaid premium balances due from the
insured and are substantially offset by the related unearned premiums.
The Company cancels all policies with receivable balances outstanding
more than 90 days.
PREMIUMS
Premium income is recognized on a pro rata basis over the terms of the
respective policy contracts. The unearned premium reserve represents the
portion of premiums written which are applicable to the unexpired terms
of policies in force. The Company reserves for future utilization of the
death, disability and retirement waiver benefit as a component of the
unearned premium reserve. This reserve was estimated to be $1,966,977 at
December 31, 1997 and $1,647,682 at December 31, 1996.
POLICY ACQUISITION COSTS
Policy acquistion costs, consisiting primarily of commissions , are
deferred and amortized in proportion to the premium revenue recognized.
Amortization of policy acquistion costs were $263,000, $340,000 and
$431,000 in 1997, 1996 and 1995, respectively.
RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
Reserves for losses and loss adjustment expenses represent the estimated
liabilities for reported claims plus those incurred but not yet reported
and the related estimated loss adjustment expenses. The reserves for
losses and loss adjustment expenses are determined using case-basis
evaluations and statistical analyses, including insurance industry loss
data, and represent estimates of the ultimate cost of all claims incurred
through December 31 of each year. Although considerable variability is
inherent in such estimates, management believes that the reserves for
losses and loss adjustment expenses are adequate. The estimates are
continually reviewed and adjusted as necessary; such adjustments are
included in current operations and are accounted for as changes in
estimates. The reserves for losses and loss adjustment expenses are
reported on a present value basis discounted at the rate of 2% in 1997
and 3% in 1996 as permitted by the Missouri Department of Insurance. The
discount will be 1% in 1998 and will be eliminated effective January 1,
1999. (See note 4)
Estimates of losses and loss adjustment expenses on occurrence coverages
are charged to income as claims are incurred. Estimates of losses and
loss adjustment expenses on claims-made coverages are charged to income
as claims are reported. Claims-paid coverages insured against claims
which were reported and paid during the period the policy was in effect.
The Company's obligation to defend and pay claims ended upon expiration
of a claims-paid policy. Claims-paid losses were incurred at the time of
payment so no reserves were required on open claims. The Company
discontinued writing claims-paid policies effective September 1, 1995.
As these policies expired over the twelve-month period ending August 31,
1996,
14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
claims-paid policyholders were given the opportunity to convert to
claims-made coverage. Upon non-renewal of the claims-paid contract, the
Company became contractually liable for reported claims. Reserves for
all reported claims on claims-paid policies which non-renewed during the
period September 1, 1995 through August 31, 1996 totaled $995,141 at
December 31, 1997, net of reinsurance.
FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return. Current federal income taxes are charged or credited to
operations based upon amounts estimated to be payable or recoverable as a
result of taxable operations for the current year. Deferred income tax
assets and liabilities are recognized based on the difference between
financial statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The reserves for losses and loss adjustment expenses
represent the most significant estimate in the accompanying financial
statements.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income" requires companies to
classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the statement of financial
position. The change in unrealized investment gains and losses is the
most significant component of other comprehensive income for the Company.
This statement is effective for financial statements issued for fiscal
years beginning after December 15, 1997.
(2) RELATED PARTIES
Insurance Services, Inc. has management contracts with two purchasing
groups, Intermedical of Texas, Inc. and Dental Defense Specialists, Inc.
The Company and the two purchasing groups have certain members in common
on their respective Boards of Directors. In 1997 the two purchasing
groups produced written premiums of $2,619,000 in the State of Texas for
Intermed Insurance Company.
15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTMENTS
The amortized cost and estimated fair values of investments in bonds and
common stock as of December 31, 1997 and December 31, 1996 are presented
below. The estimated fair values presented in this footnote were
determined using quoted market prices, where available, or independent
pricing services.
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
Type of Investment basis gains losses value
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1997
Bonds:
United State government,
Government agencies and $38,003,757 1,012,229 (7,020) 39,008,966
Authorities
State municipalities and
Political subdivisions 1,859,573 62,417 - 1,921,990
----------- --------- -------- ----------
Total bonds 39,863,330 1,074,646 (7,020) 40,930,956
Common stock 284 6,773 - 7,057
Short-term investments 6,447,758 - - 6,447,758
----------- --------- -------- ----------
Total investments $46,311,372 1,081,419 (7,020) 47,385,771
=========== ========= ======== ==========
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
Type of Investment basis gains losses value
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1996
Bonds:
United State government,
Government agencies and $27,246,527 364,640 (136,238) 27,474,929
Authorities
State municipalities and
Political subdivisions 1,871,308 23,830 - 1,895,138
----------- --------- -------- ----------
Total bonds 29,117,835 388,470 (136,238) 29,370,067
Common stock 340 - - 340
Short-term investments 14,889,744 - - 14,889,744
----------- --------- -------- ----------
Total investments $44,007,919 388,470 (136,238) 44,260,151
=========== ========= ========= ==========
</TABLE>
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and estimated fair value of investments in bonds at
December 31, 1997 by contractual maturity are shown below. Expected
maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
---- -----
<S> <C> <C>
Due in one year or less $ 50,091 50,141
Due after one year through five years 13,468,709 13,649,437
Due after five years through ten years 26,344,530 27,231,378
----------- ----------
$39,863,330 40,930,956
=========== ==========
</TABLE>
Proceeds from sales of available-for sale securities were $4,269,066 in
1997, $2,750,826 in 1996 and $27,246,304 in 1995. Gross gains and losses
on those sales were: $0 and $14,049 in 1997; $2,120 and $19,255 in 1996;
and $383,816 and $420,079 in 1995.
Net investment income for the years ended December 31, 1997, 1996 and
1995 is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Investment income:
Interest on short-term investments $ 742,735 1,115,565 616,621
Interest on bonds 2,056,416 1,695,754 2,217,427
---------- --------- ---------
Gross investment income 2,799,151 2,811,319 2,834,048
Investment expenses (176,118) (184,336) (180,011)
---------- --------- ---------
Net investment income $2,623,033 2,626,983 2,654,037
========== ========= =========
</TABLE>
Bonds with an estimated fair value of $1,878,081 at December 31, 1997 and
$1,846,866 at December 31, 1996 were on deposit with the Missouri Department of
Insurance.
The net changes in unrealized investment gains (losses) are as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Unrealized investment gains (losses) $ 822,167 (322,862) 4,028,585
Federal income (taxes) benefit at 34% (279,537) 109,773 (1,369,719)
--------- -------- ----------
Net unrealized investment
gains (losses) $ 542,630 (213,089) 2,658,866
========= ======== ==========
</TABLE>
The carrying values of cash, short-term investments, premiums receivable, other
assets and other liabilities approximate their fair values at December 31, 1997
and 1996.
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
A summary of the reserves for losses and loss adjustment expenses follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Undiscounted reserves for losses and loss
adjustment expenses $ 31,990,412 35,051,777
Less discount (see note 1) (960,000) (2,164,370)
Discounted reserves for losses and loss ------------ ----------
adjustment expenses $ 31,030,412 32,887,407
============ ==========
</TABLE>
Following is the activity in the reserves for losses and loss adjustment
expenses:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $ 32,887,407 26,623,138 26,279,977
Less reinsurance recoverable on
reserves for losses and loss
adjustment expenses (7,099,463) (1,162,495) (584,913)
------------ ---------- ----------
25,787,944 25,460,643 25,695,064
------------ ---------- ----------
Incurred related to:
Current year 5,646,863 9,812,694 9,612,075
Prior Year (1,168,439) 1,413,767 (1,935,587)
------------ ---------- ----------
Total incurred 4,478,424 11,226,461 7,676,488
------------ ---------- ----------
Paid related to:
Current year 413,191 2,499,788 3,190,397
Prior Year 8,773,277 8,399,372 4,720,512
------------ ---------- ----------
Total paid 9,186,468 10,899,160 7,910,909
------------ ---------- ----------
Net balance at December 31 21,079,900 25,787,944 25,460,643
Plus reinsurance recoverable on
reserves for losses and
loss adjustment expenses 9,950,512 7,099,463 1,162,495
------------ ---------- ----------
Balance at December 31 $ 31,030,412 32,887,407 26,623,138
============ ========== ==========
</TABLE>
The reserves for losses and loss adjustment expenses are estimated based
on development information available at each reporting date. As a result of
the nature of the risks underwritten, claims development may occur over an
extended period of time. The changes in the incurred amounts disclosed
above related to prior years are the result of utilizing improved claim
development information as that information becomes available.
(5) REINSURANCE
As is customary in the insurance industry, the Company reinsures portions
of certain insurance policies it writes, thereby providing a greater
diversification of risk and minimizing exposure on larger risks. The
Company remains contingently at risk with respect to any reinsurance ceded
and would incur an additional loss if an assuming company were unable to
meet its obligation under the reinsurance treaty.
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company monitors the financial condition of its reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies.
Amounts recoverable from one reinsurer at December 31, 1997 represented
58% of total reserves for losses and loss adjustment expenses ceded.
Effective January 1, 1996, Intermed entered into a multi-year aggregate
excess of loss reinsurance agreement through December 31, 1999. This
agreement provides excess of loss coverage on Intermed's claims-paid,
occurrence and claims-made policies. Aggregate coverage provided by the
agreement is $4,800,000 in excess of $4,176,000 on claims-paid policies
and up to $2,000,000 per accident year or $6,000,000 in aggregate for all
incurred losses in excess of an annual accident year loss ratio for
occurrence and claims-made policies. Ceded earned premiums under this
agreement were $800,000 in 1997 and $2,050,000 in 1996. Ceded incurred
losses under this agreement were $1,131,403 in 1997 and $4,886,463 in
1996.
Effective October 1, 1996, Intermed renewed a multi-year excess of loss
reinsurance agreement through September 30, 1999. This agreement
provides excess of loss coverage on Intermed's claims-paid, occurrence
and claims-made policies up to $1,600,000 in excess of $400,000 on each
claim, with an aggregate recoverable of 300% of the ceded premiums
earned. This agreement also provides coverage for the difference between
$2,000,000 each loss and/or $4,000,000 in the aggregate and $1,000,000
and/or $3,000,000 in the aggregate each policy where applicable, with an
aggregate recoverable of $5,000,000. Ceded earned premiums under this
agreement were $3,294,126, $2,207,681 and $1,134,208 in 1997, 1996 and
1995, respectively. Ceded incurred losses under this agreement were
$2,681,760, $1,674,075 and $577,582 in 1997, 1996 and 1995,
respectively.
Effective October 1, 1997:
- Intermed and Interlex renewed a "catastrophic awards made"
excess of loss reinsurance agreement through September 30, 1998.
This agreement provides excess of loss coverage on claims-paid,
occurrence and claims-made policies. Aggregate coverage provided by
the agreement is $5,000,000 in excess of $250,000 per occurrence on
awards made on policies in excess of their original policy limit or
on extra-contractual obligations, with an aggregate recoverable of
$5,000,000. Ceded earned premiums were $146,251, $144,000 and
$132,480 in 1997, 1996 and 1995, respectively. There are no ceded
incurred losses under this agreement.
- Interlex renewed an excess of loss reinsurance agreement
through September 30, 1998. This agreement provides excess of loss
coverage on Interlex's claims-made policies up to $700,000 in excess
of $300,000 on each claim, with an aggregate recoverable of
$2,100,000. However, if ceded premiums written exceed $500,000, the
maximum recoverable shall increase to $3,500,000. Ceded earned
premiums under this agreement were $261,210, $161,389 and $23,791 in
1997, 1996 and 1995, respectively. There are no ceded incurred
losses under this agreement.
- Interlex renewed a facultative excess of loss reinsurance
agreement through September 30, 1998. This agreement provides
excess coverage on claims-made policies for limits exceeding
$1,000,000/3,000,000 up to $5,000,000/5,000,000 with an aggregate
recoverable of $5,000,000. Ceded earned premiums under this
agreement were $128,292, $64,825 and $2,554 in 1997, 1996 and 1995,
respectively. There were no ceded incurred losses under this
agreement.
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Premiums and losses related to reinsurance amounts for the years ended
December 31, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Ceded premiums written $4,739,209 4,655,382 1,505,427
========== ========= =========
Ceded premiums earned $4,629,879 4,627,895 1,343,578
========== ========= =========
Ceded losses and loss
adjustment expenses $3,813,163 6,560,538 577,582
========== ========= =========
</TABLE>
(6) STOCKHOLDERS' EQUITY
The National Association of Insurance Commissioners (NAIC) requires a
risk-based capital (RBC) calculation as part of the information filed
with the annual statutory statement of insurance companies. This
risk-based capital calculation and analysis is an attempt to measure the
theoretical capital and surplus needs of an insurance company compared
with its adjusted capital and surplus. The capital and surplus of
Intermed and Interlex substantially exceeds the NAIC's RBC requirements
for Property and Casualty companies at the end of 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Intermed Insurance Company
Total adjusted capital $17,062,404 17,104,149
Authorized control level risk-based capital $ 3,212,711 3,526,130
Interlex Insurance Company
Total adjusted capital $ 5,861,150 5,903,754
Authorized control level risk-based capital $ 212,475 159,125
</TABLE>
Dividends paid to the Company by its insurance subsidiaries are
restricted by regulatory requirements of the subsidiaries' state of
domicile. The maximum amount of dividends which can be paid to
stockholders by insurance companies domiciled in the State of Missouri
without prior approval of the Insurance Director is limited to the lesser
of (a) 10% of a company's statutory capital and surplus as of December 31
of the preceding year or (b) net investment income for the twelve-month
period ending December 31 of the preceding year. At December 31, 1997
statutory capital and surplus of Intermed was $17,830,404 and net
investment income of Intermed was $2,336,958. The maximum dividend which
can be paid in 1998 by Intermed without the prior approval of the
Missouri Insurance Director is, therefore, $1,783,040.
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return. Income tax
expense varies from the amount which would be provided by applying the
federal income tax rates to income before income taxes. The following
reconciles the expected provision for income tax expense using the
federal statutory tax rate of 34% to the provision for income tax expense
(benefit) reported herein for the years ended December 31, 1997, 1996
and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected tax expense (benefit) using
statutory rates $(462,942) (1,529,607) 1,303,787
Other, net 54,122 (34,753) 19,279
--------- ---------- ---------
Income tax expense (benefit) $(408,820) (1,564,360) 1,323,066
========= ========== =========
</TABLE>
Income taxes consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current expense (benefit) $ 76,013 (1,347,655) 835,639
Deferred expense (benefit) (484,833) (216,705) 487,427
--------- ---------- ---------
Income tax expense (benefit) $(408,820) (1,564,360) 1,323,066
========= ========== =========
</TABLE>
Deferred income taxes arise from temporary differences resulting from
income and expense items reported for financial accounting and tax
purposes in different periods. The sources of these differences and the
tax effect of each are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Losses and loss adjustment expenses
incurred for financial reporting
purposes but not deductible for
tax purposes $ 773,171 (348,223) 70,676
Unearned premiums not deductible
for tax purposes (88,673) 284,074 240,209
Deferred compensation (102,642) (88,400) -
Deferred retirement benefit (201,246) - -
Net operating loss carryforward (868,852) (86,660) -
Other, net 3,409 22,504 176,542
--------- -------- -------
Deferred tax expense (benefit) $(484,833) (216,705) 487,427
========= ======== =======
</TABLE>
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and December 31, 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Discounted unpaid loss reserves $1,080,048 1,853,219
Discounted unearned premium reserves 499,158 410,485
Deferred compensation 191,042 88,400
Deferred retirement benefit 201,246 -
Deferred commissions payable 47,465 26,916
Net operating loss carryforward 1,115,423 246,571
---------- ---------
Total gross deferred tax assets 3,134,382 2,625,591
Less valuation allowance (390,400) (400,000)
---------- ---------
Net deferred tax assets 2,743,982 2,225,591
Deferred tax liabilities:
Investments adjusted to market value (365,295) (85,758)
Deferred acquistion costs (62,306) (28,747)
Other (12,294) (12,294)
---------- ---------
Total gross deferred tax liabilities (439,895) (126,799)
---------- ---------
Net deferred tax asset $2,304,087 2,098,792
========== =========
</TABLE>
The valuation allowance for deferred tax assets at December 31, 1997 was
$390,400, a decrease of $9,600 from a balance of $400,000 at December 31,
1996. Based on the Company's historical earnings, future expectations of
adjusted taxable income, its ability to change its investment strategy,
as well as reversing gross deferred tax liabilities, management believes
it is more likely than not that the Company will fully realize the gross
deferred tax assets less the valuation allowance. However, there can be
no assurances that the Company will generate the necessary adjusted
taxable income in any future period.
Net cash payments (recoveries) for federal income taxes were
($1,304,177), $546,983 and $184,925 in 1997, 1996 and 1995, respectively.
Amounts and expiration dates of the net operating loss carryforward are
as follows:
<TABLE>
<CAPTION>
Year of net operating loss Net operating loss Expiration date
-------------------------- ------------------ ---------------
<S> <C> <C>
1992 $ 597,617 2007
1996 98,077 2011
1997 2,584,962 2012
</TABLE>
(8) STOCK OPTIONS
In 1996 the shareholders of the Company adopted the 1996 Long Term
Incentive Plan. The Plan was designed to encourage certain employees,
officers and directors of the Company and its subsidiaries to acquire
Common Stock of the Company or to receive monetary payments based on the
value of such stock or based upon achieving certain goals on a basis
mutually advantageous to such employees and the Company. The authorized
number of shares of Common Stock reserved for issuance under the Plan is
350,000.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 31, 1997, the compensation committee of the board of directors
granted options to purchase 182,052 shares of common stock to certain
officers of the Company and non-employee directors. The fair market
value of the Company's stock, as determined by the Board of Directors
using factors they deemed relevant, was $5.35 and the exercise price was
$5.45 per share. The options became fully exerciseable on July 31, 1997
and were all outstanding and exerciseable at December 31, 1997.
The term of the options is ten years ending January 31, 2007. The
options shall terminate earlier in the event of the death, retirement or
disability of the optionee or after termination of the optionee's
employment with the Company or its subsidiaries.
The Company has chosen not to adopt the accounting provisions on SFAS No.
123, "Accounting for Stock-Based Compensation," and, accordingly, there
has been no expense recognized in the accompanying financial statements.
If the Company had recorded expense based on the fair value of the stock
options at the grant date under SFAS No. 123, the Company would have
recognized $470,210 as compensation expense in 1997. The resulting pro
forma net loss for the year would have been ($1,263,113) and the
resulting pro forma basic and diluted loss per share would have been
($0.63) in 1997. The fair value of the options granted in 1997 was
estimated using an option pricing model that utilized the following
assumptions: annual risk-free interest rate of 7%, option term of 10
years, volatility of 0% and dividend yield of 0%. The preceding dividend
and volatility assumptions were utilized based on the historical and
future intentions of the Company to not pay regular dividends and the
non-volatile nature of the Company stock.
(9) BENEFIT PLANS
The Company sponsors a defined contribution pension plan that covers
substantially all employees, the Insurance Services, Inc. Employees'
Money Purchase Pension Plan. Contributions to the Plan by the Company
are discretionary, but may not exceed 15% of the participants annual
compensation.
The Company also sponsors a profit sharing plan, the Insurance Services,
Inc. Employees' 401(k) Profit Sharing Plan, to which employees may
contribute up to 10% of their annual compensation. The Company also
makes annual discretionary contributions to the plan.
The Company's total contributions to the two pension plans was $201,415
in 1997, $178,068 in 1996 and $141,325 in 1995.
Effective May 17, 1996 the Company established The Tenere Group, Inc.
Retirement Plan for Directors. The purpose of the Plan is to provide
retirement benefits to Directors who have rendered extended service to
the Company as a Director. A Director shall be eligible to receive a
benefit under this Plan if he retires after May 17, 1996 and has five or
more years of service at the time of his retirement. The annual benefit
paid under this plan shall be equal to the retainer at the date of his
retirement multiplied by 10% for each year of service as a Director. The
maximum annual benefit is limited to the Directors' annual retainer at
the time of retirement and will be paid quarterly during his lifetime for
a maximum of ten years. All current Directors are vested in the Plan and
the estimated cost to the Company of $591,901 was included as expense in
1997 and is reflected in other liabilities.
The Company provides a retirement plan for the chief executive officer of
the Company. The agreement entitles the executive or the estate of the
executive to receive an $80,000 annual payment for ten years upon
retirement and after attainment by the executive of 70 years of age. The
Company accrued retirement costs of $301,887 in 1997 and $260,000 in
1996. Such amounts have been discounted using a rate of 7%.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) COMMITMENTS AND CONTINGENCIES
The Company has non-cancellable operating leases for office space which
expire in June 2000 and June 2002. Future minimum lease payments are
$119,000 in 1998, $101,000 in 1999, $92,000 in 2000, $95,000 in 2001, and
$47,000 in 2002.
The Company is involved in claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a materially adverse effect on
its financial condition or results of operations.
On May 6, 1996, the Company entered into three-year employment agreements
with five executives and one key employee which include severance
provisions granting the executives the right to receive certain benefits,
including among others, their annual base salary and bonus if terminated
(as defined in the respective agreements) within the term of the
agreements. The agreements also contain a provision whereby the
executives, in the event of termination after a change in control, would
receive severance payments in an amount 2.99 times their then current
base salaries. As of December 31, 1997, the maximum contingent liability
under the severance provisions of the agreements was approximately
$2,300,000.
(11) STATUTORY ACCOUNTING
Intermed and its subsidiary Interlex are domiciled in Missouri and
prepare their statutory-basis financial statements in accordance with
accounting practices prescribed or permitted by the Missouri Department
of Insurance. "Prescribed" statutory accounting practices include state
laws, regulations and general administrative rules, as well as a variety
of publications of the the NAIC. "Permitted" statutory accounting
practices encompass all accounting practices that are not prescribed;
such practices may differ from state to state, may differ from company to
company within a state, and may change in the future. Intermed and its
subsidiary Interlex have no significant permitted accounting practices
that vary from prescribed accounting practices, except for discounting of
loss reserves.
Stockholder's equity and net income (loss), as reported to the
domiciliary state insurance departments in accordance with its prescribed
or permitted statutory accounting practices, for the Company's insurance
subsidiaries are summarized as follows:
<TABLE>
December 31,
1997 1996
---- ----
<S> <C> <C>
Statutory capital and surplus:
Intermed 17,830,404 18,402,549
Interlex 5,861,150 5,903,754
Net income (loss):
Intermed (498,840) (2,812,009)
Interlex (45,604) 74,797
</TABLE>
24
<PAGE> 25
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
The financial statements and related information of The Tenere Group, Inc. and
Subsidiaries presented in this Report were prepared by management, which has
sole responsibility for their integrity and objectivity. The statements were
prepared in conformity with generally accepted accounting principles and
include estimates and judgments based upon the best available information and
management's view of current conditions and circumstances. Management believes
that these statements present fairly the Company's financial position and
results of operations and that the other information contained in the annual
report is consistent with the financial statements.
Management has developed and maintains a system of internal accounting control
designed to provide reasonable assurance that the Company's assets are
protected from improper use and that accounting records provide a reliable
basis for the preparation of financial statements. This system is continually
reviewed, improved and modified in response to changing business conditions and
operations and to recommendations made by the Company's independent auditors.
While no system of internal control can provide absolute assurance that
irregularities will not take place, management believes that Tenere's internal
control system provides reasonable assurance that assets are safeguarded and
financial information is reliable.
The Company's independent auditors, KPMG Peat Marwick LLP, have audited the
consolidated financial statements. Their audit was conducted in accordance
with generally accepted auditing standards, which includes the consideration of
Tenere's internal controls to the extent necessary to form an independent
opinion on the consolidated financial statements prepared by management. During
the course of their audit, the independent auditors were given unrestricted
access to all financial records and related data. Management believes that all
representations made to the independent auditors were accurate and complete.
/s/ J.D. Williams
Joseph D. Williams, CPA
Vice President-Finance
and Chief Financial Officer
Springfield, Missouri
March 27, 1998
25
<PAGE> 26
SELECTED FINANCIAL INFORMATION
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net premiums earned $ 4,498 7,646 11,901 10,657 8,154
Net investment income 2,623 2,627 2,654 2,639 2,754
Net realized investment
gains (losses) (14) (17) (36) (423) 1,318
------- ------ ------ ------ ------
Total revenues 7,107 10,256 14,519 12,873 12,226
Losses and loss adjustment expenses 4,478 11,226 7,676 8,197 8,503
Dividends to policyholders - (14) 617 1,289 1,091
Amortization of net assets acquired in
excess of cost (1) - - - - (1,484)
Other expenses 3,991 3,543 2,393 2,488 2,865
------- ------ ------ ------ ------
Total expenses 8,469 14,755 10,686 11,974 10,975
------- ------ ------ ------ ------
Income (loss) before income taxes (1,362) (4,499) 3,833 899 1,251
Income tax benefit (expense) 409 1,564 (1,323) (102) 117
Cumulative effect of change in
accounting for income taxes - - - - 67
------- ------ ------ ------ ------
Net income (loss) $ (953) (2,935) 2,510 797 1,435
======= ====== ====== ====== ======
Basic and diluted net income (loss) per share $ (0.48) (1.47) 1.26 N.A. N.A.
======= ====== ====== ====== ======
CONSOLIDATED BALANCE SHEETS DATA:
Total assets $65,726 61,820 62,614 61,119 62,128
Reserve for losses and loss adjustment
expenses 31,030 32,887 26,623 26,280 25,553
Unearned premium reserve 7,717 6,300 10,447 13,747 13,379
Stockholders' equity/policyholders' surplus 20,980 21,390 24,537 19,369 20,845
======= ====== ====== ====== ======
</TABLE>
(1) On January 2, 1992, Intermed acquired all of the outstanding stock of
Insurance Risks, Ltd. for $2,500,048 in cash. The acquisition was
recorded as a purchase and, accordingly, the purchase price was allocated
to the estimated fair value of assets acquired and liabilities assumed as
of the date of acquisition. The fair value of the net assets acquired in
excess of the purchase price was $2,967,008 calculated as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 14,833,461
Liabilities assumed (12,973,636)
Net cash from the purchase 1,107,183
------------
Net assets acquired in excess of cost $ 2,967,008
============
</TABLE>
Net assets acquired in excess of cost were amortized over the estimated
period of benefit of two years. The amortization caused a favorable
non-recurring impact on net income for the years ended 1993 and 1992 in
the amount of $1,483,500. If these amounts are excluded from net income
before income taxes, 1993 net income before income tax would decrease
119% from $1,251,000 to ($232,500).
The selected consolidated financial data for each of the five years in the
period ended December 31, 1997 has been derived from audited consolidated
financial statements of Tenere as of and for the years ended December 31, 1997,
1996 and 1995 and of its predecessor, RCA Mutual Insurance Company, as of and
for the years ended December 31, 1994 and 1993. These data include all
adjustments which are, in the opinion of the management of Tenere, necessary
to present a fair statement of the financial condition and results of
operations of Tenere for these periods and are of a normal and recurring
nature. The information should be read in conjunction with and is qualified by
reference to such statements and the related notes thereto.
26
<PAGE> 27
DIRECTORS AND OFFICERS
THE TENERE GROUP, INC.
INTERMED INSURANCE CO.
<TABLE>
<S> <C> <C>
THOMAS E. ASHLEY, M.D. GARY O. BAKER, D.D.S. ALBERT J. BONEBRAKE, M.D.
VICE PRESIDENT Southwest Oral Surgery, Inc. Woman's Clinic, Inc.
Springfield, Missouri St. Louis, Missouri Springfield, Missouri
RAYMOND A. CHRISTY, M.D. HARRY O. COLE, M.D. C. RICHARD GULICK, M.D.
PRESIDENT AND CHAIRMAN OF THE BOARD OB/GYN Associates, Inc.
CHIEF EXECUTIVE OFFICER Neurosurgical Associates, Inc. St. Louis, Missouri
Springfield, Missouri St. Louis, Missouri
MICHAEL D. HOEMAN, M.D. CHRISTOPHER H. JUNG, M.D. CARROLL R. WETZEL, D.O.
SECRETARY AND TREASURER Southeast Missouri ENT Wetzel Clinic, Inc.,
The Diagnostic Clinic, Inc. Consultants Clinton, Missouri
Springfield, Missouri Cape Girardeau, Missouri
INTERLEX INSURANCE CO.
ALBERT J. BONEBRAKE, M.D. LLOYD J. CARMICHAEL RAYMOND A. CHRISTY, M.D.
Woman's Clinic, inc., SECRETARY PRESIDENT AND
Springfield, Missouri Carmichael, Gardner & Clark CHIEF EXECUTIVE OFFICER
Springfield, Missouri Springfield, Missouri
B. H. CLAMPETT MAX W. LILLEY PETER F. SPATARO
Springfield, Missouri CHAIRMAN OF THE BOARD VICE PRESIDENT
Springfield, Missouri Moser and Marsalek
St. Louis, Missouri
CARROLL R. WETZEL, D.O. STEVEN W. WHITE
Wetzel Clinic, Inc. White, Allinder & Graham
Clinton, Missouri Independence, Missouri
OFFICERS
ANDREW K. BENNETT ANDREW C. FISCHER CLIFTON R. STEPP
VICE PRESIDENT-CLAIMS VICE PRESIDENT-UNDERWRITING VICE PRESIDENT-
AND GENERAL COUNSEL AND POLICY SERVICES MARKETING
JOSEPH D. WILLIAMS, CPA JULIE D. WOLFE
VICE PRESIDENT-FINANCE ASSISTANT SECRETARY
AND CHIEF FINANCIAL OFFICER
</TABLE>
27
<PAGE> 28
CORPORATE INFORMATION
CORPORATE HEADQUARTERS:
1903 E. Battlefield
Springfield, MO 65804
Tel: 417-889-1010
800-865-0650
Fax: 417-889-1099
INDEPENDENT AUDITORS:
KPMG Peat Marwick LLP
Kansas City, MO
CORPORATE COUNSEL:
Thompson Coburn
St. Louis, MO
PRINCIPAL DEFENSE COUNSEL:
Amelung, Wulff & Willenbrock PC, St. Louis, MO
Andereck, Evans, Milne, Peace & Baumhoer LLC
Springfield, MO
Anderson & Gilbert, St. Louis, MO
Behr, Mantovani, McCarter & Potter PC,
St. Louis, MO
Blackwell, Sanders, Matheny, Weary & Lombardi
LLP, Kansas City and Springfield, MO
Brinker & Doyen LLP, St. Louis, MO
Brown & James PC, St. Louis, MO
Daniel, Clampett, Powell & Cunningham LLC,
Springfield, MO
Douthit, Frets, Rouse & Gentile LLC,
Kansas City, MO
Frederick, Rogers & Vaughn PC, Springfield, MO
Moser and Marsalek PC, St. Louis, MO
Newberry, Haden, Cowherd, Bullock & Keck
LLC, Springfield, MO
Shaffer Lombardo Shurin, Kansas City, MO
Shook, Hardy & Bacon LLP, Kansas City, MO
Shughart, Thomson & Kilroy PC, Kansas City, MO
Summers, Walsh, Pritchett & Blaich PC,
Poplar Bluff, MO
Turner, Reid, Duncan, Loomer & Patton PC,
Springfield, MO
CONSULTING ACTUARIES:
Ernst & Young LLP
Chicago, IL
INVESTMENT MANAGER:
Boatmen's Capital Management, Inc.
St. Louis, MO
ADVERTISING AGENCY:
Schilling/Sellmeyer & Associates, Inc.
Springfield, MO
TRANSFER AGENT AND REGISTRAR:
UMB Bank, n.a.
Securities Transfer Division
P.O. Box 410064
Kansas City, MO 64141-0064
MARKET INFORMATION:
The Company's Common Stock is not listed on any securities exchange or quoted
on any automated quotation system. There has been no independent market
established for the stock. As of March 16, 1998 there were 1,132 holders of
Common Stock. No dividends have been declared on Common Stock.
STOCKHOLDER INFORMATION:
The Tenere Group, Inc.'s Annual Report on Form 10-K as filed with the
Securities and Exchange Commission is available at no cost by writing to:
Chief Financial Officer
The Tenere Group, Inc.
1903 E. Battlefield
Springfield, MO 65804
28
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 40,930,956
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 7,057
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 47,385,771
<CASH> 102,175
<RECOVER-REINSURE> 463,081
<DEFERRED-ACQUISITION> 183,253
<TOTAL-ASSETS> 65,725,652
<POLICY-LOSSES> 31,030,412
<UNEARNED-PREMIUMS> 7,717,308
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 19,998
<OTHER-SE> 20,969,561
<TOTAL-LIABILITY-AND-EQUITY> 65,725,652
4,497,837
<INVESTMENT-INCOME> 2,623,033
<INVESTMENT-GAINS> (14,049)
<OTHER-INCOME> 0
<BENEFITS> 4,478,424
<UNDERWRITING-AMORTIZATION> 1,790,215
<UNDERWRITING-OTHER> 2,199,776
<INCOME-PRETAX> (1,361,594)
<INCOME-TAX> (408,820)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (952,774)
<EPS-PRIMARY> ($.48)
<EPS-DILUTED> ($.48)
<RESERVE-OPEN> 25,787,944
<PROVISION-CURRENT> 5,646,863
<PROVISION-PRIOR> (1,168,439)
<PAYMENTS-CURRENT> 413,191
<PAYMENTS-PRIOR> 8,773,277
<RESERVE-CLOSE> 21,079,900
<CUMULATIVE-DEFICIENCY> 1,663,000
</TABLE>
