EXHIBIT 10.3 - REINSURANCE POOLING AGREEMENT
This Agreement is effective as of 12:01 a.m. on the 1st day of January, 1995,
among the Erie Insurance Exchange, a Pennsylvania reciprocal interinsurance
exchange (hereinafter referred to as the "Exchange"), the Erie Insurance
Company, a Pennsylvania stock insurance company (hereinafter referred to as the
"Company"), and Erie Insurance Company of New York, a New York stock insurance
company (hereinafter referred to as "ERIE-New York"). This Agreement supersedes
the Reinsurance Pooling Agreement between the Exchange and the Company, which
was in effect from January 1, 1992 until the effective date of this Agreement.
ARTICLE I - PREAMBLE
The purpose of this Agreement is to pool, or share proportionately among the
parties, the results of property and casualty insurance underwriting operations
through reinsurance; to reduce administrative and executive expenses; and to
produce for each party a broader distribution of risk by line of insurance. The
Exchange, the Company, and ERIE-New York are affiliated and are under the same
executive management. This Agreement is made to recognize that each company is a
member of the same holding company system and a member of the Erie Insurance
Group (hereinafter referred to as "The ERIE Group"), subject to group decisions
and strategies designed primarily to promote the stability and success of The
ERIE Group and that each company will accordingly share proportionately in the
combined property and casualty insurance underwriting operations of The ERIE
Group.
ARTICLE II - AGREEMENT
In consideration of the agreements and mutual promises contained herein, the
parties hereto make the following Agreement effective as of 12:01 a.m., Eastern
Standard Time, January 1, 1995. Such Agreement shall remain in effect until
cancelled as provided in Article XI.
ARTICLE III - DEFINITIONS
For the purposes of this Agreement, the following terms shall have the meanings
indicated below:
(a) "Net Policy Liabilities" shall mean the gross direct liabilities with
respect to insurance policies and reinsurance assumed less reinsurance ceded to
reinsurers other than the parties to this Agreement.
(b) "Respective Percentage Share" shall mean the participation percentage
set forth next to the name of each company in Exhibit A, attached hereto and
made a part hereof.
(c) "Underwriting Expenses" shall mean all expenses incurred individually
or collectively by the Exchange, Company, and ERIE-New York in the acquisition
of insurance and reinsurance business, the issuance of insurance policies and
contracts, and the rendering of services under the contracts, including premium
taxes, licenses and fees, and such other underwriting expenses relating to
insurance operations as may be mutually agreeable to the parties excluding
federal and foreign income taxes, investment expenses and any other expenses not
related to underwriting operations.
1
(d) "Dividends" to policyholders shall be treated as Underwriting
Expenses.
(e) "Net", as used herein shall mean net after giving effect to ceded
reinsurance transactions with other insurers or reinsurers, if any, which inure
to the benefit of the parties to this Agreement.
(f) "Insurance Policies" shall include all insurance or reinsurance
agreements, contracts, policies, certificates, binders, endorsements, or
agreements of insurance or reinsurance issued or renewed by the Exchange,
Company, or ERIE-New York for which they may become obligated.
(g) "Loss Adjustment Expense" shall include both allocated loss adjustment
expense and unallocated loss adjustment expense.
(h) "Accounting Period" shall mean calendar quarter (i.e. March 31, June
30, September 30, and December 31 of each year).
ARTICLE IV - LIABILITIES - BUSINESS CEDED
The Company and ERIE-New York each individually agrees to cede and transfer to
the Exchange and the Exchange agrees to assume and reinsure:
(a) 100% of all Net Policy Liabilities under all Insurance Policies of the
Company and ERIE-New York respectively, outstanding and in force at 12:01 a.m.,
Eastern Standard Time, January 1, 1995.
(b) 100% of the Net Policy Liabilities, automatically from inception,
under all Insurance Policies issued or assumed by the Company and ERIE-New York
respectively, with effective dates on and after January 1, 1995, during the
continuation of this Agreement.
(c) 100% of the Net liability of the Company and ERIE-New York
respectively, for unpaid losses (including both reported and unreported losses),
unpaid loss adjustment expenses, underwriting expenses due and unpaid prior to
January 1, 1995, and unpaid dividends to policyholders.
ARTICLE V - PREMIUMS AND RESERVES - BUSINESS CEDED
The Company and ERIE-New York each individually agrees to pay to the Exchange
the following:
(a) 100% of the unearned premium reserves of the Company and ERIE-New York
respectively, carried for the Net Policy Liabilities assumed and reinsured by
the Exchange under Article IV(a) hereof as shown on the records of the Company
and ERIE-New York respectively, as of 12:01 a.m., Eastern Standard Time, January
1, 1995.
(b) 100% of the premiums received by the Company and ERIE-New York
respectively, for business ceded and transferred to the Exchange under Article
IV(b) hereof less the costs of any reinsurance placed with reinsurers other than
the Exchange.
2
(c) 100% of the reserves carried by the Company and ERIE-New York
respectively, for losses (including both reported and unreported losses), loss
adjustment expense, underwriting expenses (including dividends to policyholders)
as shown on the records of the Company and ERIE-New York respectively, as of
12:01 a.m., Eastern Standard Time, January 1, 1995.
ARTICLE VI - LIABILITIES RETROCEDED
Following the assumption and reinsurance of the liabilities of the Company and
ERIE-New York respectively, as set forth in Article IV hereof, the Exchange
shall retrocede and transfer to the Company and ERIE-New York each company's
individual Respective Percentage Share of the following:
(a) 100% of all New Policy Liabilities under all Insurance Policies of the
Exchange outstanding and in force at 12:01 a.m., Eastern Standard Time, January
1, 1995.
(b) 100% of the Net Policy Liabilities, automatically from inception,
under all Insurance Policies issued or assumed by the Exchange with effective
dates on and after January 1, 1995, during the continuation of this Agreement.
(c) 100% of the Net Policy Liability of the Exchange for unpaid losses
(including both reported and unreported losses), unpaid loss adjustment
expenses, underwriting expenses due and unpaid prior to January 1, 1995, and
unpaid dividends to policyholders.
ARTICLE VII - PREMIUMS AND RESERVES - BUSINESS RETROCEDED
Following the payment of the premiums and reserves of the Company and ERIE-New
York respectively, as set forth in Article V hereof, the Exchange shall
retrocede and transfer to the Company and ERIE-New York each company's
individual Respective Percentage Share of the following:
(a) 100% of the Exchange's unearned premium reserves carried for its Net
Policy Liabilities under all Insurance Policies of the Exchange outstanding and
in force as of 12:01 a.m., Eastern Standard Time, January 1, 1995.
(b) The Exchange's premiums received by the Exchange for its own account
and all premiums received by the Exchange pursuant to Article V(b) hereof for
business assumed from the Company and ERIE-New York respectively, under Article
IV(b) hereof, less all Underwriting Expenses incurred by the Exchange in
relation to such business and less all reinsurance placed with insurers and
reinsurers other than the parties to this Agreement by the Exchange for its own
account or for the joint account of the Exchange, Company and ERIE-New York.
(c) 100% for the reserves carried by the Exchange for losses (including
both reported and unreported losses), loss adjustment expense, underwriting
expenses (including dividends to policyholders) as shown on the records of the
Exchange as of 12:01 a.m., Eastern Standard Time, January 1, 1995.
3
ARTICLE VIII - AGENTS' BALANCES/OUTSTANDING ACCOUNTS
The Company and ERIE-New York hereby agree to sell, transfer, assign and the
Exchange hereby agrees to purchase all rights, title and interest of the Company
and ERIE-New York in their agents' balances, uncollected premiums and all other
accounts relating to underwriting operations, including underwriting pools and
associations as they exist at 12:01 a.m., Eastern Standard Time, January 1,
1995, at statutory book value. The Exchange hereby agrees to sell, transfer and
assign and the Company and ERIE-New York hereby agree to purchaser their
Respective Percentage Shares of the total agents' balances, uncollected premiums
and all other accounts relating to underwriting operations at statutory book
value immediately after and including the transfers effected by the first
sentence of this paragraph.
Underwriting assets and related liabilities of the Exchange, the Company, and
ERIE-New York arising after 12:01 a.m., Eastern Standard Time, January 1, 1995,
shall be pro-rated according to the Respective Percentage Share of the
companies.
Notwithstanding anything to the contrary herein contained, the Company and
ERIE-New York hereby agree for purposes of statutory financial statements, to
assume their Respective Percentage Share of any amounts disallowed the Exchange
on account of reinsurance effected with so-called unauthorized reinsurers and
any amounts disallowed the Exchange for non-admitted agents' balances and
uncollected premiums.
ARTICLE IX - OBLIGATIONS
The Exchange agrees to act on behalf of the Company and ERIE-New York to fulfill
all the respective obligations of the Company and ERIE-New York under the
Insurance Policies reinsured hereby and to adjust and pay all claims thereunder
and to pay all Underwriting Expenses (including dividends to policyholders) on
behalf of the Company and ERIE-New York, and the Company and ERIE-New York
hereby agree to the Exchange acting on their behalf with respect to such
matters. The adjustment of claims and claim payments for policies written by
ERIE-New York will be made in accordance with guidelines established by the
Board of Directors of ERIE-New York. It is the purpose and intent of this
Agreement that all reinsurance hereunder shall be subject in all respects to the
same rates, terms, conditions, interpretations, waivers, the exact proportion of
premiums paid without deduction for brokerage, and to the same modifications,
alterations and cancellations as the respective insurances of the companies to
which such reinsurance relates, the true intent of this Agreement being that the
reinsurer shall in every case to which this Agreement applies and in the
Respective Percentage Share set forth herein follow the fortunes of the
reinsured. This Agreement is solely between and for the benefit of the parties
hereto and the acceptance of reinsurance hereunder shall not create any right or
legal relation whatsoever between the primary insured and any party to this
Agreement other than the company issuing the original insurance contract to such
insured.
ARTICLE X - ACCOUNTS AND SETTLEMENTS
The Exchange, the Company, and ERIE-New York shall keep sufficient records for
the express purpose of recording therein the amounts and other particulars of
the reinsurance ceded and assumed between the parties hereto. Each party to this
Agreement shall have the right to examine,
4
at the offices of the other parties at all reasonable times, all books and
records of the other parties relating to any business which is the subject of
this Agreement. This right shall survive termination of this Agreement and shall
continue so long as any party has any rights or obligations under this
Agreement.
Copies of all Insurance Policies thereto which come within the scope of this
Agreement shall be available to all companies which are parties to this
Agreement. Each company which is a party hereto will make its financial data
available to every company for the purpose of recording those inter-company
transactions necessitated by this Agreement and shall provide such financial
information in sufficient detail and in mutually acceptable form to prepare
monthly financial and quarterly and annual filings with all applicable insurance
departments and other regulatory authorities.
The Exchange shall render to the Company and to ERIE-New York at such periods as
are mutually agreed upon (but not less frequently than quarterly), a statement
showing net premiums received, Underwriting Expenses (including dividends paid
to policyholders), net losses and loss adjustment expenses paid during the
accounting period. Reasonable approximations may be substituted when necessary,
for interim accounting, but there shall be an annual adjustment to the exact
amounts. The companies shall settle accounts between them by payment of such
amounts as may be owing within 30 days after the end of the accounting period.
Each quarter the Exchange shall render to the Company and to ERIE-New York a
report of all accruals required to adjust cash transactions to the accounting
basis required for accounting in accordance with generally accepted practices
for preparation of the NAIC form of annual statement, and to adjust the expense
allowance to the accrual basis.
To the extent that transfers of non-cash assets may be required to effectuate
the settlements herein provided, such transfers shall be made at fair market
values as of the date such transfers are made.
ARTICLE XI - TERMINATION
This Agreement may be terminated by mutual agreement stating the terms and
conditions therefore or by any party giving to the other parties not less than
90 days advance written notice stating when, as of the end of any calendar year
such termination shall be effective. The Net Policy Liabilities previously ceded
and transferred by the company and assumed and reinsured by the Exchange and
that subsequently assumed and reinsured by the Company and by ERIE-New York
under the Respective Percentage Share participation shall cease with respect to
losses resulting from accidents or occurrences after the termination date of
this Agreement. Upon termination of this Agreement, reinsurance and reserve
settlement among the parties shall be made upon the same formula and conditions
as those governing the inception of this Agreement, restoring to each party its
Insurance Policies, related assets and reserves.
ARTICLE XII - INSOLVENCY CLAUSE
Each party hereby agrees that in the event of the insolvency of any party, this
Agreement shall be so construed that the reinsurance due hereunder shall be
payable directly to the insolvent party or its liquidator, receiver, or
statutory successor by the reinsurer on the basis of the liability of the
insolvent party under the contract or contracts reinsured without diminution
because of the
5
insolvency. It is further agreed that the liquidator, the receiver, or the
statutory successor of the insolvent party shall give written notice to the
reinsurer of the pendency of a claim against the insolvent party on the policy
reinsured within a reasonable time after such claim is filed in the solvency
proceedings; that during the pendency of such claim the reinsurer may
investigate such claim and interpose at their own expense in the proceeding
where such claim is to be adjudicated any defense or defenses which they may
deem available to the insolvent party or its liquidator, receiver, or statutory
successor; that the expenses thus incurred by the reinsurer shall be chargeable
subject to court approval against the insolvent party as part of the expense of
liquidation to the extent of the proportionate benefit which may accrue to the
insolvent party solely as a result of the defense undertaken by the reinsurer.
It is further agreed and understood that as to all reinsurance made, ceded,
renewed or otherwise becoming effective hereunder, the reinsurance shall be
payable by the insurer directly to the insolvent party or to its liquidator,
receiver or statutory successor.
ARTICLE XIII - ARBITRATION
As a condition precedent to any right of action hereunder, in the event of any
difference of opinion hereafter arising with respect to this Agreement, it is
hereby mutually agreed that such dispute or difference of opinion shall be
submitted to arbitration before a panel of three arbitrators, all of whom shall
be active or retired disinterested officers of property and casualty insurance
companies, reinsurance companies or underwriters at Lloyd's, London. One
arbitrator shall be chosen by each party to the dispute, and the third, an
umpire, to be chosen by the other two arbitrators before they enter upon
arbitration. In the event of any party refusing or neglecting to appoint an
arbitrator within 90 days after the other party requests it to do so, or if the
arbitrators fail to appoint an umpire within 60 days after they have accepted
their appointments, such arbitrator or umpire, as the case may be, shall, upon
the application of any party, be appointed by the American Arbitration
Association and the arbitrators and the umpire shall thereupon proceed. The
arbitrators shall consider this Agreement as an honorable engagement rather than
merely as a legal obligation and they are relieved of all judicial formalities
and may abstain from following the strict rules of law. The decision of the
majority of the arbitrators shall be final and binding on all parties. Each
party shall bear the expense of its own arbitrator and shall jointly and equally
bear the other expenses of the umpire and of the arbitration. Any such
arbitration shall take place in Erie, Pennsylvania, or such other place as may
be mutually agreed.
ARTICLE XIV - ERRORS AND OMISSIONS
The parties to this Agreement will use due diligence in promptly and accurately
reporting all transactions under this Agreement. It is agreed, however, that any
errors or omissions occurring through clerical error, accident or oversight, of
any party to this Agreement shall not invalidate any of the provisions of this
Agreement; and the party making such error agrees to correct it immediately upon
discovery.
ARTICLE XV - AMENDMENTS
This Agreement may be altered or amended in any respect at any time and from
time to time by mutual consent of the parties either by an endorsement or
addendum executed by the parties hereto or by correspondence signed by a
responsible officer of each party, and such endorsement or
6
addendum or correspondence shall be binding on the parties and be deemed to be
an integral part of this Agreement.
ARTICLE XVI - OTHER PROVISIONS
1. This Agreement shall not apply to the investment operations, liabilities
for Federal and foreign income tax, or other operations unrelated to the
insurance underwriting of the parties hereto.
2. In the event that the Company is not licensed in New York and/or the
Exchange is not an accredited reinsurer in New York, the Exchange agrees to post
a letter of credit collateralizing the business ceced to it by ERIE-New York.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures.
ERIE INSURANCE EXCHANGE
by Erie Indemnity Company
Attorney-in-Fact
By: /s/ J. M. Petersen
----------------------------------------
J. M. Petersen
President and
Chief Executive Officer
ERIE INSURANCE COMPANY
By: /s/ J. R. Van Gorder
----------------------------------------
J. R. Van Gorder
Executive Vice President,
Secretary and General Counsel
ERIE-NEW YORK
By: /s/ T. M. Sider
----------------------------------------
T. M. Sider
Executive Vice President and
Chief Financial Officer
7
ERIE INSURANCE GROUP
REINSURANCE POOLING AGREEMENT
EFFECTIVE January 1, 1995
EXHIBIT A
Participating Insurer Respective Percentage Share
- --------------------- ---------------------------
Erie Insurance Exchange 94.5%
Erie Insurance Company 5.0%
ERIE-New York 0.5%
8