EXHIBIT 10.13 (19)
ADDENDUM NO. 3
TO
QUOTA SHARE REINSURANCE AGREEMENT
EFFECTIVE JANUARY 1ST 2000
BETWEEN
PAFCO GENERAL INSURANCE COMPANY
(HEREAFTER CALLED THE "COMPANY")
AND
NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA.
(HEREAFTER CALLED THE "REINSURER")
It is understood and agreed that effective January 1st, 2002 the following
articles are amended to read as follows:
ARTICLE II TERM AND TERMINATION
The agreement commences at 12:01 a.m. Eastern Standard Time, January 1, 2000 and
shall remain in force until 11:59 p.m. Eastern Standard time, December 31, 2002.
Either party may terminate effective on the first day of any calendar quarter
with 60 days advance written notice. The Reinsurer shall remain liable for loss
under reinsured policies effective prior to the termination date.
ARTICLE IV QUOTA SHARE PARTICIPATION
The aggregate quota share cession shall be at the option of the Company and
subject to a maximum of 75%. However, the maximum cession will be limited to
$20,000,000 of new written premium (ie.not including in-force cession from
December 31st, 2001) for the calendar year 2002. In the event this produces
more than $20,000,000 for the calendar year, the dollar amount of cessions shall
be reduced to $20,000,000 plus the cession of in-force business from December
31st, 2001. The average quota share percent applicable for the Company shall be
the ratio of the adjusted dollar cession to the gross subject written premium
for the Company for that year. Each quarter shall be adjusted by an equal
pro-rata percent to produce the dollar cession applicable. This limit can be
increased by mutual agreement between the Reinsurer and the Company. The Company
shall notify the Reinsurer prior to the last day of the calendar quarter of the
quota share percent for that quarter. That percent shall also apply to the
in-force business at the beginning of the quarter. It is agreed that the
cession for any one quarter, including the change in in-force, shall not exceed
35% of the total cession for the calendar year. In the event the declared
percent cession for a calendar quarter produces premiums in excess of 35% of the
premium ceded for the calendar year the cessions for that quarter shall be
adjusted to the dollar amount that would equal 35% of the premium ceded for the
year.
The Reinsurer's liability for aggregate losses, including allocated loss
adjustment expenses (and
unallocated loss adjustment expenses where applicable under REPORTS AND
ACOCUNTING),
shall be limited to 97% of earned premium ceded for all business from January
1st, 2002 to the calculation date.
ARTICLE VI PREMIUM AND COMMISSION
For business effective prior to 2002, however, excluding business in-force on
December 31st, 2001:
The Company will pay the Reinsurer a premium equal to the pro rata share of
premium applicable
on all policies ceded and the Reinsurer shall allow the company a minimum and
provisional
ceding commission of 18% on such premium. The ceding commission slides 1 for 1
for each 1.0% decrease in the Loss Ratio below 79% up to a maximum ceding
commission of 31% at a 66% loss ratio. This calculation shall be from January
1st, 2000 to date for all business ceded effective in all calendar quarters
including the in-force business from December 31st, 2000.
For business in-force on December 31st, 2001 and with effective dates in 2002:
The Company will pay the Reinsurer a premium equal to the pro rata share of
premium applicable on all policies ceded. This would be the sum of new written
premiums in the quarter plus or minus the change in unearned premium ceded at
the beginning of the quarter as the result of a change in the percent ceded.
The Reinsurer shall allow the company a minimum and provisional ceding
commission of 18% on such premium. The ceding commission slides 1 for 1 for
each 1.0% decrease in the Loss Ratio below 78.625% up to a maximum ceding
commission of 31% at a 65.625 loss ratio. This calculation shall be from
January 1st, 2002 to date of calculation. The first payment, if any, shall be
made within 75 days of March 31st 2003. Subsequent payments due either party
shall be made within 75 days of March 31st of all years subsequent to 2003 until
all liabilities are finalized.
ARTICLE VIII DEFINITIONS
Loss Ratio shall mean losses paid and outstanding, including IBNR and allocated
loss adjustment expenses with dates of loss in the period being calculated,
divided by earned premium for the period being calculated.
Premium shall mean the premium charged the insured, net of return premium,
however, uncollectable premium shall not be deemed a return premium.
Allocated loss adjustment expenses shall be as defined under statutory
accounting practices.
Unallocated loss adjustment expenses shall be as defined under statutory
accounting practices.
For business effective prior to 2002, however, excluding business in-force on
December 31st, 2001:
Funds withheld balance shall mean:
Previous Funds Withheld Balance, plus
97% of ceded written premium, minus
ceding commission, minus
ceded paid losses (including allocated loss adjustment expenses), minus
ceded paid unallocated loss adjustment expenses, if applicable.
For business in-force on December 31st, 2001 and with effective dates in 2002:
Loss fund shall mean paid losses from the end of the prior quarter to the
settlement date. If that amount is not available for a partial month it shall
be deemed to be pro-rata of the previous month.
Average Daily Cash Balance shall mean
Cash payments received by the Reinsurer, minus
Cash payments paid by the Reinsurer, minus
3.375% of the total premiums reported.
ARTICLE IX REPORTS AND ACCOUNTING
For business effective prior to 2002, however, excluding business in-force on
December 31st, 2001:
Within 45 days after the end of each calendar quarter, the company shall furnish
an account statement to the Reinsurer, for their share on the Business Covered
including the following:
1. Written premiums-credit
2. Commission-debit
3. Net losses (including allocated loss adjustment expenses) paid by the
company - debit
4. Reserve for outstanding losses including incurred but not reported
(including allocated loss adjustment expenses).
5. Unearned Premium
In the event the loss ratio is in excess of 85%, the Reinsurer shall be liable
for unallocated loss adjustment expenses equal to 1% of earned premium for each
Loss Ratio point in excess of 85%, however, not in excess of 6% of earned
premium. When applicable, the coverage for unallocated loss adjustment expenses
shall be included in the maximum limit of 97% of earned premium ceded referred
to in QUOTA SHARE PARTICIPATION AND LIMIT. The forgoing shall be a combined
account for all business effective in all calendar quarters plus the in-force
business. The Company shall report this information separately for all business
effective in each calendar quarter plus a report for the in-force business.
The Company will pay the Reinsurer 3% of the premium with the balance, if any,
being held in a Funds Withheld Balance for subsequent payment of losses,
commission adjustments and return premiums. Amounts due the Company shall be
withdrawn from the Funds Withheld Balance and if the Funds Withheld Balance is
negative, the Reinsurer shall pay the amount due.
For all business in-force on December 31st, 2001 and effective in 2002:
Within 75 days after the end of each calendar quarter, the company shall furnish
an account statement to the Reinsurer, for their share on the Business Covered
including the following:
1. New written premiums-credit
Change in unearned premium cession - credit or debit
(First quarter only: total unearned premium on December 31st, 2001.)
Total written premium
2. Commission-debit
3. Net losses (including allocated loss adjustment expenses) paid by the
Company-debit
4. Change in Loss Fund-credit or debit
5. Reserve for outstanding losses including incurred but not reported
(including allocated loss adjustment expenses).
6. Unearned Premium
In the event the Loss Ratio is in excess of 85%, the Reinsurer shall be liable
for unallocated loss adjustment expenses equal to 1% of earned premium for each
Loss Ratio point in excess of 85%, however, not in excess of 6% of earned
premium. When applicable, the coverage for unallocated loss adjustment expenses
shall be included in the maximum limit of 97% of earned premium ceded referred
to in QUOTA SHARE PARTICIPATION AND LIMIT.
The forgoing shall be a combined account for all business ceded in all calendar
quarters. The Company shall provide a separate report for paid and outstanding
losses for each accident quarter (ie. all losses with dates of loss in a
calendar quarter).
The Company shall pay any credit balance with the account statement. The
Reinsurer shall pay any debit balance within 30 days of receipt of the account
statement.
It is understood and agreed that effective January 1st, 2002 the following
article is added to this agreement.
ARTICLE VI-A INVESTMENT ALLOWANCE
For business in-force on December 31st 2001 and with effective dates in 2002:
The Reinsurer will calculate notional investment income annually and pay the
Company within 75 days of March 31 of the subsequent calendar year. The
investment income shall equal the product of the average of the 1 year US
Treasury bill rate times the Average Daily Cash Balance for the calendar year.
The average US Treasury bill rate shall be the average of the rate on the last
business day of each calendar quarter for the year applicable. Notwithstanding
the foregoing no payment is due in the event the loss ratio is in excess of
78.625%.
IN WITNESS WHEREOF: the parties hereto have caused this Agreement to be
executed by their authorized representative:
In:________________________________this_______day of_________________2002
PAFCO GENERAL INSURANCE COMPANY
By:________________________________Title:____________________________
And in:_____________________________this______day of___________________2002
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.
By:________________________________Title:____________________________