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EXHIBIT 10(Y)
AMENDED AND RESTATED REINSURANCE
POOLING AGREEMENT BETWEEN
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY,
STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY
AND MILBANK INSURANCE COMPANY
EFFECTIVE JULY 1, 1996
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AMENDED AND RESTATED
REINSURANCE POOLING AGREEMENT
This Amended and Restated Reinsurance Pooling Agreement (the
"Agreement"), effective as of 12:01 a.m., Eastern Daylight Savings Time, July 1,
1996, is between and among State Automobile Mutual Insurance Company, 518 East
Broad Street, Columbus, Ohio (hereinafter referred to as "State Auto Mutual")
and State Auto Property and Casualty Insurance Company, 112 Main Street, Greer,
South Carolina (hereinafter referred to as "State Auto P&C"), and Milbank
Insurance Company, East Highway 12, Milbank, South Dakota (hereinafter referred
to as "Milbank"). (State Auto Mutual, State Auto P&C and Milbank are herein
collectively referred to as the "State Auto Insurance Companies" or "Group").
BACKGROUND INFORMATION
The members of the Group have determined that the underwriting
operations of the Group should be conducted by State Auto Mutual on behalf of
the Group which has been effected through the Amended and Restated Management
Agreement dated April 1, 1994, and by means of mutual reinsurance on a
percentage basis as herein provided.
State Auto Mutual and State Auto P&C originally entered into an
intercompany Reinsurance Agreement effective as of 12:01 a.m., January 1, 1987
(the "Reinsurance Agreement").
The Reinsurance Agreement has since been amended by an Addendum
effective January 1, 1987, adding an insolvency and arbitration provisions; by
Amendment Number 1 effective as of January 1, 1992 amending the pooling
percentages from 20% State Auto P&C - 80% State Auto Mutual to 30% and 70%
respectively; by Amendment Number 2 effective as of January 1, 1991 excluding
post retirement health care benefits as a pooled expense and as of January 1,
1994 excluding post employment benefits liability as a pooled expense; and by
Amendment Number 3 effective as of January 1, 1995 adding Milbank as a party and
adjusting the pooling percentages as follows: State Auto P&C 35%, State Auto
Mutual 55% and Milbank 10%.
The Reinsurance Agreement requires an additional amendment effective as
of July 1, 1996, to exclude from its scope catastrophic loss claims and loss
adjustment expenses incurred by State Auto Mutual, State Auto P&C and Milbank in
the amount of $100,000,000 in excess of $120,000,000 of such losses and loss
adjustment expense and the premiums for such exposure.
The parties desire to amend and restate the Reinsurance Agreement to
provide for the continuation of the pooling arrangement it effects, including
the above-described previous amendments and the additional amendment.
STATEMENT OF AGREEMENT
In consideration of the mutual covenants set forth herein and INTENDING
TO BE LEGALLY BOUND HEREBY, the parties hereto hereby agree as follows:
DEFINITIONS:
1. As used in this Agreement:
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a. "Net Liabilities" shall mean all direct liabilities plus
reinsurance assumed minus reinsurance ceded, except as otherwise
expressly excluded below.
b. "Net Premiums" shall mean all direct premiums plus
reinsurance assumed minus reinsurance ceded, except as otherwise
expressly excluded below.
c. "Respective Percentage" shall be:
As to Milbank 10%
As to State Auto P&C 35%
As to State Auto Mutual 55%
2. CESSION:
(a) STATE AUTO P&C CESSION: State Auto Mutual hereby reinsures
and assumes and State Auto P&C hereby cedes and transfers to
State Auto Mutual all Net Liabilities incurred under or in
connection with all contracts and policies of insurance issued by
State Auto P&C outstanding and in force as of and subsequent to
12:01 a.m. Eastern Daylight Savings Time, July 1, 1996. Such
liabilities shall include State Auto P&C's reserves for unearned
premiums, outstanding losses and loss expenses (including
unreported losses) and all other outstanding underwriting and
administrative expenses as evidenced by State Auto P&C's books
and records at the close of business on June 30, 1996, but shall
not include intercompany balances, liabilities incurred in
connection with the investment transactions of State Auto P&C,
liabilities for dividends to stockholders declared and unpaid,
other liabilities not incurred in connection with underwriting
operations, post retirement health care benefits liability, and
post employment benefits liability. It is further agreed State
Auto Mutual shall receive the Net Premiums for said contracts and
policies.
(b) MILBANK CESSION: State Auto Mutual hereby reinsures and
assumes and Milbank hereby cedes and transfers to State Auto
Mutual all Net Liabilities incurred under or in connection with
all contracts and policies of insurance issued by Milbank
outstanding and in force as of and subsequent to 12:01 a.m. EDST,
July 1, 1996. Such liabilities shall include Milbank's reserves
for unearned premiums, outstanding losses and loss expenses
(including unreported losses) and all other outstanding
underwriting and administrative expenses as evidenced by
Milbank's books and records at the close of business on June 30,
1996, but shall not include intercompany balances, liabilities
incurred in connection with the investment transactions of
Milbank, liabilities for dividends to stockholders declared and
unpaid, other liabilities not incurred in connection with
underwriting operations, post retirement health care benefits
liability, and post employment benefits liability. It is further
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agreed that State Auto Mutual shall receive the Net Premiums for
said contracts and policies.
3. ASSETS TRANSFER TO STATE AUTO MUTUAL:
(a) STATE AUTO P&C: In consideration of the agreements herein
contained, State Auto P&C hereby agrees that there has been or
will be assigned and transferred to State Auto Mutual an amount,
in cash or other assets, equal to the aggregate of all
liabilities of State Auto P&C assumed by State Auto Mutual under
paragraph 2(a) hereof, less a ceding commission equal to the sum
of the acquisition expenses associated with the unearned premium
reserves which are transferred as provided herein. There have
been included among the assets assigned and transferred to State
Auto Mutual by State Auto P&C all of the right, title and
interest of State Auto P&C in and to all assets relative to the
underwriting operations of State Auto P&C, due or that became
due, as evidenced by its books and records at the close of
business on June 30, 1996, not including investments, accrued
investment income, intercompany balances and bank deposits.
(b) MILBANK: In consideration of the agreements herein contained,
Milbank hereby agrees that there has been or will be assigned and
transferred to State Auto Mutual an amount, in cash or other
assets, equal to the aggregate of all liabilities of Milbank
assumed by State Auto Mutual under paragraph 2(b) hereof, less a
ceding commission equal to the sum of the acquisition expenses
associated with the unearned premium reserves which are
transferred as provided herein. There shall be included among the
assets assigned and transferred to State Auto Mutual by Milbank
all of the right, title and interest of Milbank in and to all
assets relative to the underwriting operations of Milbank due or
that may become due as evidenced by its books and records at the
close of business on June 30, 1996 not including investments,
accrued investment income, intercompany balances and bank
deposits.
4. ASSUMPTION OF REINSURANCE:
(a) STATE AUTO P&C: State Auto P&C hereby reinsures and assumes
and State Auto Mutual hereby cedes and transfers to State Auto
P&C its Respective Percentage of all Net Liabilities under all
contracts and policies of insurance, (including those ceded by
State Auto P&C and reinsured by State Auto Mutual as provided in
paragraph 2(a)), on which State Auto Mutual is subject to
liability and which are outstanding and in force on or after the
effective date hereof.
Such liabilities shall include reserves for unearned premiums,
outstanding losses (including unreported losses) and loss expenses and
all other underwriting and
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administrative expenses, but shall not include intercompany balances,
liabilities for federal income taxes, liabilities incurred in
connection with investment transactions, liabilities for dividends to
stockholders declared and unpaid, other liabilities not incurred in
connection with underwriting operations, post retirement health care
benefits liability and post employment benefits liability.
(b) MILBANK: Milbank hereby reinsures and assumes and State Auto
Mutual hereby cedes and transfers to Milbank its Respective
Percentage of all Net Liabilities under all contracts and
policies of insurance, (including those ceded by Milbank and
reinsured by State Auto Mutual as provided in paragraph 2(b)), on
which State Auto Mutual is subject to liability and which are
outstanding and in force on or after the effective date hereof.
Such liabilities shall include reserves for unearned premiums,
outstanding losses (including unreported losses) and loss expenses and
all other underwriting and administrative expenses, but shall not
include intercompany balances, liabilities for federal income taxes,
liabilities incurred in connection with investment transactions,
liabilities for dividends to stockholders declared and unpaid, other
liabilities not incurred in connection with underwriting operations,
post retirement health care benefits liability and post employment
benefits liability.
5. ASSET TRANSFER BY STATE AUTO MUTUAL:
(a) STATE AUTO P&C: In consideration of the agreements herein
contained, State Auto Mutual hereby agrees that there has been or
will be assigned and transferred to State Auto P&C an amount, in
cash or other assets, equal to the aggregate of all liabilities
of State Auto Mutual assumed by State Auto P&C under paragraph
4(a) hereof, less a ceding commission equal to the sum of the
acquisition expenses associated with the unearned premium
reserves which are transferred as provided herein. There shall be
included among the assets assigned and transferred to State Auto
P&C by State Auto Mutual all of the right, title and interest of
State Auto Mutual in and to all assets relative to the
underwriting operations of State Auto Mutual, due or that may
become due, as evidenced by its books and records at the close of
business on June 30, 1996, not including investments, accrued
investment income, intercompany balances and bank deposits.
(b) MILBANK: In consideration of the agreements herein contained,
State Auto Mutual hereby agrees that there has been or will be
assigned and transferred to Milbank an amount, in cash or other
assets, equal to the aggregate of all liabilities of State Auto
Mutual assumed by Milbank under paragraph 4(b) hereof, less a
ceding commission equal to the sum of the acquisition expenses
associated with the unearned premium reserves which are
transferred as provided herein. There shall be included among the
assets assigned and transferred to Milbank by State Auto Mutual
all of the right, title and interest of State Auto Mutual in and
to all assets
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relative to the underwriting operations of State Auto Mutual, due
or that may become due, as evidenced by its books and records at
the close of business on June 30, 1996, not including
investments, accrued investment income, intercompany balances and
bank deposits.
6. PREMIUM COLLECTION AND PAYMENT OF LOSSES:
As of the effective date of this Agreement and pursuant to the
terms of the Amended and Restated Management Agreement dated April 1,
1994, as amended from time to time, which includes as parties, inter
alia Milbank, State Auto Mutual and State Auto P&C, State Auto P&C and
Milbank hereby authorize and empower State Auto Mutual to collect and
receive all premiums and to take charge of, adjust and administer the
payment of all losses with respect to any and all contracts and
policies of insurance previously or thereafter issued by State Auto P&C
and Milbank and to reinsure or terminate all such contracts and
policies, and in all respects to act as though said contracts and
policies were issued by State Auto Mutual. State Auto Mutual agrees to
administer the payment of all losses and loss adjustment expenses in
connection with such contracts and policies. None of the foregoing is
intended to affect or impair the direct obligation of State Auto P&C
and Milbank to their insureds under policies issued by State Auto P&C
and Milbank, respectively.
7. PREMIUM PAYABLE BY STATE AUTO MUTUAL:
(a) STATE AUTO P&C: Commencing with the effective date of this
Agreement, State Auto Mutual hereby agrees to pay to State Auto
P&C its Respective Percentage of the Net Premiums written by the
parties hereto. Similarly, commencing with the effective date of
this Agreement, all losses, loss expenses, underwriting expenses,
and administrative expenses chargeable to underwriting of the
parties hereto, including the policyholder dividends, less all
losses and expenses recovered and recoverable under reinsurance
ceded to reinsurers other than the parties hereto, (except for
catastrophe reinsurance ceded by State Auto Mutual and Milbank to
State Auto P&C pursuant to a Property Catastrophe Overlying
Excess of Loss Reinsurance Contract dated as of July 1, 1996 in
which State Auto P&C provides catastrophe coverage for State Auto
Mutual and Milbank for $100,000,000 of catastrophe losses and
loss expenses in excess of $120,000,000 of such losses and loss
expenses incurred by the Group) (the "State Auto P&C Catastrophe
Assumption Agreement") shall be prorated between the parties on
the basis of the Respective Percentage of each. Accounts shall be
rendered at quarterly intervals and shall be settled within 60
days thereafter.
(b) MILBANK: Commencing with the effective date of this
Agreement, State Auto hereby agrees to pay Milbank its Respective
Percentage of the Net Premiums written by the parties hereto.
Similarly, commencing with the effective date of this Agreement,
all losses, loss expenses, underwriting expenses, and
administrative
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expenses chargeable to underwriting of the parties hereto,
including policyholder dividends, less all losses and expenses
recovered and recoverable under reinsurance ceded to reinsurers
other than the parties hereto, (except for the State Auto P&C
Catastrophe Assumption Agreement) shall be prorated between the
parties on the basis of the Respective Percentage of each.
Accounts shall be rendered at quarterly intervals and shall be
settled within sixty (60) days thereafter.
8. OFFSET: It is understood and agreed that, insofar as is
practicable and consistent with the purposes and intentions of this
Agreement, the obligations of each company under this Agreement to
transfer assets to the other company may, in whole or in part, be
offset against the reciprocal reinsurance obligations of each company
to the other company so that each company shall deliver hereunder only
a net amount of assets required under such offset.
9. GENERAL STATEMENT OF INTENT: It is the purpose and intent of
this Agreement that:
(a) State Auto Mutual shall be liable as a reinsurer to State
Auto P&C and Milbank on the policies and contracts of insurance
of State Auto P&C and Milbank respectively, issued and in force
at 12:01 a.m., EDST, July 1, 1996, or on which there were, at
that time, unsettled claims or losses, and on policies and
contracts thereafter issued by State Auto P&C and Milbank, to the
extent of State Auto Mutual's Respective Percentage.
(b) State Auto P&C shall be liable as a reinsurer to State Auto
Mutual and Milbank on the policies and contracts of insurance of
State Auto Mutual and Milbank respectively, issued and in force
at 12:01 a.m., EDST, July 1, 1996, or on which there were, at
that time, unsettled claims or losses, and on policies and
contracts thereafter issued by State Auto Mutual and Milbank to
the extent of State Auto P&C's Respective Percentage.
(c) Milbank shall be liable as a reinsurer to State Auto Mutual
and State Auto P&C on the policies and contracts of State Auto
Mutual and State Auto P&C respectively, issued and in force at
12:01 a.m., EDST, on July 1, 1996, or on which there were, at
that time, unsettled claims or losses and on policies thereafter
issued by State Auto Mutual or State Auto P&C to the extent of
Milbank's Respective Percentage.
(d) The parties hereto shall, on and after 12:01 a.m., EDST, July
1, 1996, participate on the basis of 55% for State Auto, 35% for
State Auto P&C and 10% for Milbank in all of the underwriting
operations of each of the three parties hereto.
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10. LOSSES EXCLUDED: Notwithstanding any of the foregoing, the
parties hereto understand and agree that this Amended and Restated
Reinsurance Pooling Agreement shall not apply to catastrophe losses and
loss expenses for residential and commercial property to the extent
such losses and loss expenses are covered by the State Auto P&C
Catastrophe Assumption Agreement. Once the aforesaid $100,000,000 of
coverage is exhausted by loss expenses and loss payments on behalf of
any party hereto, under either the State Auto P&C Catastrophe
Assumption Agreement or directly, all parties understand and agree that
catastrophe losses and loss expenses in excess of $220,000,000 shall
once again be ceded and assumed under the terms of this Amended and
Restated Reinsurance Agreement. All premiums attributable to the State
Auto P&C Catastrophe Assumption Agreement are to be paid to State Auto
P&C outside of the Amended and Restated Reinsurance Pooling Agreement.
11. LIABILITIES EXCLUDED: In addition to the liabilities set forth
in paragraphs 2(a), 2(b) and 10 above, this Agreement shall not apply
to the investment operation or liabilities for federal income tax or
other liabilities excluded by this Agreement.
12. "FOLLOW THE FORTUNES": The reinsurance provided by the terms of
this Agreement shall be subject to the same terms and conditions under
which the original insurance was concluded, or which may be or may have
been agreed to during the term of the original insurance contract.
13. METHODS AND PROCEDURES: The president of State Auto Mutual, State
Auto P&C and Milbank, or any officer of any of these companies
designated by said president, shall determine the methods and
procedures, including accounting transactions, by which the terms of
this Agreement shall be performed by and on behalf of the parties
hereto.
14. AMENDMENTS: This Agreement may be modified from time to time, so
as to adapt its provisions to the varying conditions of the business of
the Group, by a mutual agreement in writing of the parties hereto,
subject to ratification by the Board of Directors of each party and
with the approval of the insurance officials from the State of Ohio,
the State of South Carolina, and the State of South Dakota as required
by law.
15. TERM: This Agreement shall remain in full force and
effect until canceled by agreement of the parties or by the giving of
ninety (90) days notice by one of the parties to the other parties and
to the respective domiciliary insurance department of each of the
parties.
16. INTERPRETATION: Wherever required to give the correct meaning
throughout this Agreement, the singular shall be interpreted in the
plural. Clerical errors or errors of involuntary or inadvertent
omission or commission shall not be interpreted as a discharge of
liability on behalf of any of the parties to this contract. Such errors
shall be rectified at the time of discovery or as soon as practicable
thereafter. Caption headings are for convenience only and are not
intended to affect the construction of the terms hereof.
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17. INSOLVENCY: The reinsurance made under this Agreement shall be
payable by the assuming reinsurer on the basis of the liability of the
ceding insurer under the contract or contracts reinsured without
diminution because of the insolvency of the ceding insurer. In the
event of insolvency of the ceding insurer, the liquidator or receiver
or statutory successor of such insurer shall give written notice to the
assuming reinsurer of the pendency of a claim against the insolvent
ceding insurer on the policy or bond reinsured within a reasonable time
after such claim is filed in the insolvency proceeding; that during the
pendency of such claim the assuming reinsurer 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 the ceding insurer or its liquidator or receiver or
statutory successors; that the expense thus incurred by the assuming
reinsurer shall be chargeable, subject to court approval, against the
insolvent ceding insurer as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the
ceding insurer solely as a result of the defense undertaken by the
assuming reinsurer. The reinsurance made effective under this Agreement
shall be payable by the assuming reinsurer to the ceding insurer or to
the liquidator, receiver or statutory successor of the ceding insurer.
18. ARBITRATION: In the event of any dispute hereafter arising with
respect to this Agreement, State Auto Mutual, State Auto P&C, and
Milbank hereby agree that such dispute shall, upon the request of the
one of the parties, be submitted to arbitration. One arbitrator shall
be chosen by each party and those arbitrators shall then select an
umpire who shall hear and decide the issues to be arbitrated. If one
party fails to name an arbitrator within thirty (30) days after receipt
of a written request to do so, the party initiating the arbitration may
choose the arbitrators. The decision of the umpire shall be final and
binding on the parties. Each party shall bear the expense of its
arbitrator and the cost of the umpire shall be shared equally. The
arbitration shall take place at Columbus, Ohio or such other location
upon which the parties may mutually agree.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date and the year first above written.
Attest: STATE AUTOMOBILE MUTUAL
INSURANCE COMPANY
/s/ John R. Lowther By /s/ Robert H. Moone
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Secretary President
STATE AUTO PROPERTY AND CASUALTY
INSURANCE COMPANY
/s/ John R. Lowther By /s/ Robert H. Moone
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Secretary President
MILBANK INSURANCE COMPANY
/s/ John R. Lowther By /s/ Robert H. Moone
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Secretary President