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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
EXECUTIVE RISK INC.
(Exact name of registrant as specified in its charter)
Commission File No. 1-12800
DELAWARE 06-1388171
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
82 HOPMEADOW STREET, SIMSBURY, CONNECTICUT 06070
(Address of principal executive offices)
Registrant's telephone number, including area code: (860) 408-2000
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ITEM 5. OTHER EVENTS.
Restructuring of Underwriting and Reinsurance Relationships with The Aetna
Casualty and Surety Company. On February 13, 1997, Executive Risk, Inc. (the
"Company") announced a restructuring (the "Restructuring") of its relationship
with The Aetna Casualty and Surety Company ("AC&S"). The press release
announcing the Restructuring is attached hereto as EXHIBIT 99.1. Previously, an
insurance facility had operated under the terms of a number of related
documents, including: (1) an Amended and Restated Agency and Insurance Services
Agreement, dated as of January 1, 1994 among AC&S, the Company and the
partnership owned by the Company, Executive Risk Management Associates ("ERMA")
(the "Pre-restructuring Agency Agreement"), (2) an Amended and Restated Quota
Share Reinsurance Agreement, dated as of January 1, 1994, between AC&S and the
Company's indirect subsidiary, Executive Risk Indemnity Inc. ("ERII"),
respecting business issued by ERMA on AC&S policies (the "Pre-restructuring AC&S
Quota Share Agreement"), (3) a Quota Share Reinsurance Agreement, dated as of
January 1, 1994, between ERII and AC&S respecting certain business issued by
ERMA on ERII policies (the "Pre-restructuring ERII Quota Share Agreement"), and
(4) a Quota Share Reinsurance Agreement, dated as of January 1, 1994, between
the Company's indirect subsidiary, Executive Risk Specialty Insurance Company
("ERSIC"), and AC&S respecting certain business issued by ERMA on ERSIC paper
(the "Pre-restructuring ERSIC Quota Share Agreement"). In connection with the
Restructuring, the Pre-restructuring Agency Agreement, Pre-restructuring AC&S
Quota Share Agreement, Pre-restructuring ERII Quota Share Agreement and
Pre-restructuring ERSIC Quota Share Agreement have been terminated and replaced
with the following agreements:
(a) a Restructuring Agreement, dated February 13, 1997 (the
"Restructuring Agreement") attached hereto as EXHIBIT 10.1, by and among the
Company, the Company's direct subsidiary, Executive Re Inc., the Company's three
indirect subsidiaries, ERII, ERSIC and ERMA (collectively, the "Subsidiaries"),
AC&S and AC&S' direct subsidiary, Aetna Casualty & Surety of Canada;
(b) an Agency and Insurance Services Agreement, dated as of January 1,
1997, between AC&S and ERMA (the "1997 Agency Agreement") attached hereto as
EXHIBIT 10.2; and
(c) a Quota Share Reinsurance Agreement, dated as of January 1, 1997,
between AC&S and ERII (the "1997 Reinsurance Agreement") attached hereto as
EXHIBIT 10.3.
Restructuring of Agency Relationship. Under the Pre-restructuring Agency
Agreement, AC&S had authorized ERMA to underwrite and issue, on behalf of AC&S,
policies of directors and officers liability ("D&O") insurance, financial
institution trust department errors and omissions insurance ("Trust E&O"), and
certain other insurance ("Other Lines"; and collectively with D&O and Trust E&O,
"the "AC&S Lines"), all in accordance with prescribed underwriting guidelines
and within defined liability limits. Under the terms of the Pre-restructuring
Agency Agreement, ERMA had the exclusive right and authority to issue D&O
insurance on behalf of AC&S
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in North America. This exclusive arrangement was binding on AC&S' former parent,
Aetna Life and Casualty (now, Aetna Inc.) and its subsidiaries; however, the
arrangement was not binding on AC&S' current parent, Travelers/Aetna Property
Casualty Corp. ("TAPCO"), or TAPCO's affiliates. The Pre-restructuring Agency
Agreement was subject to termination upon two years' notice, provided that no
such termination could be effective until December 31, 1999.
Pursuant to the 1997 Agency Agreement, ERMA will retain the right and
authority, though on a non-exclusive basis, to (a) renew on AC&S paper all
policies of AC&S Lines written prior to February 13, 1997, and (b) underwrite
and issue new policies of AC&S D&O in the United States in accordance with
existing underwriting guidelines and specified limitations on limits of
liability. The 1997 Agency Agreement provides that annual gross premium volume
written by ERMA with respect to AC&S Lines must not exceed an aggregate amount
equal to the lesser of (a) 10% of the sum of the Company's total direct gross
D&O premiums plus the total direct gross D&O premiums written by ERMA on AC&S
policies under the 1997 Agency Agreement, and (b) $25 million. The Company
currently expects that it will underwrite and issue AC&S policies aggregating
lower premium volumes than permitted under the 1997 Agency Agreement.
Unless terminated sooner in accordance with its terms, the 1997 Agency
Agreement will remain in effect through December 31, 1999 (subject to possible
extension; see "General" below).
Restructuring of Reinsurance Arrangement. Under the Pre-restructuring ERII and
ERSIC Quota Share Agreements, AC&S had a 12.5% quota share participation in
generally all direct D&O business written on ERII and ERSIC paper. Under the
Restructuring Agreement, effective as of January 1, 1997, AC&S will no longer
participate in the Company's direct D&O business by way of reinsurance. During
1996, the Company's direct D&O business totaled approximately $225 million.
Additionally, under the Pre-restructuring AC&S Quota Share Agreement,
ERII had a 50% quota share participation in generally all AC&S D&O business
issued by ERMA. ERII also had a quota share participation in Trust E&O and
Other Lines business written by ERMA on behalf of AC&S. Pursuant to the
Restructuring Agreement, as of January 1, 1997, ERII will have a 100% quota
share participation in all AC&S Lines business written by ERMA on behalf of
AC&S. Under the 1997 Reinsurance Agreement, AC&S will receive a ceding
commission equal to actual producers' commissions plus 3.5% of gross written
premiums, less return premiums, as an allowance for premium taxes and other
costs and expenses that might be incurred by AC&S in connection with the
business covered under that agreement.
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General. In addition to modifying the agency and reinsurance relationships, the
Restructuring Agreement provides for the following:
(a) Mr. Joseph P. Kiernan, an officer of AC&S and TAPCO, has resigned
from the Boards of Directors or Partnership Committee, as the case may be, of
the Company and its Subsidiaries, and AC&S no longer has any election or
nomination rights with respect to Boards of Directors or Partnership Committee
of the Company and its Subsidiaries;
(b) all restrictions on the Company's premium volume (other than as to
the business written on AC&S policies as described above) and any remaining AC&S
consent requirements for the Company's corporate governance have been
terminated;
(c) the Company has agreed to secure AC&S' reinsurance receivable from
ERII under the Pre-restructuring AC&S Quota Share Agreement and the 1997
Reinsurance Agreement by means of providing AC&S with a standby letter of credit
in an amount of not more than $25 million, subject to adjustment in the event of
certain contingencies;
(d) AC&S, on behalf of itself and its subsidiaries and certain
affiliates, has agreed that for a period of two years it will not solicit the
Company's (or any Subsidiary's) underwriters for employment; and
(e) the parties have mutually agreed to meet in December 1999 to
discuss the possibility of entering into another agency relationship with
respect to D&O beyond December 31, 1999.
Under the Restructuring, the Company and its Subsidiaries have
relinquished the exclusive right to underwrite and issue D&O on AC&S policies.
As a result, competition for D&O business through the end of 1999 may increase.
Management is of the opinion that there are potential benefits to the Company by
virtue of the Restructuring, principally those flowing from the cessation of
AC&S' 12.5% quota share participation in ERII's and ERSIC's direct D&O business,
as described above. The financial benefits that may result from the
Restructuring depend upon a number of assumptions and marketplace
considerations, which are impossible to quantify at this time.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following exhibits are being filed as part of this report:
Exhibit Number
Restructuring Agreement, dated as of February 13, 1997, 10.1
by and among the Company, Executive Re Inc, Executive
Risk Indemnity Inc., Executive Risk Specialty Insurance
Company, Executive Risk Management Associates, The
Aetna Casualty and Surety Company and Aetna Casualty
and Surety of Canada.
Agency and Insurance Services Agreement, dated as of 10.2
January 1, 1997, by and between The Aetna Casualty
and Surety Company and Executive Risk Management
Associates
Quota Share Reinsurance Agreement, dated as of January 1, 10.3
1997, between The Aetna Casualty and Surety Company
and Executive Risk Indemnity Inc.
Press Release of the Company, dated February 13, 1997 99.1
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
he undersigned hereunto duly authorized.
EXECUTIVE RISK INC.
(Registrant)
Date: February 18, 1997 /s/ ROBERT H. KULLAS
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Robert H. Kullas, Vice Chairman
and Chief Operating Officer