Exhibit 2.5
CROP HAIL INSURANCE
QUOTA SHARE AGREEMENT
(hereinafter referred to as "Agreement")
Effective: January 1, 1998
issued to
IGF Insurance Company
and its Affiliated Companies
(hereinafter referred to as "IGF")
by
Continental Casualty Company
(hereinafter collectively referred to as "CNA")
ARTICLE 1 - TERM
This Agreement shall apply to losses occurring on and after 12:01 a.m. Central
Standard Time, January 1, 1998 as respects new and renewal policies on business
covered by this Agreement, becoming effective on and after said date and shall
continue in full force and effect until terminated as provided below.
Termination shall take place immediately and automatically upon the exercise of
a Put Right or Call Right(as defined under the Strategic Alliance Agreement
andhereinafter referred to "SAA") between Continental Casualty Company and IGF
Holdings, Inc. and its Affiliated Companies, to which this Agreement is attached
and made a part of. Upon termination, a full commutation and release of all CNA
liability shall be provided to CNA for the then current Crop Year with no
amounts due or owing for such year. IGF shall have the right to 100% of the
premiums associated with the liability so released. If any payments have been
made by CNA to IGF for its share of loss payments incurred prior to the date of
exercise, such payments shall be reimbursed to CNA. As an example, if a Call
Right is exercised on June 1, 2002, CNA shall not bear any risk on any of the
policies bound to that date for the 2002 Crop Year nor have a right to any
premiums collected or due thereon. If a Put Right or Call Right is exercised
the result shall be the same.
Page 1 of 11
Crop Hail Quota Share
IGF / CCC
ARTICLE 2 - BUSINESS COVERED
IGF agrees to cede and CNA agrees to accept by way of reinsurance, for each
Agreement Year covered hereunder, with Agreement Year meaning any January 1st
through December 31st, 30% of the CNA Crop Hail Proportion (as defined) as
follows. Such annual reinsurance cession shall be made in perpetuity unless the
Put Right or Call Right is triggered.
The CNA Crop Hail business produced by CNA in 1998 shall include Crop Hail
business written on a CNA company's paper and the business assumed by CNA under
the Producers Lloyds Insurance Company and Palliser Insurance Company
reinsurance
agreements.
CNA's share of gains (losses) in relation to any third party reinsurance
agreements and any co-share or other sharing arrangements shall be as negotiated
by mutual agreement of the parties hereto.
For 1998, the CNA Crop Hail Proportion shall be equal to (i) the amount of
Crop Hail business produced by CNA for 1998 excepting business developed through
any and all fronting agreements with IGF divided by (ii) the combined amount of
Crop Hail business produced by IGF and CNA for 1998.
For 1999, the CNA Crop Hail Proportion shall be equal to (i) the amount of
Crop Hail business written on a CNA company paper in 1998 multiplied by one plus
the percentage growth in industry Crop Hail gross premium from 1998 to 1999 as
acknowledged by the NCIS, plus (ii) the amount of Crop Hail business assumed by
CNA under the Producers Lloyds Insurance Company and Palliser Insurance Company
reinsurance agreements in 1999, subject to items 7 and 8 below, with the
resulting sum then divided by (iii) the sum of (i), (ii) and the amount of Crop
Hail business produced by IGF for 1999.
For 2000, the CNA Crop Hail Proportion shall be equal to (i) the amount of
Crop Hail business written on a CNA company paper in 1998 multiplied by one plus
the percentage growth in industry Crop Hail gross premium from 1998 to 2000 as
acknowledged by the NCIS, plus (ii) the amount of Crop Hail business assumed by
CNA under the Producers Lloyds Insurance Company and Palliser Insurance Company
Page 2 of 11
Crop Hail Quota Share
IGF / CCC
reinsurance agreements in 2000, subject to items 7 and 8 below, with the
resulting sum then divided by (iii) the sum of (I), (ii) and the amount of Crop
Hail business produced by IGF for 2000.
The CNA Crop Hail Proportion shall continue to adjust for years 2001 and
beyond in a manner consistent with the formula for 1999 and 2000.
If Producers Lloyds Insurance Company elects to terminate its relationship
with CNA or not to enter into a relationship with IGF or to terminate such
relationship after the closing date of the transaction between IGF and CNA, then
if such relationship terminates prior to July 1, 2000, all of the Producers
Lloyds Insurance Company's business will be removed from reimbursement and
profit-sharing formulas in calculating any payments to be made under this
Agreement after such termination. If Producers Lloyds Insurance Company elects
to terminate its relationship with CNA or IGF, as the case may be, on or after
July 1, 2000, then the dollar amount of CNA's line for Producers Lloyds
Insurance Company shall be the same in the crop year in which Producers Lloyds
Insurance Company terminates its relationship as it was in the immediate crop
year prior to the termination and there shall be no adjustment to reimbursement
and profit-sharing formulas under this Agreement with respect to any crop years
prior to such termination.
If Palliser Insurance Company elects to terminate its relationship with CNA
or not to enter into a relationship with IGF or to terminate such relationship
after the closing date of the transaction between IGF and CNA, then the dollar
amount of CNA's line for Palliser Insurance Company shall be the same in the
crop year in which Palliser Insurance Company terminates its relationship as it
was in the immediate crop year prior to the termination.
Crop Hail Business and Policies as used in this Agreement shall mean all
insurances and reinsurances written and assumed and classified as crop hail as
defined per the NCIS, including allied coverages.
ARTICLE 3 - TERRITORY
This Agreement applies to the territory of the business covered hereunder.
Page 3 of 11
Crop Hail Quota Share
IGF / CCC
ARTICLE 4- ORIGINAL CONDITIONS
All amounts ceded hereunder shall be subject to the same gross rating and to the
same clauses, conditions, exclusions and modifications of the policies reinsured
hereunder, subject to the limits, terms and conditions of this Agreement.
Except as specifically and expressly provided for in the Insolvency Article, the
provisions of this Agreement are intended solely for the benefit of the parties
to and executing this Agreement, and nothing in this Agreement shall in any
manner create, or be construed to create, any obligations to or establish any
rights against any party to this Agreement in favor of any third parties or
other persons not parties to and executing this Agreement.
ARTICLE 5 - LOSSES
The IGF alone and at its full discretion shall adjust, settle or compromise all
claims and losses. All such adjustments, settlements and compromises, including
ex-gratia payments, and loss expenses shall be binding on the CNA in proportion
to its' participation. The IGF shall likewise at its sole discretion commence,
continue, defend, compromise, settle or withdraw from actions, suits or
proceedings and generally do all such matters and things relating to any claim
or loss as in its judgment may be beneficial or expedient; and all loss payments
made shall be shared by the CNA proportionately. The CNA shall, on the other
hand, benefit proportionately from all reductions of losses by salvage,
compromise or otherwise.
In the event the IGF's paid losses and loss expenses exceed the Net Earned
Premium Income less ceding commission, the CNA agrees to advance the amount by
which the losses exceed the Net Earned Premium Income less ceding commission
within 30 days of receipt of a written report substantiating such a request.
ARTICLE 6 - EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the IGF as provided in Article 2 - Business Covered
in connection with loss in excess of the limit of the original policy.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the IGF
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 covered hereunder.
Page 4 of 11
Crop Hail Quota Share
IGF / CCC
For the purpose of this Article, the word "loss" shall mean any amounts for
which the IGF would have been contractually liable to pay had it not been for
the limit of the original policy.
ARTICLE 7 - EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall protect the IGF as provided in Article 2 - Business Covered
where the loss includes any extra contractual obligations.
The term "Extra Contractual Obligations" is 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 following: failure by the IGF 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 preparation of the defense
or in trial of any action against its insured or reinsured or in the preparation
or prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation loss is incurred by the IGF
shall be deemed, in all circumstances, to be the date of the original
occurrence, or the date the original claim is first made, whichever is
applicable.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a corporate officer of the IGF
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 loss covered hereunder.
ARTICLE 8 - CURRENCY
Where the word "dollars" and/or the sign "$" appear in this Agreement, they
shall mean United States dollars.
For purposes of this Agreement, where the IGF receives premiums or pays losses
in currencies other than United States currency, such premiums or losses shall
be converted in to United States dollars at the actual rates of exchange at
which these premiums or losses are entered in the IGF's books.
ARTICLE 9 - ACCOUNTS, REPORTS AND PAYMENTS
Page 5 of 11
Crop Hail Quota Share
IGF / CCC
As soon as possible after the end of the season, but no later than December 15th
of each Agreement Year, with Agreement Year meaning any January 1st through
December 31st for which coverage applies under this Agreement, the IGF shall
provide the CNA with a complete account, to include the following:
Net Earned Premium income accounted for during the Agreement Year, meaning
gross earned premium income on business accounted for during that Agreement Year
less returned premiums and earned income paid for reinsurances, recoveries under
which inure to the benefit of this Agreement; less
The ceding commission as provided for in this Agreement: less;
Losses and loss adjustment expense paid during the Agreement Year, with loss
adjustment expense for external adjusters including part time loss adjusters
capped at 4%, except for the reinsurance agreement with Producers Lloyds
Insurance Company wherein the loss adjustment expense shall be capped at 4.5%
and as incurred under the reinsurance agreement with Pallisers Insurance
Company, of gross written premium accounted for during the Agreement Year; plus
Subrogation, salvage, or other recoveries on losses occurring during the term
of the Agreement Year being accounted for.
Within 15 days of receipt of IGF's report, CNA shall remit any balance due to
IGF as respects such report.
As soon as possible after the conclusion of each calendar quarter and Agreement
Year the IGF will provide any other information the CNA may require for its
Convention Statement which may be reasonably available to the IGF.
ARTICLE 10 - COMMISSION
CNA will allow IGF a 32.5% ceding commission on the business covered as defined
in Article 2 except that under the reinsurance agreement with Producers Lloyds
Insurance Company the commission will be 27.5% provisional and increasing to
31.5% at a loss ratio of 48%, plus intermediary fees and under the reinsurance
agreement with Palliser Insurance Company the commission will be 26% provisional
and increasing to 29% at 54% loss ratio, plus intermediary fees.
Return commission shall be allowed on return premiums at the same rate.
Page 6 of 11
Crop Hail Quota Share
IGF / CCC
ARTICLE 11 - OFFSET
The IGF or the CNA shall have the right to offset any balance or amounts due
from one party to the other under the terms of this Agreement. The party
asserting the right of offset may exercise such right at any time whether the
balances due are on account of premiums or losses.
ARTICLE 12 - ACCESS TO RECORDS
Upon reasonable notice, the CNA, or its designated representative, shall have
access at any reasonable time to inspect and audit the books and records of the
IGF which pertain in any way to this reinsurance and it may make copies of any
records pertaining thereto.
This right of inspection, audit and information shall survive termination of
this Agreement and shall run to the natural expiry of all liabilities under the
policies reinsured.
ARTICLE 13 - TAXES
In consideration of the terms under which this Agreement is issued, IGF
undertakes not to claim any deduction of the premium hereon when making tax
returns, other than Income or Profits Tax returns, to any state or territory of
the United States of America or to the District of Columbia.
ARTICLE 14 - ERRORS AND OMISSIONS
Any inadvertent error, omission or delay in complying with the terms and
conditions of this Agreement shall not be held to relieve either party hereto
from any liability which would attach to it hereunder if such error, omission or
delay had not been made, provided such error, omission or delay is rectified
immediately upon discovery.
ARTICLE 15 - AMENDMENTS
This Agreement may be altered or amended in any of its terms and conditions by
mutual consent of the IGF and the CNA by an Endorsement hereto. Such Endorsement
will then constitute a part of this Agreement.
Page 7 of 11
Crop Hail Quota Share
IGF / CCC
ARTICLE 16 - LOSS FUNDING
This Article is only applicable to CNA if it cannot qualify for credit by the
State, meaning the state, province or Federal authority having jurisdiction over
IGF's loss reserves.
As regards policies issued by the IGF coming within the scope of this Agreement,
the IGF agrees that when it shall file with the insurance department or set up
on its books reserves for losses covered hereunder which it shall be required to
set up by law it will forward to the CNA a statement showing the proportion of
such loss reserves which is applicable to them.
The CNA hereby agrees that it will apply for and secure delivery to the IGF a
clean irrevocable and unconditional Letter of Credit issued by a bank chosen by
the CNA and acceptable to the appropriate insurance authorities, in an amount
equal to the CNA's proportion of the loss reserves in respect of known
outstanding losses that have been reported to the CNA and allocated loss
expenses relating thereto as shown in the statement prepared by the IGF. 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.
The Letter of Credit shall be "Evergreen" and shall be issued for a period of
not less than one year, and shall be automatically extended for one year from
its date of expiration or any future expiration date unless thirty (30) days
prior to any expiration date, the bank shall notify the IGF by certified or
registered mail that it elects not to consider the Letter of Credit extended for
any additional period.
The IGF, or its successors in interest, undertakes to use and apply any amounts
which it may draw upon such Credit pursuant to the terms of the Agreement under
which the Letter of Credit is held, and for the following purposes only:
To pay CNA's share or to reimburse IGF for CNA's share of any liability for
loss reinsured by this Agreement, the payment of which has been agreed by CNA
and which has not otherwise been paid.
To make refund of any sum which is in excess of the actual amount required
to pay CNA's share of any liability reinsured by this Agreement.
In the event of expiration of the Letter of Credit as provided for above,
to establish deposit of CNA's share of known and reported outstanding losses and
allocated loss expenses relating thereto under this Agreement. Such cash deposit
shall be held in an interest bearing account separate from IGF's other assets,
and interest thereon shall accrue to the benefit of CNA. It is understood and
agreed that this procedure will be
Page 8 of 11
Crop Hail Quota Share
IGF / CCC
implemented only in exceptional circumstances and that, if it is implemented,
IGF will ensure that a rate of interest is obtained for CNA on such a deposit
account that is at least equal to the rate which would have been paid by
Citibank N.A. in New York, and further that IGF will account to CNA on an annual
basis for all interest accruing on the cash deposit account for the benefit of
CNA.
The bank chosen for the issuance of the Letter of Credit shall have no
responsibility whatsoever in connection with the propriety of withdrawals made
by IGF or the disposition of funds withdrawn, except to ensure that withdrawals
are made only upon the order of properly authorized representatives of IGF.
At annual intervals, or more frequently as agreed but never more frequently than
semiannually, IGF shall prepare a specific statement, for the sole purpose of
amending the Letter of Credit, of CNA's share of known and reported outstanding
losses and allocated loss expenses relating thereto. If the statement shows that
CNA's share of such losses and allocated loss expenses exceeds the balance of
credit as of the statement date, CNA shall, within thirty (30) days after
receipt of notice of such excess, secure delivery to IGF of an amendment of the
Letter of Credit increasing the amount of credit by the amount of such
difference. If, however, the statement shows that CNA's share of known and
reported outstanding losses plus allocated loss expenses relating thereto is
less than the balance of credit as of the statement date, IGF shall, within
thirty (30) days after receipt of written request from CNA, release such excess
credit by agreeing to secure an amendment to the Letter of Credit reducing the
amount of credit available by the amount of such excess credit.
ARTICLE 17 - INSOLVENCY
This reinsurance shall be payable by CNA on the basis of the liability of IGF
under Policy or Policies reinsured without diminution, because of the insolvency
of IGF, to IGF or its liquidator, receiver, or statutory successor.
In the event of insolvency of IGF, the liquidator or receiver or statutory
successor of the IGF shall give written notice to CNA of the pendency of a claim
filed against IGF on the Policy or Policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding. During the pendency of
such claim CNA may investigate such claim and interpose, at its own expense, in
the proceeding where such claim is to be adjudicated, any defense or defenses
which it may deem available to IGF or its liquidator or receiver or statutory
successor. The expenses thus incurred by CNA shall be chargeable, subject to
court approval, against IGF as part of the expense of liquidation to the extent
of a proportionate share of the benefits which may accrue to IGF solely as a
result of the defense so undertaken by CNA.
Page 9 of 11
Crop Hail Quota Share
IGF / CCC
Should IGF go into liquidation or should a receiver be appointed, CNA shall be
entitled to deduct from any sums which may be or may become due to IGF under
this reinsurance Agreement, any sums which are due to CNA by IGF under this
Agreement and which are payable at a fixed or stated date, as well as any other
sums due to CNA which are permitted to be offset under applicable law.
It is further understood and agreed that, in the event of the insolvency of IGF,
the reinsurance under this Agreement shall be payable directly by CNA to IGF or
to its liquidator, receiver or statutory successor, except a) where this
Agreement specifically provides another payee of such reinsurance in the event
of the insolvency of IGF and b) where CNA with the consent of the direct insured
or insureds has assumed such policy obligations of IGF as direct obligations of
CNA to the payees under such policies and in substitution for the obligations of
IGF to such payees.
In no event shall anyone other than the parties to this Agreement or, in the
event of IGF's insolvency, its liquidator, receiver, or statutory successor,
have any rights under this Agreement.
ARTICLE 18 - ARBITRATION
As a condition precedent to any right of action hereunder, 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 will be in writing and sent
certified 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 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 mail of its intention to do so, may
appoint the second arbitrator.
If the two arbitrators are unable to agree upon the third arbitrator within
thirty (30) days of their appointment, each of them shall name two, of whom the
other shall decline one and the decision shall be made by drawing lots. All
arbitrators shall be disinterested active or retired executive officers of
insurance or reinsurance companies, Underwriters at Lloyd's London not under the
control of either party to this Agreement, or a qualified arbitrator supplied
by the AAA.
Page 10 of 11
Crop Hail Quota Share
IGF / CCC
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. Arbitration shall take place in Des
Moines, Iowa. Insofar as the arbitration panel looks to substantive law, it
shall consider the law of the State of Illinois. 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.
The panel shall make its decision considering the custom and practice of the
applicable insurance and reinsurance business as promptly as possible following
the termination of the hearings. 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. The panel is prohibited from awarding punitive, exemplary or
treble damages, of whatever nature, in connection with any arbitration
proceeding concerning this Agreement.
ARTICLE 19 - CHOICE OF LAW
This Agreement, including all matters relating to formation, validity and
performance thereof, shall be interpreted in accordance with the law of the
State of Illinois.
ARTICLE 20 - ENTIRE CONTRACT
This Agreement and that certain Strategic Alliance Agreement, Insurance Services
Agreement, Multiple Peril Crop Insurance Quota Share Contract - effective July
1, 1997 Multiple Peril Crop Insurance Quota Share Agreement - effective July 1,
1997, and the Crop Hail Quota Share Reinsurance Contract - effective January 1,
1998, between the parties, represent the entire agreement and understanding
among the parties. No other oral or
Page 11 of 11
Crop Hail Quota Share
IGF / CCC
written agreements or contracts relating to the risks reinsured hereunder
currently exist and/or are contemplated between the parties.
ARTICLE 21 - SEVERABILITY
If any law or regulation of any Federal, State, or Local Government of the
United States of America or the provinces of Canada or the ruling officials of
any supervision over insurance companies, should render illegal this Agreement,
or any portion thereof, as to risks or properties located in the jurisdiction of
such authority, either the IGF or the CNA may upon written notice to the other
suspend, abrogate, or amend this Agreement insofar as it relates to risks or
properties located within such jurisdiction to such extent as may be necessary
to comply with such law, regulations or ruling.
Such illegality, suspension, abrogation, or amendment of a portion of this
Agreement shall in no way affect any other portion thereof.
ARTICLE 22 - ILLUSTRATION
IGF and CNA have agreed to append Schedule 1 as an attachment hereto to
illustrate their understanding of the operation of this Agreement.
Page 12 of 11
Crop Hail Quota Share
IGF / CCC
IN WITNESS WHEREOF the parties acknowledge that no intermediary is involved in
or brought about this transaction, and the parties hereto, by their authorized
representatives, have executed this Agreement:
on this day of 1998
IGF INSURANCE COMPANY
and its AFFILIATED COMPANIES
By: ________________________________________________
Attested by: _________________________________________
and on this day of 1998
CONTINENTAL CASUALTY COMPANY
By: ________________________________________________
Attested by:__________________________________________
CROP HAIL INSURANCE
QUOTA SHARE AGREEMENT
(referred to as the "Agreement")
Effective: January 1, 1998
issued to
IGF Insurance Company
and its Affiliated Companies
(referred to as "IGF")
by
Continental Casualty Company
(referred to as "CNA")