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Exhibit 10.27
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as "Contract")
to the
COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
(hereinafter referred to as the "Reinsured")
and
CENTRE INSURANCE COMPANY
(hereinafter referred to as "Subscribing Reinsurer")
It is mutually agreed by and between the Reinsured on the one part, and the
Subscribing Reinsurer on the other part that the Subscribing Reinsurer's share
in the Interests and Liabilities of the Reinsurer as set forth in the COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT, effective 12:01 a.m., Eastern
Standard Time, January 1, 1999 attached hereto and forming a part of this
Contract shall be for 80%.
The share of the Subscribing Reinsurer signed hereon in the Interests and
Liabilities of all reinsurers in respect of the said Agreement shall be separate
and apart from the shares of the other reinsurers to the said Agreement, and the
Interests and Liabilities of the Subscribing Reinsurer signed hereon shall be
several and not joint with those of the other reinsurers and in no event shall
the Subscribing Reinsurer signed hereon participate in the Interests and
Liabilities of the other reinsurers.
This Contract shall be effective for the period commencing 12:01 a.m., Eastern
Standard Time, January 1, 1999 and ending 11:59 p.m., Eastern Standard Time,
December 31, 1999.
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IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed,
in triplicate,
Executed this _______________ day of ____________, 1999
TRENWICK AMERICA REINSURANCE CORPORATION
By: ___________________ By: ___________________
Name: Name:
Title: Title:
Executed this _______________ day of ____________, 1999
CENTRE INSURANCE COMPANY
By: ___________________ By: ___________________
Name: Name:
Title: Title:
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COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "AGREEMENT")
In consideration of the mutual covenants hereinafter contained and upon the
terms and conditions hereinafter set forth
THE SUBSCRIBING REINSURERS EXECUTING THE INTERESTS &
LIABILITIES CONTRACTS ATTACHED TO AND FORMING A PART
OF THIS AGREEMENT
(hereinafter referred to as the "REINSURER")
does hereby indemnify, as herein provided and specified,
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "REINSURED")
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ARTICLE AND PAGE NUMBER
1. BUSINESS COVERED 3
2. TERM 4
3. TERRITORY 4
4. RETENTION, REINSURER'S SHARE, AND LIMIT 5
5. LOSS SETTLEMENTS 6
6. REINSURANCE PREMIUM 5
7. ADDITIONAL PREMIUM 7
8. EXPERIENCE ACCOUNT 8
9. REINSURER'S MARGIN 9
10. FUNDS WITHHELD 10
11. COMMUTATION 12
12. REPORTS AND REMITTANCES 13
13. TAXES 14
14. COVENANTS OF THE REINSURED 15
15. DEFINITIONS 15
16. ULTIMATE NET LOSS 16
17. NET RETAINED LINES 17
18. RIGHT OF OFFSET 17
19. ERRORS AND OMISSIONS 18
20. CURRENCY 18
21. EXTRA CONTRACTUAL OBLIGATIONS 18
22. EXCESS OF ORIGINAL POLICY LIMITS LOSS 19
23. ARBITRATION 19
24. ACCESS TO RECORDS 20
25. INSOLVENCY 20
26. GOVERNING LAW 21
27. SERVICE OF SUIT 22
28. AMENDMENTS AND ALTERATIONS 23
29. ASSIGNMENT 23
30. NO THIRD PARTY RIGHTS 23
31. NO IMPLIED WAIVER 23
32. MERGERS AND ACQUISITIONS 23
33. INTERMEDIARY 24
34. SECURITY 24
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ARTICLE 1 - BUSINESS COVERED
In consideration of the premium to be paid by the Reinsured and subject to the
terms, conditions, exclusions and limits hereafter set forth, the Reinsurer
agrees to indemnify the Reinsured on an aggregate excess of loss basis for the
Reinsurer's share of Ultimate Net Loss that the Reinsured has incurred in excess
of the retention as a result of losses occurring during the Term of this
Agreement as respects the Reinsured's contracts, agreements and other evidence
of reinsurance in respect of all casualty reinsurance assumed business entered
into by the Reinsured (the "POLICIES"), but specifically excluding the following
business:
- finite risk reinsurance
- pollution liability when written by the Reinsured as a named
peril, but excluding first party cleanup
- policyholder dividends
- nuclear incidents: in accordance with the attached Nuclear
Incident Exclusion Clauses:
a. Nuclear Incident Exclusion Clause - Liability -
Reinsurance - U.S.A. and Canada;
b. Nuclear Incident Exclusion Clause - Physical Damage-
Reinsurance - U.S.A. and Canada;
c. Nuclear Incident Exclusion Clause - Physical Damage
and Liability (Boiler and Machinery Policies) -
Reinsurance - U.S.A. and Canada;
d. Nuclear Energy Risks Exclusion Clause - Reinsurance -
Worldwide excluding U.S.A. and Canada.
- war risks (in accordance with the attached War Risk Exclusion
Clause)
- insolvency and guarantee funds (in accordance with the
attached Insolvency and Guarantee Funds Exclusion Clause)
- residual market assessments, second injury fund assessments,
rehabilitation assessments, and any other similar type
assessments
- financial guarantee business
- loss portfolio transfers.
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ARTICLE 2 - TERM
The term (the "TERM") of this Agreement shall be the period commencing at 12:01
a.m., Eastern Standard Time, January 1, 1999 (the "EFFECTIVE DATE") through to
and including the earlier of 11:59 p.m., Eastern Standard Time, December 31,
1999 or the date on which this Agreement is otherwise canceled as provided for
below (the "EXPIRATION DATE").
This Agreement may not be canceled by the Reinsured. The Reinsurer shall have
the right to cancel this Agreement as provided for in the articles entitled
"COVENANTS OF THE REINSURED", "MERGERS AND ACQUISITIONS", or "RIGHT OF OFFSET"
and as provided for below.
In the event that the Reinsured fails to pay the Reinsurance Premium and/or the
Additional Premium, if any, within 15 days of the date such premium is due, the
Reinsurer shall notify the Reinsured in writing via registered mail of the
overdue amounts. In the event that the Reinsured does not remit the overdue
amounts to the Reinsurer within 15 days of receiving such notification from the
Reinsurer, the Reinsurer shall have the right to immediately cancel this
Agreement by mailing the Reinsured a written notice of cancellation and the
Total Aggregate Limit, notwithstanding any provision to the contrary contained
herein, shall be immediately reduced to an amount equal to the positive balance
in the Experience Account (or zero if the Experience Account Balance is
negative) as of the date of cancellation. The mailing of such notice shall be
sufficient notice and the effective date of cancellation shall be the date the
notice of cancellation was posted.
In the event that the Reinsured fails to pay a Reinsurance Premium and/or an
Additional Premium, if any, that is due after the Expiration Date of this
Agreement within 15 days of the date such premium is due, the Reinsurer shall
notify the Reinsured in writing via registered mail of the overdue amounts. In
the event that the Reinsured does not remit the overdue amounts to the Reinsurer
within 15 days of receiving such notification from the Reinsurer, the Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall immediately and without further notice be reduced to an amount equal to
the positive balance in the Experience Account (or zero if the Experience
Account Balance is negative).
ARTICLE 3 - TERRITORY
This Agreement shall apply only to losses occurring in the United States of
America, Canada and Europe.
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ARTICLE 4 - RETENTION, REINSURER'S SHARE, AND LIMIT
1) LIMIT A:
The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the Reinsured's aggregate Ultimate Net Loss that is in excess of a
Retention equal to 53% of Subject Earned Premium.
The "REINSURER'S SHARE" under Limit A shall be determined as follows:
If the Ultimate Net Loss is less than 53% of Subject Earned Premium,
the Reinsurer's Share under Limit A shall equal zero, otherwise, the
Reinsurer's Share under Limit A shall equal the lesser of (1) "A"
divided by "B" or (2) 100%,
Where:
"A" is equal to 32.0% of Subject Earned Premium;
and
"B" is equal to the amount of Ultimate Net Loss
in excess of 53% of Subject Earned Premium.
UNDER NO CIRCUMSTANCES SHALL THE REINSURER'S AGGREGATE LIMIT OF LIABILITY FOR
ULTIMATE NET LOSS UNDER THIS LIMIT A EXCEED 32.0% OF SUBJECT EARNED PREMIUM.
2) LIMIT B:
The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the Reinsured's aggregate Ultimate Net Loss that is in excess of a
Retention equal to 90% of Subject Earned Premium.
The "REINSURER'S SHARE" under Limit B shall be determined as follows:
If the Ultimate Net Loss is less than 90% of Subject Earned
Premium, the Reinsurer's Share under Limit B shall equal zero,
otherwise, the Reinsurer's Share under Limit B shall be equal
to the lesser of (1) "C" divided by "D" or (2) "E",
Where:
"C" is equal to 3.5% of Subject Earned Premium;
and
"D" is equal to the amount of Ultimate Net Loss
in excess of 90% of Subject Earned Premium;
and
"E" is equal to 100% less the Reinsurer's Share
under Limit A calculated above.
UNDER NO CIRCUMSTANCES SHALL THE REINSURER'S AGGREGATE LIMIT OF LIABILITY FOR
ULTIMATE NET
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LOSS UNDER THIS LIMIT B EXCEED 3.5% OF SUBJECT EARNED PREMIUM. FOR THE PURPOSE
OF CALCULATING THE REINSURER'S SHARE UNDER LIMIT A AND LIMIT B ABOVE, ULTIMATE
NET LOSS SHALL NOT BE SUBJECT TO THE SUB-LIMITS SET FORTH IN ARTICLE 16
"ULTIMATE NET LOSS" .
3) TOTAL AGGREGATE LIMIT:
Notwithstanding the Reinsurer's obligations under Limit A and Limit B above, the
Reinsurer's maximum aggregate limit of liability for Ultimate Net Loss under
this Agreement (the "TOTAL AGGREGATE LIMIT") shall be equal to the lesser of:
(1) 35.5% of Subject Earned Premium; or
(2) $55 million; or
(3) The greater of: (a) the aggregate amount of ceded Ultimate Net
Loss as reported in the Reinsured's 1999 Statutory Financial
Statement, or (b) 32% of Subject Earned Premium.
Notwithstanding the foregoing, the Total Aggregate Limit of liability hereunder
is further subject to adjustment as provided for in the articles entitled
"TERM", "COVENANTS OF THE REINSURED", and "RIGHT OF OFFSET".
UNDER NO CIRCUMSTANCES SHALL THE TOTAL LIABILITY OF THE REINSURER UNDER OR
RELATED TO THIS AGREEMENT EXCEED THE TOTAL AGGREGATE LIMIT.
ARTICLE 5 - LOSS SETTLEMENTS
The Reinsurer agrees to pay the Reinsured the amounts of Ultimate Net Loss due
hereunder and paid by the Reinsured (or payable by the Reinsured in case of
insolvency in accordance with the article entitled "INSOLVENCY") quarterly in
arrears and payment will be due within sixty (60) days following receipt and
verification of an account statement submitted by the Reinsured to the Reinsurer
as set forth in the article entitled "REPORTS AND REMITTANCES".
Ultimate Net Loss payments due by the Reinsurer in accordance with the
provisions herein shall first be paid by way of offset against the Funds
Withheld Balance until such balance is exhausted.
Appropriate adjustments shall be made to the Reinsurer's Share and the Ultimate
Net Loss paid by the Reinsurer to the Reinsured based on ceded paid Ultimate Net
Loss reported to the Reinsurer (and agreed to by the Reinsurer) pursuant to
Article 12 - "REPORTS AND REMITTANCES" and Article 16 - "ULTIMATE NET LOSS".
Notwithstanding any provision to the contrary contained herein, and except for
the articles entitled "EXTRA CONTRACTUAL OBLIGATIONS" and "EXCESS OF ORIGINAL
POLICY LIMITS LOSS", coverage under this Agreement is expressly limited to
claims or losses arising under the Reinsured's Policies; provided, however, that
such claims or losses are within the terms, conditions and limitations of the
original policies and within the terms, conditions and
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limitations of this Agreement.
ARTICLE 6 - REINSURANCE PREMIUM
Subject to the article entitled "FUNDS WITHHELD", the Reinsured shall pay to the
Reinsurer a premium (the "REINSURANCE PREMIUM") equal to 10.0% of the projected
Subject Earned Premium, payable in equal quarterly installments in advance on
the first day of each calendar quarter, subject to a maximum Reinsurance Premium
equal to $20,000,000.
Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate adjustments for the amount by which 10.0% of the Subject
Earned Premium for that calendar quarter exceeds or is less than the amounts
previously paid by the Reinsured for that calendar quarter
ARTICLE 7 - ADDITIONAL PREMIUM
Subject to the article entitled "FUNDS WITHHELD", the Reinsured shall pay to the
Reinsurer an additional premium (the "ADDITIONAL PREMIUM") in an amount equal
to:
1) 50% of the excess of Ultimate Net Loss over 73% of Subject Earned Premium,
but such Additional Premium not to exceed the lesser of 2% of Subject Earned
Premium, or $3,250,000, plus
2) 55% of the excess of Ultimate Net Loss over 77% of Subject Earned Premium,
but such Additional Premium not to exceed 2.2% of Subject Earned Premium or
$3,550,000.
3) 67.5% of the excess of Ultimate Net Loss over 81% of Subject Earned Premium,
but such Additional Premium not to exceed 2.7% of Subject Earned Premium or
$4,350,000.
Such Additional Premium shall be paid to the Reinsurer with the applicable
quarterly Ultimate Net Loss report as put forth in the article entitled "REPORTS
AND REMITTANCES".
Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate adjustments for the amount by which 50% of the Ultimate
Net Loss covered under Limit A between 73% and 77% of Subject Earned Premium and
55% of the Ultimate Net Loss covered under Limit A between 77% and 81% of
Subject Earned Premium and 67.5% of the Ultimate Net Loss covered under Limit A
between 81% and 85% of Subject Earned Premium, exceeds or is less than the
amounts of Additional Premiums previously paid by the Reinsured.
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ARTICLE 8 - EXPERIENCE ACCOUNT
A notional account (the "EXPERIENCE ACCOUNT") shall be calculated by the
Reinsurer from the Effective Date of this Agreement and maintained until there
is a complete and final release of all of the Reinsurer's obligations to the
Reinsured under this Agreement.
The balance of the Experience Account (the "EXPERIENCE ACCOUNT BALANCE") as of
any December 31 shall be defined as:
(1) Cumulative Reinsurance Premium plus Additional Premium, if
any, received by the Reinsurer (or Funds Withheld in
accordance with the article entitled "FUNDS WITHHELD"), less
(2) the Cumulative Reinsurer's Margin paid to the Reinsurer, less
(3) Cumulative Ultimate Net Loss paid (or offset) by the
Reinsurer, plus
(4) the Cumulative Experience Account Investment Credit.
The Reinsurance Premium, and Additional Premium, if any, shall be credited to
the Experience Account on the day said monies are received by the Reinsurer's
designated bank, or credited to the Funds Withheld Balance in accordance with
the article entitled "FUNDS WITHHELD", as the case may be.
The Ultimate Net Loss due from the Reinsurer shall be charged against the
Experience Account on the day said monies are received by the Reinsured's
designated bank, or offset against the Funds Withheld Balance in accordance with
the article entitled "FUNDS WITHHELD", as the case may be, and further subject
to the article entitled "REPORTS AND REMITTANCES".
For the purpose of calculating the balance of the Experience Account, the
Reinsurer's Margin shall be deemed to be deducted in proportion to and at the
same time as the crediting to the Experience Account of the Reinsurance Premium.
The Experience Account investment credit (the "EXPERIENCE ACCOUNT INVESTMENT
CREDIT") for each calendar year shall equal the average daily balance of the
Experience Account for that calendar year (or portion thereof), determined as if
the Reinsurance Premium and Additional Premium, if any, as finally computed were
paid on January 1, 1999, multiplied by 8.75% (or the pro-rata portion thereof).
The cumulative Experience Account Investment Credit (the "CUMULATIVE EXPERIENCE
ACCOUNT INVESTMENT CREDIT") shall be equal to the sum of the Experience Account
Investment Credits for each calendar year, or portion thereof, since the
Effective Date of this Agreement.
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ARTICLE 9 - REINSURER'S MARGIN
The Reinsurer's margin (the "REINSURER'S MARGIN") shall be equal to 12.0% of the
Reinsurance Premium payable under this Agreement, payable in equal quarterly
installments in advance on the first day of each calendar quarter.
Within thirty (30) days following the end of each calendar quarter the Reinsured
or the Reinsurer shall make appropriate adjustments for the amount by which
12.0% of the Reinsurance Premium for that calendar quarter exceeds or is less
than the amounts previously paid by the Reinsured as Reinsurer's Margin for that
calendar quarter. Any such balance due either party shall be due and payable
within thirty (30) days.
ARTICLE 10 - FUNDS WITHHELD
Subject to the terms herein, the Reinsured shall retain the Reinsurance Premium
and Additional Premium, if any, due hereunder on a funds withheld basis,
provided however, that the Reinsurer's Margin shall be paid in cash to the
Reinsurer and shall not be affected by the terms of this "Funds Withheld"
article. The amount of such withheld Reinsurance Premium, net of Reinsurer's
Margin, and Additional Premium, if any, shall be called "FUNDS WITHHELD". In
consideration of the Reinsurer agreeing to the Funds Withheld, the Reinsured
agrees (i) to calculate a notional Funds Withheld account from the Effective
Date of this Agreement until there is a complete and final release of all of the
Reinsurer's obligations to the Reinsured under this Agreement and (ii) that the
Funds Withheld Balance may be set off by the Reinsurer against liability of any
nature whatsoever (whether then contingent, due and payable, or in the future
becoming due) that the Reinsurer may then have, or in the future may have under
this Agreement and (iii) that such setoff shall occur as a condition precedent
to any payments by the Reinsurer hereunder.
The balance of the Funds Withheld account (the "FUNDS WITHHELD BALANCE") as of
any December 31 shall be defined as:
(1) Cumulative Reinsurance Premium plus Additional Premium, if
any, due hereunder, less
(2) the Cumulative Reinsurer's Margin paid to the Reinsurer, less
(3) Cumulative Ultimate Net Loss paid (or offset) by the
Reinsurer, plus
(4) the Cumulative Funds Withheld Investment Credit.
The Reinsurance Premium, and Additional Premium, if any, shall be credited to
the Funds Withheld Balance on the date such monies are payable.
The Ultimate Net Loss due from the Reinsurer shall be charged against the Funds
Withheld Balance on the date such monies are due and further subject to article
entitled "REPORTS AND REMITTANCES".
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For the purpose of calculating the balance of the Funds Withheld account, the
Reinsurer's Margin shall be deemed to be deducted in proportion to and at the
same time as the crediting to the Funds Withheld account of the Reinsurance
Premium.
The Funds Withheld investment credit (the "FUNDS WITHHELD INVESTMENT CREDIT")
for each calendar year shall equal the average daily balance of the Funds
Withheld account for that calendar year (or portion thereof), determined as if
the Reinsurance Premium and Additional Premium, if any, as finally computed was
paid on January 1, 1999, multiplied by 9% (or the pro-rata portion thereof). The
cumulative Funds Withheld Investment Credit (the "CUMULATIVE FUNDS WITHHELD
INVESTMENT CREDIT") shall be equal to sum of the Funds Withheld Investment
Credits for each calendar year, or portion thereof, since the Effective Date of
this Agreement.
At the Reinsurer's option, the Reinsured shall pay to the Reinsurer the Funds
Withheld Balance immediately upon request or upon the happening of any of the
following events : 1) commutation of this Agreement, 2) an Event of Default, 3)
a downgrade of the Reinsured by AM Best to A- or lower, or 4) December 31, 2014.
If the Reinsured pays the Reinsurer the Funds Withheld Balance the Reinsured
will no longer be required to credit the Funds Withheld Balance with investment
income and the Experience Account Investment Credit, as defined in Article 8 -
Experience Account, shall, from the time of payment of the Funds Withheld
Balance, equal the One-Year Treasury Note rate as posted in the Wall Street
Journal on the first business day following such payment. Such rate shall be
reset each 12 months to equal the One-Year Treasury Note prevailing at that
time. The Reinsured shall not have the right to prepay all or a part of the
Funds Withheld Balance without the Reinsurer's express written consent.
The following shall be defined as "EVENTS OF DEFAULT" and shall cause the whole
of the Funds Withheld Balance to, upon demand of the Reinsurer, become
immediately due and payable, together with all accrued interest and other unpaid
sums owing in relation thereto.
(1) Payment Defaults
The Reinsured fails to make any payment under this Agreement when due
and in the manner therein provided, except where the Reinsurer
receives the overdue payment within fifteen business days of the
non-payment;
(2) Executions
Creditors attach or take possession of or distress, execution,
sequestration, seizure, attachment or other equivalent or analogous
process is levied or enforced upon or sued out against any material
amount of the Reinsured's assets; or
(3) Insolvency
The Reinsured commences a proceeding or proceedings are commenced
against it seeking dissolution, winding-up, liquidation,
administration, reorganization, suspension or compromise of payments
or other relief under any applicable bankruptcy, insolvency
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or other similar law or seeking the appointment of an administrator
or a trustee, receiver, manager, receiver-manager, liquidator,
custodian, curator or other similar official of it or any substantial
part of the Reinsured's assets, or the Reinsured consents to any such
relief (including any bankruptcy petition) or appointment in
involuntary proceedings taken against it, or makes a bulk sale of its
assets or a general assignment or proposal for the benefit of
creditors, or fails or admits its inability to pay its debts as they
become due, or suspends or ceases or threatens to suspend or cease
carrying on business; or it takes any action in furtherance of any of
the foregoing.
ARTICLE 11 - COMMUTATION
Subject to the terms of this article, and provided the Experience Account
balance is positive, the Reinsured may, at its sole option, commute this
Agreement at any December 31, beginning on December 31, 2003 and on or before
December 31, 2014, subject to ninety (90) days prior written notice by the
Reinsured to the Reinsurer by registered or certified mail, provided that as a
condition precedent to this right of commutation the Reinsured commutes all
prior reinsurance agreements in existence between the Reinsurer and the
Reinsured at such date. Such prior reinsurance agreements consist of Coinsured
Aggregate Excess of Loss Agreements incepting on January 1, 1994, January 1,
1995, January 1, 1996, January 1, 1997, and January 1, 1998.
If the Reinsured elects to commute this Agreement, the Reinsured shall pay to
the Reinsurer as a condition precedent to the commutation the Funds Withheld
Balance as of the date of commutation of this Agreement and the Reinsurer shall
pay to the Reinsured the positive balance, if any, in the Experience Account as
of the date of commutation within sixty (60) business days of the date of
commutation:
Payment of the Experience Account balance by the Reinsurer as described above
shall constitute a complete and final release of the Reinsurer in respect of any
and all of the Reinsurer's obligations of any nature whatsoever to the Reinsured
under or related to this Agreement.
Non-Commute Charge
If the Reinsured does not commute this Agreement on or before December 31, 2004,
the Reinsured shall pay to the Reinsurer in cash each January 1, beginning
January 1, 2005, an annual fee (the "Non-Commute Fee") of $200,000 until such
time as this Agreement is commuted or until such time as all losses due under
this Agreement are paid, whichever comes first.
The Non-Commute Fee shall not be included in the calculation of the Experience
Account balance or the Funds Withheld Account balance and shall be retained 100%
by the Reinsurer.
ARTICLE 12 - REPORTS AND REMITTANCES
1. The Reinsured shall furnish to the Reinsurer within fifteen (15) days prior
to the close of the calendar quarter an estimate of the amount of Ultimate
Net Loss ceded under this Agreement as of the close of that calendar quarter
broken out between loss and Allocated Loss Adjustment Expense.
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2. The Reinsured shall furnish to the Reinsurer within thirty (30) days after
the close of each calendar quarter:
(a) quarterly account of Subject Earned Premium segregated by line of
business (and for the total of all lines).
(b) quarterly accounts of paid and unpaid Ultimate Net Loss segregated by
line of business (and for the total of all lines of business) and
broken out between Y2K Loss and non-Y2K loss (loss, Allocated Loss
Adjustment Expense, ECO and XPL).
(c) a reconciliation of the Funds Withheld Balance from inception to the
close of the most recent preceding calendar quarter.
3. The Reinsured shall furnish to the Reinsurer within thirty (30) days after
the end of each calendar quarter, quarterly accounts of paid Ultimate Net
Loss ceded under this Agreement broken out between Y2K Loss and non-Y2K loss
(loss, Allocated Loss Adjustment Expense, ECO and XPL) which are due to be
paid by the Reinsurer to the Reinsured. As respects the Funds Withheld
Balance, Ultimate Net Loss amounts shall be deemed to be paid as of the date
the Reinsurer agrees to the amount to be paid and such agreement shall be
made within sixty (60) days after receipt of this account.
4. The Reinsured shall furnish to the Reinsurer within one hundred twenty (120)
days after the close of each calendar year annual paid projections of
Ultimate Net Loss, broken out between Y2K Loss and non-Y2K loss (loss,
Allocated Loss Adjustment Expense, ECO and XPL), and segregated by line of
business.
5. The Reinsurer shall furnish to the Reinsured within thirty (30) days after
the close of each quarter a reconciliation of the Experience Account from
inception to the close of the most recent preceding calendar quarter.
6. All amounts due and payable under this Agreement shall be remitted directly
by wire transfer between the Reinsured and the Reinsurer with notice to the
Intermediary, unless such amounts are withheld by the Reinsured in
accordance with the Funds Withheld provision of this Agreement.
7. Any late payments by either party shall accrue interest at a rate equal to
the greater of 1% per month, compounded semi-annually, or the yield on the
one year United States Treasury Bill existent on the first business day
after the previous January 1, as published in the Wall Street Journal, plus
250 basis points.
ARTICLE 13 - TAXES
The Reinsured shall pay all taxes of any nature associated with this Agreement
and undertakes not to claim any deduction of the premium hereon when making
Canadian tax returns or when making tax returns, other than Income or Profits
tax returns, to any State or Territory of the United States of America or the
District of Columbia. Provided, however, that this Article shall not impose any
liability on the Reinsured for any income, capital gains, profits or other
similar
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taxes payable by the Reinsurer in respect of its operations or this Agreement.
ARTICLE 14 - COVENANTS OF THE REINSURED
The Reinsured agrees not to change claims handling procedures, loss reserving
process, levels of ceding commissions in its underlying contracts, or the levels
of reinsurance protection in any manner from that in effect at the inception of
this Agreement which materially affects this Agreement or the obligations of the
parties hereunder, unless the Reinsured has received the prior written approval
of the Reinsurer to such changes, such approval not to be unreasonably withheld.
In the event that the Reinsured does not adhere to these Covenants, the
Reinsurer shall have the right to immediately cancel this Agreement by mailing
the Reinsured a written notice of cancellation and the remaining unpaid Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be immediately reduced to an amount equal to the positive balance in the
Experience Account (or zero if the Experience Account Balance is negative) as of
the date of cancellation. The mailing of such notice shall be sufficient notice
and the effective date of cancellation shall be the date the notice of
cancellation was posted.
In the event that the Reinsurer learns about a violation of these Covenants
after the Expiration Date of this Agreement, the remaining unpaid Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) upon written
notice by the Reinsurer to the Reinsured by registered or certified mail.
Notwithstanding the foregoing, the remedy to the Reinsurer in the event of a
breach by the Reinsured of any of the foregoing covenants may not be invoked
until the Reinsurer is called upon to pay Ultimate Net Loss under this Agreement
which is in excess of the Funds Withheld Balance.
ARTICLE 15 - DEFINITIONS
All words and phrases that have a capitalized initial letter in this Agreement
have a special meaning which is either introduced in certain Articles or which
is defined below and which shall include the plural as well as the singular.
"AGREEMENT" means this agreement as the same may be amended from time to time in
accordance with the terms hereof and all instruments supplemental hereto or in
amendment or confirmation hereof; additionally, the expressions "hereunder",
"herein", "hereof", "hereto", "above", "below" and similar expressions used in
any paragraph, subparagraph, section or article of this Agreement shall refer to
this Agreement and not to that paragraph, subparagraph, section or article only,
unless otherwise expressly provided.
"CEDED UNPAID ULTIMATE NET LOSS" shall mean the cumulative Ultimate Net Loss
ceded under this Agreement by the Reinsured from the Effective Date less
cumulative Ultimate Net Loss paid (or offset) under this Agreement by the
Reinsurer to the Reinsured from the Effective Date.
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"SUBJECT EARNED PREMIUM" shall mean gross premiums earned on all casualty
business in-force, written or renewed by the Reinsured during the Term of this
Agreement less return premiums less premiums ceded for all reinsurance which
would inure to the benefit of the Reinsurer under this Agreement. For purposes
of this Agreement, the projected Subject Earned Premium is equal to $140 million
for the Term of this Agreement.
"Y2K LOSS" shall mean all Ultimate Net Loss (including ALAE, ECO and XPL) on
Business Covered howsoever arising and regardless of any other cause or
occurrence contributing concurrently or in any sequence with: 1) the rendering
of date or time sensitive data, including but not limited to the recording,
storing, processing, calculating, comparing, sequencing or presenting by
electronic means of calendar dates or spans of time from, into and between the
twentieth and twenty-first centuries (including 1999 to 2000 and leap year
calculations); and 2) the generation, transmission, delivery, receipt of and any
use or reliance on information or calculations dependent on or relating to
calendar dates or spans of time from, into and between the twentieth and
twenty-first centuries (including 1999 to 2000 and leap year calculations).
ARTICLE 16 - ULTIMATE NET LOSS
"ULTIMATE NET LOSS" shall mean the actual loss incurred by the Reinsured and
Allocated Loss Adjustment Expense ("ALAE") on Business Covered on the
Reinsured's Net Retained Lines, and shall include 80% of the amounts of any
Extra Contractual Obligations ("ECO") and 80% of the amounts of any Excess of
Original Policy Limits Loss ("XPL") after making deductions for all recoveries,
salvages, subrogations and all claims on inuring reinsurance, whether
collectible or not.
ALAE shall mean all legal expenses and other expenses (including interest
accruing before and/or after entry of judgment, excluding Declaratory Judgement
Expense) incurred by the Reinsured in connection with the investigation,
adjustment, settlement or litigation of claims or losses, including salaries and
expenses of the Reinsured's field employees while adjusting such claims or
losses and expenses of the Reinsured's officials incurred in connection with
claims or losses. However, salaries of the Reinsured's officials or normal
overhead charges such as rent, postal, lighting, cleaning, heating, etc.
shall not be included.
The foregoing definition of ALAE shall apply notwithstanding how such expenses
may be classified by the Reinsured for statutory accounting purposes.
All salvages, recoveries or payments recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or received
prior to the aforesaid settlement and all necessary adjustments shall be made by
the parties hereto, provided always that nothing in this clause shall be
construed to mean that Ultimate Net Loss under this Agreement is not recoverable
until the Reinsured's Ultimate Net Loss has been ascertained.
The Ultimate Net Loss and its components (loss (including Y2K Losses) and
Allocated Loss Adjustment Expense, and ECO and XPL) as determined by the
Reinsured, is subject to agreement by the Reinsurer. If the Reinsurer disagrees
with the Ultimate Net Loss determined by the Reinsured and the Reinsurer is
called upon to pay Ultimate Net Loss under this Agreement, a mutually agreed
upon independent national actuarial firm shall be engaged to
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evaluate the Ultimate Net Loss covered under this Agreement and such evaluation
shall be subject to the confines of the Ultimate Net Loss determined by the
Reinsured and the Ultimate Net Loss determined by the Reinsurer and shall be
binding. Such cost to be shared equally by the Reinsured and the Reinsurer. If
the parties fail to agree on the selection of an independent national actuarial
firm each of them shall name two, of whom the other shall decline one, and the
decision shall be made by drawing lots.
For the purposes of this Agreement, the maximum amount that any one-loss
occurrence from business underwritten by the Reinsured on behalf of Duncanson &
Holt (a subsidiary of UNUM Corp., Portland, Maine) may contribute to the
Ultimate Net Loss shall be equal to $10 million.
For the purposes of this Agreement, the maximum amount that Y2K losses (loss,
ALAE, ECO and XPL combined) may contribute to the Ultimate Net Loss shall be
equal to the lessor of: (i) 5% of Subject Earned Premium, or (ii) $7.5 million,
provided however, that no such sub-limit shall apply to Y2K Losses if the ratio
of: [Ultimate Net Loss prior to the application of the sub-limits set forth in
this Article 16 divided by Subject Earned Premium] is less than or equal to 81%.
ARTICLE 17 - NET RETAINED LINES
This Agreement applies only to that portion of any policy which the Reinsured
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 the
Retentions, only loss or losses in respect of that portion of any policy which
the Reinsured retains net for its own account shall be included.
The amount of the Reinsurer's liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Reinsured to
collect from any other reinsurer(s), whether specific or general, any amounts
which may have become due from such reinsurer(s), whether such inability arises
from the insolvency of such other reinsurer(s) or otherwise.
ARTICLE 18 - RIGHT OF OFFSET
The Reinsured and the Reinsurer may offset any balance or amount due from one
party to the other under this Agreement or any other contract heretofore or
hereafter entered into between the Reinsured and the Reinsurer, whether acting
as assuming reinsurer or ceding company or in any other capacity.
In extension and not in limitation to the above, the Reinsurer shall have an
absolute right to offset any amounts due to the Reinsured against the Funds
Withheld Balance. In the event that this right of offset between the Reinsured
and the Reinsurer is specifically disallowed or judged to be unenforceable by
any court of competent jurisdiction, arbitration panel or regulatory body then
all amounts in the Funds Withheld Balance shall immediately become due and
payable in full to the Reinsurer by the Reinsured. If the Funds Withheld Balance
is not remitted to the Reinsurer within fifteen (15) days, the Reinsurer shall
have the option to immediately cancel this Agreement by mailing the Reinsured a
written notice of cancellation and the remaining unpaid Total Aggregate Limit,
notwithstanding any provision to the contrary contained herein, shall be
immediately reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) as of the date
of cancellation. The mailing of
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such notice shall be sufficient notice and the effective date of cancellation
shall be the date the notice of cancellation was posted.
In the event that the Reinsured fails to remit to the Reinsurer the Funds
Withheld Balance that is due and payable in accordance with the provisions in
this article after the Expiration Date of this Agreement within 15 days of the
date such payment is due, the Reinsurer shall notify the Reinsured in writing
via registered mail of the overdue amounts. In the event that the Reinsured does
not remit the overdue amounts to the Reinsurer within 15 days of receiving such
notification from the Reinsurer, the remaining unpaid Total Aggregate Limit,
notwithstanding any provision to the contrary contained herein, shall be
immediately reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) without further
notice.
ARTICLE 19 - ERRORS AND OMISSIONS
Any omission or error by either party to this Agreement will not relieve either
party of liability hereunder, provided such act, omission, or error is not
prejudicial to the other party and is rectified promptly upon discovery by the
responsible party.
ARTICLE 20 - CURRENCY
The provisions of this Agreement involving dollar-designated amounts are
expressed in United States currency and all payments shall be made in this
currency.
ARTICLE 21 - EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall indemnify the Reinsured within the limits hereof, where the
Ultimate Net Loss includes 80% of any Extra Contractual Obligations.
"EXTRA CONTRACTUAL OBLIGATIONS" (ECO), are defined as those liabilities not
covered under any other provision of this Agreement and which arise from the
handling of any claim on Business Covered hereunder, such liabilities arising
because of, but not limited to the failure by the Reinsured to settle within the
policy limit, or by reason of alleged or actual negligence, fraud or bad faith
in rejecting an offer of settlement or in the preparation of the defense or in
the trial of any action against its insured or in the preparation or prosecution
of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Reinsured
shall be deemed, in all circumstances, to be the date of the original accident,
casualty, disaster or loss occurrence.
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However, this Article shall not apply and there shall be no recovery hereunder
where the loss has been incurred due to the fraud by a member of the Board of
Directors, a corporate officer, or a supervisory employee of the Reinsured
acting individually or collectively or in collusion with a member of the Board
of Directors, a corporate officer, supervisory employee or partner of any other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.
ARTICLE 22 - EXCESS OF ORIGINAL POLICY LIMITS LOSS
This Agreement shall indemnify the Reinsured, within the limits hereof, where
the Ultimate Net Loss includes 80% of any Excess of Original Policy Limits Loss.
"EXCESS OF ORIGINAL POLICY LIMITS LOSS" (XPL), shall mean any loss of the
Reinsured in excess of the limit of its original policy, such loss in excess of
the limit having been incurred because of failure by it to settle within the
policy limit or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or in the preparation or prosecution of
an appeal consequent upon such action.
However, this Article shall not apply and there shall be no recovery hereunder
where the loss has been incurred due to the fraud by a member of the Board of
Directors, a corporate officer, or a supervisory employee of the Reinsured
acting individually or collectively or in collusion with a member of the Board
of Directors, a corporate officer, supervisory employee or partner of any other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.
For the purposes of this Article, the word "loss" shall mean any amounts for
which the Reinsured would have been contractually liable to pay had it not been
for the limit of the original policy.
ARTICLE 23 - ARBITRATION
Any dispute arising out of the interpretation, performance or breach of this
Agreement, including the formation or validity thereof, shall be submitted for
decision to a panel of three arbitrators. Notice requesting arbitration must be
in writing and sent certified or registered mail, return receipt requested.
One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator (the
"Umpire") who shall preside at the hearing. If either party fails to appoint its
arbitrator within thirty (30) days after being requested to do so by the other
party, the latter, after ten (10) days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the Umpire within thirty (30)
days of their appointment, the two arbitrators shall request the American
Arbitration Association ("AAA") to provide a list of possible Umpires with the
qualifications set forth in this Article and the parties shall then mutually
agree upon an Umpire from this list. If the parties are unable to agree upon
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the Umpire within thirty (30) days of the receipt of the AAA list or if the AAA
fails to provide such a list within thirty (30) days of the request, either
party may apply to the United States Federal Court for the Southern District of
New York to appoint an Umpire with those qualifications. The Umpire shall
promptly notify in writing all parties to the arbitration of his selection.
All arbitrators shall be disinterested active or former executive officers of
insurance or reinsurance companies or Underwriters at Lloyd's of London.
Within thirty (30) days after notice of appointment of all arbitrators, the
panel shall meet and determine timely periods for briefs, discovery procedures
and schedules for hearings.
The panel shall be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. Unless the panel agrees otherwise,
arbitration shall take place in New York, New York, but the venue may be changed
when deemed by the panel to be in the best interest of the arbitration
proceeding. Insofar as the arbitration panel looks to substantive law, it shall
consider the law of the State of New York. The decision of any two arbitrators
when rendered in writing shall be final and binding. The panel is empowered to
grant interim relief as it may deem appropriate.
To the extent, and only to the extent, that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision considering the custom
and practice of the applicable insurance and reinsurance business. The panel
shall render its decision within sixty (60) days following the termination of
hearings, which decision shall be in writing, stating the reasons thereof.
Judgment upon the award may be entered in any court having jurisdiction thereof.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration shall be allocated by the panel. The panel
may, at its discretion, award such further costs and expenses as it considers
appropriate, including but not limited to attorneys fees, to the extent
permitted by law.
ARTICLE 24 - ACCESS TO RECORDS
The Reinsurer or its duly appointed representatives shall have free access to
the books, records and papers of the Reinsured or its agents at all reasonable
times during the continuance of this Agreement or any liability hereunder, for
the purpose of obtaining information concerning this Agreement or the subject
matter thereof.
ARTICLE 25 - INSOLVENCY
In the event of the insolvency of the Reinsured, reinsurance under this
Agreement shall be payable by the Reinsurer on the basis of the liability of the
Reinsured under Policy or Policies reinsured without diminution because of the
insolvency of the Reinsured, to the Reinsured or to its liquidator, receiver, or
statutory successor except as provided by Section 4118(a) of the New York
Insurance Law or except when the Agreement specifically provides another payee
of such reinsurance in the event of the insolvency of the Reinsured and when the
Reinsurer with the consent of the direct insured or insureds has assumed such
Policy obligations of the Reinsured as
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direct obligations of the Reinsurer to the payees under such Policies and in
substitution for the obligations of the Reinsured so such payees.
It is agreed, however, that the liquidator or receiver or statutory successor of
the insolvent Reinsured shall give written notice to the Reinsurer of the
pendency of a claim against the insolvent Reinsured on the Policy or Policies
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding when
such claim is to be adjudicated, any defense or defenses which it may deem
available to the Reinsured or its liquidator or receiver or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent Reinsured as part of the expense of liquidation
to the extent of a proportionate share of the benefit which may accrue to the
Reinsured solely as a result of the defense undertaken by the Reinsurer.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the insolvent Reinsured.
Should any party hereto be placed in rehabilitation or liquidation or should a
rehabilitator, liquidator, receiver, conservator or other person or entity of
similar capacity be appointed as respects such party, all amounts due any of the
parties hereto whether by reason of premiums, losses or otherwise under this
Agreement or any other contract(s) of reinsurance heretofore or hereafter
entered into between the parties (whether or not any such contract(s) be assumed
or ceded) shall at all times be subject to the right of offset at any time and
from time to time, and upon the exercise of same, only the net balance shall be
due and payable in accordance with Section 7427 of the Insurance Law of the
State of New York to the extent such statute or any other applicable law,
statute or regulation governing such offset shall apply.
ARTICLE 26 -GOVERNING LAW
This Agreement shall be interpreted and governed by the laws of the State of New
York without regard to its principles of choice of law.
ARTICLE 27 - SERVICE OF SUIT
(This Article only applies to reinsurers domiciled outside of the United States
and/or unauthorized in any state, territory, or district of the United States
having jurisdiction over the Reinsured).
It is agreed that in the event of the failure of the Reinsurer to pay any amount
claimed to be due hereunder or to perform any other obligation under the
Agreement, the Reinsurer, at the request of the Reinsured, will submit to the
jurisdiction of a court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to constitute a
waiver of the Reinsurer's rights to commence an action in any court of competent
jurisdiction in the United States, to remove an action to a United States
District Court, or to seek a transfer of a case to another court as permitted by
the laws of the United States or of any state in the United States. It is
further agreed that service of process in such suit may be made upon Willkie
Farr and Gallagher, 787 Seventh Avenue, New York, New York, 10019, and that in
any suit
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instituted, the Reinsurer will abide by the final decision of such court or of
any appellate court in the event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the
Reinsured to give a written undertaking to the Reinsured that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reinsured or any beneficiary hereunder arising out of this Agreement of
reinsurance, and hereby designates the above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof.
The foregoing is not intended to conflict with or override the obligation of the
parties hereto to arbitrate their disputes as provided in the Arbitration
clause.
ARTICLE 28 - AMENDMENTS AND ALTERATIONS
This Agreement may be changed, altered or amended as the parties may agree,
provided such change, alteration or amendment is evidenced in writing or by
endorsement executed by the Reinsured and the Reinsurer.
ARTICLE 29 - ASSIGNMENT
Except as expressly provided otherwise in the article entitled "INSOLVENCY",
neither party may assign or transfer any rights, interests or obligations under
this Agreement to any person or entity without the written consent of the other
party and any effort to so assign such rights, interests or obligations without
the consent of the other party shall be null and void.
ARTICLE 30 - NO THIRD PARTY RIGHTS
This Agreement is solely between the Reinsured and the Reinsurer, and in no
instance shall any other party have any rights under this Agreement except as
expressly provided otherwise in the Insolvency Article.
ARTICLE 31 - NO IMPLIED WAIVER
The failure of any party to enforce any of the provisions herein shall not be
construed to be a waiver of the right of such party to enforce any such
provision.
ARTICLE 32 - MERGERS AND ACQUISITIONS
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It is understood and agreed that if Reinsured acquires (by acquisition,
reinsurance, or renewal of) any other insurance or reinsurance company or
individual or groups of individual book(s) of business of any other insurance or
reinsurance company that comprises not more than ten (10) percent (whether
individually or in the aggregate with respect to related transactions or
parties) of Subject Earned Premium, such company or book(s) of business will be
covered hereunder, provided that written notice is given to the Reinsurer of any
such newly affiliated company or book(s) of business as soon as practicable with
full particulars as to how such affiliation is likely to affect this Agreement.
If such acquisition, as defined above, comprises more than ten (10) percent
(whether individually or in the aggregate with respect to related transactions
or parties) of Subject Earned Premium, such company or book(s) of business will
be covered hereunder provided that prior written notice of such transaction is
given to the Reinsurer with full particulars as to how such transaction is
likely to affect this Agreement, and the Reinsurer agrees in its sole discretion
in writing that this Agreement applies to such acquired insurance or reinsurance
company or book(s) of business.
If Reinsured is acquired by or merges with another company, this Agreement shall
survive such acquisition or merger and the surviving entity shall be covered
hereunder provided that prior written notice of such transaction is given to the
Reinsurer with full particulars as to how such transaction is likely to affect
this Agreement, and the Reinsurer agrees in its sole discretion in writing that
this Agreement applies to such surviving entity.
Notwithstanding any other provisions of this Agreement, in the event that the
reinsured acquires another company or is acquired by or merges with another
company, this Agreement shall survive such acquisition and/or merger and the
book of business which was covered by this Agreement prior to such merger and/or
acquisition shall be covered hereunder.
ARTICLE 33 - INTERMEDIARY
Guy Carpenter & Company, Inc. and Balis & Co., Inc. are hereby recognized as the
Intermediary negotiating this Agreement for all business hereunder. All
communications (including but not limited to notices and statements) relating to
this Agreement shall be transmitted to the Reinsured through either Guy
Carpenter & Company, Inc. or Balis & Co., Inc., Two Logan Square, Philadelphia,
PA 19103-2772. All amounts due under this Agreement (including but not limited
to Reinsurance Premium and Ultimate Net Loss) shall be remitted directly by wire
transfer between the Reinsured and the Reinsurer with notice to the
Intermediary.
ARTICLE 34 - SECURITY
If the Reinsurer's surplus falls below $40 million, the Reinsured may require
the Reinsurer to post a "clean", unconditional, evergreen and irrevocable Letter
of Credit or to provide a reinsurance trust fund issued by a bank acceptable to
the Reinsured in favor of the Reinsured in an amount up to the excess of the
Ceded Unpaid Ultimate Net Loss over the Funds Withheld Balance.