EXHIBIT 10.4 - ERIE INSURANCE COMPANY AND
ERIE INSURANCE COMPANY OF NEW YORK
ERIE, PENNSYLVANIA
AGGREGATE EXCESS OF LOSS REINSURANCE CONTRACT
This REINSURANCE CONTRACT is made between ERIE INSURANCE EXCHANGE, by and
through its Attorney-in-Fact, ERIE INDEMNITY COMPANY, of Erie, Pennsylvania
(hereafter called the "REINSURER"), and ERIE INSURANCE COMPANY and its wholly
owned subsidiary ERIE INSURANCE COMPANY OF NEW YORK, both of Erie, Pennsylvania
(herein referred to collectively (or individually as the context requires) as
the "COMPANY").
In consideration of the agreements and mutual promises contained herein, the
parties hereby agree that this Reinsurance Contract covers 95% of the Ultimate
Net Loss for each Annual Period, as herein provided and specified, which may
accrue to the COMPANY under all policies, contracts, and binders of insurance
and reinsurance as respects coverages classified by the COMPANY as Property and
Casualty as a result of any loss or losses thereunder occurring each Annual
Period during the term of this Reinsurance Contract, subject to the following
terms and conditions:
ARTICLE 1 - Term
This Reinsurance Contract shall commence on the first day of January, 1998, and
shall remain in force thereafter until cancelled in accordance with Article 18.
"Annual Period", as used herein, shall mean the period from January 1 to
December 31, both days inclusive, of any calendar year.
ARTICLE 2 - Retention and Limit
No claim shall be made hereunder unless the COMPANY'S total Ultimate Net Losses,
as herein defined, incurred during any Annual Period covered hereunder exceed an
amount equal to 72.5% of the COMPANY'S Net Premiums, as herein defined, earned
during that Annual Period of this Reinsurance Contract. The REINSURER shall then
be liable for 95% of the amount of such excess up to, but not exceeding, an
amount equal to 95% of 15% of the COMPANY'S Net Premium earned during that
Annual Period.
It is understood and agreed that losses equal to 5% of the Ultimate Net Loss in
excess of the retentions hereunder, shall be retained net by the COMPANY for its
own account.
ARTICLE 3 - Definition of Ultimate Net Loss
The term "Ultimate Net Loss" shall mean the liabilities incurred during any
Annual Period by the COMPANY under insurance or reinsurance agreements,
contracts, policies, certificates, binders, endorsements or agreements of
insurance or reinsurance and shall include those liabilities of the COMPANY
incurred during any Annual Period under that certain Reinsurance Pooling
Agreement between Erie Insurance Exchange, Erie Insurance Company and Erie
Insurance Company of New York effective January 1, 1995 ("Reinsurance Pooling
Agreement") as it currently exists or may hereafter be amended, except that
"Ultimate Net Loss" as used herein shall not include unallocated loss adjustment
expenses incurred by the Company.
Nothing in this Article shall be construed to mean that losses are not
recoverable hereunder until the COMPANY'S Ultimate Net Loss has been
ascertained.
ARTICLE 4 - Definition of Net Premiums
The term "Net Premiums" shall mean direct premiums, less return premiums,
received by the COMPANY during any Annual Period under insurance or reinsurance
agreements, contracts, policies, certificates, binders, endorsements, or
agreements of insurance or reinsurance, and shall include the COMPANY'S
respective share of the premiums received under the Reinsurance Pooling
Agreement as it currently exists or may hereafter be amended, less premiums for
all reinsurances inuring to the benefit of this Reinsurance Contract without
deduction of dividends declared, paid, or credited to policyholders.
ARTICLE 5 - Underwriting Warranty
It is warranted by the COMPANY that it will not knowingly retain net liability
in excess of the following respective amounts:
Property coverages: $10,000,000 as respects any one risk.
Casualty coverages: $5,000,000 as respects any one policy other than Workers'
Compensation policies.
It is understood that the COMPANY shall be the sole judge of what constitutes
any one risk as respects property coverages and any one policy as respects
casualty coverages.
ARTICLE 6 - Net Retained Liability
This Reinsurance Contract shall apply only to that portion of any insurance or
reinsurance which the COMPANY retains net for its own account during any Annual
Period, and in calculating the amount of any loss hereunder, and also in
computing the amount in excess of which this Reinsurance
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Contract attaches, only loss or losses in respect to that portion of any
insurance or reinsurance which the COMPANY retains net for its own account shall
be included. It is, however, understood and agreed that the amount of the
REINSURER'S liability during any Annual Period hereunder in respect to any loss
or losses shall not be increased by reason of the inability of the COMPANY to
collect from any other reinsurers, whether specific or general, any amounts
which may have become due from them, whether such inability arises from the
insolvency of such other reinsurers or otherwise.
ARTICLE 7 - Quota Share Reinsurance
Unless otherwise specially agreed, it is understood that, in the event the
COMPANY cedes reinsurance on a quota share or portfolio basis, the provisions of
this Reinsurance Contract shall apply as if such reinsurance had not been
effected.
ARTICLE 8 - Notice of Loss
In the event of a claim arising hereunder, notice shall be given to Erie
Insurance Exchange, 100 Erie Insurance Place, Erie, Pennsylvania, 16530-0001, to
the attention of the Managing Director of Reinsurance as soon as practicable.
ARTICLE 9 - Loss Settlements
All loss settlements made by the COMPANY, providing the same are within the
terms of this Reinsurance Contract, shall be unconditionally binding upon the
REINSURER, and amounts falling to the share of the REINSURER shall be payable by
it upon reasonable evidence of the amount due or to be due being given by the
COMPANY.
Should the COMPANY'S Ultimate Net Losses incurred during any Annual Period
covered hereunder exceed, at any time during that Annual Period, an amount equal
to 72.5% of the Net Premiums earned through that period of time, it is
understood and agreed that, at the option of the COMPANY, 95% of such excess and
95% of all such additional Ultimate Net Losses occurring thereafter will be paid
by the REINSURER, subject to a limit of 95% of 15% of the Net Premiums earned as
respects any losses occurring during that Annual Period. Any such payment shall
be subject to adjustment in accordance with the provisions of Article 3 after
the REINSURER'S ultimate liability hereunder has been determined.
ARTICLE 10 - Governing Law; Jurisdiction
Subject to "Article 15 - Arbitration", if the REINSURER fails to pay any amount
claimed to be due hereunder, the REINSURER, at the request of the COMPANY, will
submit to the jurisdiction of a court of competent jurisdiction within the
United States. Nothing in this clause constitutes or should
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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 the
REINSURER, and that the reinsurer will abide by the final decision of such court
or of any appellate court in the event of an appeal.
Further, pursuant to any statute of any state, territory, or district of the
United States which makes provision therefor, the REINSURER 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
COMPANY or any beneficiary hereunder arising out of this Reinsurance Contract,
and hereby authorizes the said officer to mail such process, or a true copy
thereof, to the COMPANY.
ARTICLE 11 - Insolvency
In the event of insolvency of the COMPANY, the reinsurance under this
Reinsurance Contract shall be payable by the REINSURER to the COMPANY or to its
liquidator, receiver, or statutory successor, on the basis of the liability of
the COMPANY under the policy or policies reinsured without diminution because of
the insolvency of the COMPANY.
It is further agreed that the liquidator, or receiver, or statutory successor of
the COMPANY, shall give written notice to the REINSURER of the pendency of any
claim against the COMPANY on the 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 their own expense, in the proceeding where such claim is to be adjudicated,
any defense or defenses which they may deem available to the COMPANY or to its
liquidator, or receiver, or statutory successor. The expense thus incurred by
the REINSURER shall be chargeable, subject to court approval, against the
COMPANY as part of the expense of liquidation to the extent of a proportionate
share of the benefit which may accrue to the COMPANY solely as a result of the
defense undertaken by the REINSURER.
ARTICLE 12 - Premium
The premium for this reinsurance shall be 1.01% of the subject Net Premiums
earned by the COMPANY during any Annual Period this Reinsurance Contract remains
in force, and shall be subject to a minimum premium of $800,000 for each Annual
Period.
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The COMPANY shall pay to the REINSURER a deposit premium of $900,000 for each
Annual Period which shall be payable in equal installments of $450,000 each on
the first days of January and July during the period this Reinsurance Contract
remains in force. Final adjustment of the premium for each Annual Period
hereunder shall be made as soon as may be reasonably practicable after
expiration of that Annual Period.
ARTICLE 13 - Premium and Loss Payments
Premiums shall be payable directly to the REINSURER and losses shall be paid
directly to the COMPANY in United States currency.
ARTICLE 14 - Access to Records
The REINSURER, by its duly appointed representative, shall have the right, at
any reasonable time, to examine all papers in the possession of the COMPANY
referring business effected hereunder.
ARTICLE 15 - Arbitration
Except as provided in "Article 16 - Loss Commutation", should an irreconcilable
difference of opinion arise between the COMPANY and the REINSURER as to the
interpretation or payment under this Reinsurance Contract, it is hereby mutually
agreed that, as a condition precedent to any right of action hereunder, such
difference, upon the written request of either party, shall be submitted to
arbitration, one arbitrator to be chosen by the COMPANY, one by the REINSURER,
and an umpire to be chosen by the two arbitrators before they enter upon
arbitration.
In the event that either party should fail to choose an arbitrator within sixty
days following a written request by the other party to enter upon arbitration,
the requesting party may choose two arbitrators who shall in turn choose an
umpire before entering upon arbitration. If the arbitrators have not chosen an
umpire at the end of ten days following the last day of the selection of the two
arbitrators, each of the arbitrators shall name three, of whom the other
declines two, and the decision shall be made of the remaining two by drawing
lots. The arbitrators and the umpire shall be active or retired disinterested
officers of insurance or reinsurance companies or Underwriters at Lloyd's,
London, not under the control of either party to this Reinsurance Contract. Each
party shall present its case to the arbitrators within sixty days following the
date of their appointment.
The decision, in writing, of the arbitrators shall be final and binding upon
both parties as to questions of fact, but failing to agree, they shall call in
the umpire and the decision of the majority shall be final and binding as to
questions of fact upon both parties. Judgment upon the award rendered may be
entered in any court having jurisdiction. Each party shall bear the expense of
its own arbitrator and shall jointly and equally bear with the other the expense
of the umpire and of the arbitration.
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In the event that the two arbitrators are chosen by one party, as above
provided, the expense of the arbitrators, the umpire, and the arbitration shall
be equally divided between the two parties.
Any such arbitration shall take place at Erie, Pennsylvania, unless some other
location is mutually agreed upon by the two parties in interest.
ARTICLE 16 - Loss Commutation
Sixty months after expiration of each Annual Period, the COMPANY and the
REINSURER agree to commute any unpaid net losses recoverable applicable to that
Annual Period.
The COMPANY shall submit a statement of valuation of the net losses recoverable
showing the elements considered reasonable to establish the net losses to be
commuted. The COMPANY and the REINSURER shall agree upon the capitalized value
of such losses and the REINSURER shall pay to the COMPANY the amount so
determined. Payment by the REINSURER of the capitalized value of such losses
shall constitute a complete and final release of the REINSURER'S liability in
respect of such losses for that Annual Period.
If the COMPANY and the REINSURER fail to agree on the capitalized value of such
losses within sixty days of receipt of the statement of valuation, then any
difference shall be settled by a panel of three Actuaries or Appraisers, one to
be chosen by each party and the third by the two so chosen. If either party
refuses or neglects to appoint an Actuary or Appraiser within sixty days after
the request in writing that the difference be settled by a panel of three
Actuaries or Appraisers, the other party may appoint two Actuaries or
Appraisers. If the two Actuaries or Appraisers fail to agree on the selection of
a third Actuary or Appraiser within thirty days of their appointment, then each
of them shall name two, one of whom the other shall decline and the
determination of the Actuary or Appraiser shall be made by drawing lots. All the
Actuaries or Appraisers shall be regularly engaged in the valuation of claims
subject to the provisions of this Article 16 - Commutation. None of the
Actuaries or Appraisers shall be under the control of either party to this
Reinsurance Contract nor shall they have any interest in the net losses being
commuted other than that which is required to fulfill their obligations
hereunder.
Each party shall submit its case to its Actuary or Appraiser within thirty days
of the appointment of the third Actuary or Appraiser. The decision in writing of
any two Actuaries or Appraisers, when filed with the COMPANY and the REINSURER,
shall be final and binding on both parties. The expense of the Actuaries or
Appraisers and of the Commutation shall be equally divided between the COMPANY
and the REINSURER. Said Commutation shall take place in Erie, Pennsylvania,
unless some other place is mutually agreed upon by the COMPANY and the
REINSURER. The term "capitalized value" as used herein shall mean the estimated
value of all future payments hereunder, excluding any provision for incurred but
not reported losses, reduced to present value at
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an agreed upon rate of interest to be determined at the time of commutation or
the prime rate, whichever is less.
ARTICLE 17 - Extended Expiration
Should this Reinsurance Contract terminate while a loss occurrence covered
hereunder is in progress, it is understood and agreed that, subject to the other
conditions of this Reinsurance Contract, the REINSURER shall be responsible for
their proportion of the entire loss or damage caused by such occurrence.
ARTICLE 18 - Termination
Either party may terminate this Reinsurance Contract at any December 31, by
giving the other party not less than 30 days prior written notice.
ARTICLE 19 - Singular Contains the Plural
In interpretation of this Reinsurance Contract, the singular includes the plural
and the plural includes the singular, should the context so require to give full
force and effect to the intent of the parties and the provisions hereunder.
ARTICLE 20 - Notice of Default; Cure
In the event of a default of any of the terms of this Reinsurance Contract,
notice of the default shall be given and the party against which a default is
alleged shall have fifteen days in which to cure such default, prior to any
action being taken hereunder.
ARTICLE 21 - Notices
Notice to REINSURER shall be given at the following address or at any address
specified in writing by REINSURER:
Erie Insurance Exchange
100 Erie Insurance Place
Erie, PA l6530
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Notice to COMPANY shall be given at the following addresses or at any addresses
specified in writing by COMPANY:
Erie Insurance Exchange Erie Insurance Company of New York
100 Erie Insurance Place 175 Corporate Woods,
Erie, PA l6530 Suite 100
Rochester, NY 14623
Notice is effective when given in writing, upon personal delivery, or sent
postage pre-paid by regular mail, Federal Express or similar service, telex or
telecopier to the address specified herein.
ARTICLE 22 - Amendments
This Reinsurance Contract may be altered or amended in any of its terms and
conditions by the written mutual consent of the parties, and such amendment
shall be considered as part of this Reinsurance Contract.
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ARTICLE 23 - Binding Effect
The provisions of this Reinsurance Contract shall be binding on both parties and
their respective heirs, legal representatives, successors and assigns, binding
any receivers, trustees or other fiduciaries appointed in any federal state
insolvency proceeding or federal bankruptcy case.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives.
In Erie, Pennsylvania, this 31st day of August, 1998.
ATTEST: ERIE INSURANCE COMPANY
/s/ Mark Torok /s/ Jan R. Van Gorder
- ------------------------------- ----------------------------------
Mark Torok Jan R. Van Gorder
ERIE INSURANCE COMPANY OF NEW YORK
ATTEST:
/s/ Mark Torok /s/ Philip A. Garcia
- ------------------------------- ----------------------------------
Mark Torok Philip A. Garcia
ERIE INSURANCE EXCHANGE, by ERIE
ATTEST: INDEMNITY COMPANY, Attorney-in-Fact
/s/ Maureen Sidelinger /s/ Michael S. Zavasky
- ------------------------------- ----------------------------------
Maureen Sidelinger Michael S. Zavasky
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