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EXHIBIT 10.70
[G.J. SULLIVAN CO. REINSURANCE LETTERHEAD]
February 4, 1997
Mr. Stephen C. Rece
Senior Vice President
RISCORP
1390 Main Street, 7th Floor
Sarasota, Florida 34236
Re: RISCORP NATIONAL INSURANCE COMPANY
WORKERS' COMPENSATION QUOTA SHARE
OCTOBER 1, 1996 REINSURANCE AGREEMENT
Dear Steve:
Enclosed are two sets of our final Covernote on the captioned
reinsurance which amends the following items from the original version you
received:
1. Reinsurance Coverage: Paragraph C -We amended the treatment of UEP at
12/31/96, so that it will be reassumed by RNIC at 12:01 a.m. January 1,
1997 at 65% and simultaneously receded to the Reinsurer at 60%. Also, we
went ahead and noted the 60% cession from January 1, 1997 - June 30, 1997.
Should the percentage of cession change at July 1, 1997 or October 1,
1997, we'll need to transfer the UEP at the end of the quarter to the new
cession percentage.
2. Other Provisions: The Alternate Payee Article has been renamed Additional
Reinsured Article. In view of Missouri Insolvency Law, Chartwell's legal
staff felt the Additional Reinsured language more clearly puts the issuer
of the Assumption Liability Endorsements (ALEs) in the Company's place in
the event RNIC became insolvent.
3. General Conditions: We've added an Interlocking Clause which is applicable
only in the event you choose to run-off the liability from one Agreement
Year and have a separate treaty for new and renewal business the following
year. Under this scenario, should multiple policies from different
Agreement Years be involved in one occurrence, you would pro rate both
policies' involvement in the occurrence to determine the percentage each
claim bears to meeting the $500,000 occurrence limit under the Quota
Share. This obviously does not apply if you roll the inforce business
into the next Agreement Year.
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Please give Laura Hewitt or me a call if you have any questions regarding
these changes. Otherwise, please send back to our office the RNIC Covernotes
issued earlier (dated December 18, 1996, and December 23, 1996) so that there's
less chance for confusion
We ask that you please sign both copies of this Covernote and return one
copy to our office, retaining the other for your records. A copy of the
contract wording is currently being reviewed and should be out to you in the
next week.
Best Regards,
/s/ William M Aleen
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William M. Allen
Senior Vice President
WMAfjw
Enc.
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[G.J.SULLIVAN CO. REINSURANCE LETTERHEAD]
RISCORP NATIONAL INSURANCE COMPANY
1390 Main Street Cover Note: R403940196
Sarasota, Florida 34236 January 29, 1997
WORKERS COMPENSATION QUOTA SHARE
We hereby confirm that, in accordance with your instructions, we have effected
the following reinsurance. Please examine this Cover Note (and any attachments
thereto) carefully and advise us immediately if you have any problems or
questions with regard to the Terms or Security.
CEDING COMPANY: RISCORP NATIONAL INSURANCE COMPANY, as managed by RISCORP
and it's subsidiaries or branch offices (hereinafter
referred to as the Company).
CONTRACT: WORKERS COMPENSATION QUOTA SHARE
COMMENCEMENT
AND TERMINATION: A. This treaty shall become effective at 12:01 AM, local
standard time, October 1, 1996, as respects inforce,
new and renewal business, and shall remain inforce
for an unlimited period thereafter, subject to
termination at December 31, 1997, or any December 31
thereafter by either party giving the other party
ninety (90) days advance written notice by registered
mail.
B. In the event of the termination of this Contract, at
the Company's option:
1. The Reinsurer shall remain liable in respect of
all business inforce at the date of termination
until the first anniversary of each policy
following the effective date of termination,
such run-off period not to
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exceed 12 months following the date of
termination plus odd time, not to exceed 15
months in all; or
2. The Reinsurer shall be relieved of all liability
hereunder for losses occurring subsequent to the
date of termination of this Contract. The
Reinsurer shall refund to the Company the
unearned reinsurance premium applicable to the
unexpired liability less the ceding commission
allowed by the Reinsurer.
BUSINESS
COVERED: To cover all business written and/or assumed by
RISCORP NATIONAL INSURANCE COMPANY, as underwritten
and managed by RISCORP (and its subsidiaries and/or
branch offices) and classified as: Workers
Compensation and Employers Liability business
domiciled in states other than Florida.
TERRITORY: This applies to losses occurring within the United
States of America, its territories and possessions,
per the territorial limits of the Company's policies.
EXCLUSIONS: per the attached
COVERAGE: The Company shall cede to the Reinsurer and the
Reinsurer shall accept from the Company a quota share
participation of the net retained liability of the
Company, as respects inforce, new and renewal policies
becoming effective October 1, 1996 and during the term
of this contract.
Such quota share participation of the Company's net
retained liability shall be subject to the provisions
set forth below:
A. As respects Workers Compensation and Employers'
Liability business:
It is understood and agreed that the Reinsurer's
limit of liability shall not exceed its pro rate
share of $500,000 (100%) per occurrence. An
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"occurrence" shall mean each loss, accident or
occurrence or series of losses, accidents or
occurrences arising out of one event, except as
modified by Coverage B below with respect to
Occupational and Other Disease and Cumulative
Trauma which shall be defined by applicable
statutes and regulations.
B. As respects Occupational or Other Disease or
Cumulative Trauma under Workers' Compensation
and Employers Liability business:
It is understood and agreed that the Reinsurer's
limit of liability shall not exceed its pro rate
share of $500,000 (100%) per occurrence.
However, as respects Occupational Disease or
Cumulative Trauma under -- Workers' Compensation
and Employers' Liability policies, a loss for
the purpose of this Contract shall be deemed to
be (Occupational Disease or Cumulative Trauma)
sustained by each employee which shall be deemed
to have occurred at the date upon which the
employee is last exposed to at work conditions
allegedly causing such occupational disease.
Notwithstanding the provisions in paragraphs A
and B above, the maximum liability of the
Reinsurer shall not exceed a 105% pure loss and
loss adjustment expense ratio for each year in
which this Contract remains inforce (determined
by dividing all applicable loss and loss
adjustment expense by applicable Gross Subject
Earned Premium).
C. The Company shall retain a minimum of thirty
five percent (35%) of the Liability hereunder,
however, the Company shall have the option to
purchase underlying protection on its net
account. It is the intention, however, for the
Company to retain 35% of this Contract for the
period October 1, 1996 through December 31,
1996. However, the attendant 65% cession of
Unearned Premium at December 31, 1996 shall
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be reassumed by the Company at 12:01 am January
1, 1997 and shall be simultaneously receded at
60% to the Reinsurer.
The percentage of cession for January 1, 1997
through June 30, 1997 shall be 60%. The Company
shall have the option to adjust the percentage
of cession in advance quarterly at/for July 1,
1997 and/or October 1, 1997, based on surplus
needs, and such adjustment shall not be greater
than 15%+/- (of 100%) in any one quarter.
PREMIUM: The Company shall cede to the Reinsurer its
proportionate share of the gross subject written
premium on all policies inforce, written or renewed
during the term of this contract.
"Gross subject written premium" as used in this
Contract shall mean the net standard premium written
by the Company times applicable premium volume
discounts, times FILED deviations and/or scheduled
rating (net after premiums paid for inuring
reinsurance), less return premiums and cancellations
on the business subject to this Contract.
CEDING
COMMISSION: Provisional Commission 33%
Commission Slide
78% or higher 27% Minimum
76% or higher but not exceeding 78% 29% less a 1% decrease
for each 1% increase in
the Reinsurer's loss
ratio down to a 27%
commission at A 78% loss
ratio.
70% or higher but not exceeding 76% 32% less a .50%
decrease for each 1%
increase in the
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Reinsurer's loss ratio
down to a 29%
commission at a 76% loss
ratio.
62% or higher but not exceeding 70% 40% less a 1% decrease
for each 1% increase in
the Reinsurer's loss
ratio down to a 32%
commission at 70% loss
ratio.
62% or lower but not less than 50% 40% plus .75% increase
for each 1% decrease in
the Reinsurer's loss
ratio to a maximum
commission of 49% at a
loss ratio of 50%.
50% or lower 49% Maximum
The ultimate commission shall be adjusted
annually and the loss will include a factor for
IBNR and loss development. Downward commission
adjustments to be calculated and paid
semi-annually. The first upward adjustment will
occur 36 months after the end of each agreement
year and annually thereafter.
It is noted and agreed that the cost of RMLs and
assessments to be paid by the Company are to be
included in the Ceding Commission paid by
Reinsurers.
REPORTS AND
REMITTANCES: The Company shall REMIT monthly reports to the
Reinsurer detailing by year ceded, billed
written premiums, earned premiums, unearned
PREMIUM, paid loss and loss adjustment expense,
outstanding loss and loss adjustment expense, due
within 60 days following the close of the month.
Payment due either party is due 60 days
following the close of the month.
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LOSS AND LOSS
ADJUSTMENT EXPENSE: Allocated Loss Adjustment Expense to be included
in the limit.
OTHER PROVISIONS: Additional Reinsured Article (in the event any
Assumption Liability Endorsements are used).
The net retention of the Company to be
indemnified on those policies with Assumption
Liability Endorsements by the Reinsurer issuing
the actual ALE paper, however the ceded
liability on those policies shall be shared
proportionately by Reinsurers hereunder in the
event of the Company's insolvency.
It is noted that Reinsurers hereunder agree to
proportionately pay any RML or assessment for
which the Additional Reinsured becomes liable to
pay as a result of issuing ALEs.
GENERAL CONDITIONS: The Company shall be the sole judge of what
constitutes one occurrence, or one insured or
contract of insurance or reinsurance. All
business declared hereunder, subject to the same
terms, conditions, warranties, clauses, etc., as
contained in the Company's original policies and
Reinsurers to pay as may be paid by the Company.
Access to Records Article
Arbitration Article
Errors and Omissions Article
Extra Contractual Obligations and Loss in Excess
of Policy Limits Article
Federal Excise Tax (as applicable)
Insolvency Article
Interlocking Article (only applies if the
Company chooses run-off.)
Letters of Credit Article (as applicable)
Reserves and Taxes
Offset Article (This contract only version.)
Service of Suit Article (as applicable)
Underlying Recoveries Article
G.J. Sullivan Intermediary Article
WORDING: To be agreed.
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EFFECTED WITH: 1995
Participation Best's Rating
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Chartwell Reinsurance Corporation 50% A/VII
Swiss Reinsurance America Corporation 25% A/Xlg
Trenwick America Reinsurance Corporation 25% A+/VIII
---
Total 100% of cessions hereunder
G.J. SULLIVAN CO.
/s/ William M. Allen
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William M. Allen
Senior Vice President
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G.J. Sullivan Co. as "Reinsurance Intermediary" does, by your authorized
signature hereto, have your acknowledged authorization to place reinsurance in
accordance with the terms of this Cover Note.
Final determination of each reinsurer, whether for financial reasons or
otherwise, rests solely with the Ceding Insurer, who does hereby release the
Intermediary from responsibility with regard to the acceptance of such
reinsurer(s).
Please indicate your acceptance and approval by signing and returning a copy of
this Cover Note to G.J. Sullivan Co.
ACCEPTED &
APPROVED: /s/ DATE: 2/5/97
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EXCLUSIONS
ATTACHING TO AND FORMING PART OF THE
RISCORP NATIONAL INSURANCE COMPANY
AS MANAGED BY RISCORP
WORKERS COMPENSATION QUOTA SHARE
COVER NOTE #R403940196 - OCTOBER 1, 1996
A. All liability of the Company
arising by contract, operation
of law, or otherwise, from
its participation or
membership, whether voluntary
or involuntary, in any
insolvency fund. "Insolvency
Fund" includes any guaranty
fund, insolvency fund, plan,
pool,association, fund or
other arrangement; howsoever
denominated, established or
governed; which provides for
any assessment of or payment
or assumption by the Company
or part or all of any claim,
debt, charge, fee, or other
obligation of an insurer, or
its successors or assigns,
which has been declared by
any competent authority to be
insolvent, or which is
otherwise deemed unable to
meet any claim, debt, charge,
fee or other obligation in
whole or in part.
B. Roofing (all kinds).
C. Asbestos or PCB Handling.
D. Wrecking or demolition of
buildings, structures or
vessels, but not to exclude
the wrecking or demolition of
buildings not exceeding FIVE
stories in height.
E. Underwater work.
F. Explosives manufacturing,
handling or transporting.
G. Caisson or cofferdam work.
H. Professional athletic teams.
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I. Offshore Drilling.
J. Iron or Steel erecting
operations.
K. Manufacturing production and
refining of petroleum and its
products.
L. Electrical power line
construction and/or maintenance.
M. Risks involving nuclear
facility or nuclear material,
spent fuel or waste as defined
in the Nuclear Incident
Exclusion Clause except for the
use of radioactive isotopes.
N. Operations where the governing
classifications are railroad
class codes.
O. Tunneling operations involving
tunnels over 100 feet in
length (auguring shall not be
considered tunneling).
P. Pools, Associations and
Syndicates.
Q. Financial Guarantee.
Except for exposures, coverages
or charges enumerated under paragraph
A, P & Q, if the Company is
inadvertently bound or unknowingly
exposed (due to error, automatic
provisions of policy coverage, or as
imposed by law) on a risk otherwise
excluded herein, such risk shall be
covered until the Company receives
knowledge thereof, and pending
cancellation of such risk, for a period
of ten days in addition to the time
permitted for cancellation in the
original policy, such total not
exceeding 70 days in all.
Special acceptances agreed by the
Excess Reinsurer (X $500,000) shall be
automatically accepted hereunder.
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