Exhibit 10.13 (21)
ADDENDUM NO. 4
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 this addendum amends addendum Number 3 and
effective January 1st, 2002 the following articles or parts thereof 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 month with
20 days advance written notice. The Reinsurer shall remain liable for loss
under reinsured policies effective prior to the termination date. However, in
the event the Company fails to pay the Reinsurer on or before October 15, 2002
for the monthly account statements from January through September 2002 this
addendum is cancelled ab initio and the agreement is terminated as of the
expiration date heretofore applicable which is December 31, 2001.
ARTICLE IV QUOTA SHARE PARTICIPATION
The aggregate quota share cession shall be at the option of the Company and
subject to a maximum of 60% for the year 2002. However, the maximum cession
will be limited to $10,000,000 of written premium. In the event the quota share
percent selected by the Company produces more than $10,000,000 for the calendar
year, the dollar amount of written premium ceded shall be reduced to
$10,000,000. 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.
It is agreed that the cession for any one quarter, shall not exceed 40% of the
total cession for the calendar year. In the event the declared percent cession
for a calendar quarter produces premiums in excess of 40% of the premium ceded
for the calendar year the cessions for that quarter shall be adjusted to the
dollar amount that would equal 40% 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 ACCOUNTING), 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
The Company will pay the Reinsurer a premium equal to the pro rata share of
premium applicable on all policies ceded.
The Reinsurer shall allow the Company a minimum and provisional ceding
commissions of 18% on such premium. The actual ceding commission shall be the
combined sum of Section A and Section B as specified below subject to a minimum
of 18% and a maximum of 31% of the combined sum of ceded premiums. The actual
commission shall be the commission ratio times the ceded premium determined as
follows:
Section A: 97.000% minus actual loss ratio equals commission ratio
Section B: 96.625% minus actual loss ratio equals commission ratio
The above ratio shall be carried to three decimal places.
The adjustment, if any on Section A shall be done quarterly with a debit or
credit to the Funds Withheld Balance. The first adjustment and payment for
Section B shall be made within 90 days of March 31, 2004. Subsequent
adjustments and payments shall be made within 90 days of all years subsequent to
2004 until all liabilities are finalized.
In the event the Section A or Section B commission ratio is less than 18% and
the combined commission ratio is in excess of 18% the amount that would
otherwise be debited to the Funds Withheld Balance shall be paid to the
Reinsurer.
ARTICLE VI-A INVESTMENT ALLOWANCE
For Section B business:
The Reinsurer will calculate a Notional Investment Allowance quarterly. The
Investment Allowance shall equal the product of 24.75% of the one year US
Treasury bill rate in effect on the first business day of each calendar quarter
times the Average Daily Cash Balance. The Reinsurer will pay the Company the
Investment Allowance within 90 days of March 31st, 2004 and subsequent balances,
if any, within 90 days of each subsequent March 31st. Notwithstanding the
foregoing, no payment is due in the event the Loss Ratio is in excess of
78.625%.
ARTICLE VIII DEFINITIONS
Section A shall mean: All business effective prior to January 1, 2002 and loss
liabilities on that business.
Section B shall mean: All business effective in 2002 and loss liabilities on
that business.
Loss Ratio shall mean: Losses paid and outstanding (including IBNR as
determined by the Reinsurer), and allocated loss adjustment expense 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 Section A business:
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 Section B business:
Loss fund shall mean 66% of the paid losses for the prior month.
Average Daily Cash Balance shall mean
Cash payments received by the Reinsurer, plus
Investment Allowance from the prior quarter, 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:
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 premium-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 premium. 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 effective in 2002:
Within 20 days after the end of each calendar month, the company shall furnish
an account statement to the Reinsurer, for their share on the Business Covered
including the following:
1. Written premiums
2. Earned premiums-credit*
3. Commission-debit (Provisional commission 18% of earned premiums)
4. Net losses (including allocated loss adjustment expenses) paid by
the Company-debit
5. Change in Loss Fund-credit or debit
6. Reserve for outstanding losses including incurred but not reported
(including allocated loss adjustment expenses).
7. Unearned Premium
* Written premiums minus change in 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 PARTICPATION AND LIMIT.
The forgoing shall be a combined account for all business ceded in all calendar
months. The Company shall provide a separate report for paid and outstanding
losses for each accident month (ie. all losses with dates of loss in a calendar
month).
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.
IN WITNESS WHEREOF: the parties hereto have caused this Agreement to be
executed by their authorized representatives:
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:____________________________