EXHIBIT 10(e)
QUOTA SHARE REINSURANCE AGREEMENT
between
21st CENTURY INSRANCE COMPANY
(hereinafter referred to as the "Company")
and
AMERICAN INTERNATIONAL GROUP, INC.,
(hereinafter referred to as the "Reinsurer")
AS AMENDED
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PREAMBLE
This Agreement replaces that certain agreement dated December 16, 1994 and
substitutes American International Insurance Company as Reinsurer for New
Hampshire Insurance Company and further incorporates Letter of Credit
provisions, effective as of January 1, 1995.
The Reinsurer hereby agrees to reinsure the Company in respect of the Company's
net liability under all policies, contracts and binders of insurance (hereafter
referred to as "policies") issued during the term of this Agreement subject to
the following terms and conditions:
ARTICLE I
TERM
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This Agreement shall be effective from 12:01 A.M., pacific standard time,
January 1, 1995 and shall remain continuously in force through December 31,
1999. The Reinsurer has the option to renew this Agreement annually for four
additional years by notifying the Company prior to December 31, 1999 or prior to
the expiration date of any renewal.
ARTICLE II
PARTICIPATION
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The Company shall cede and the Reinsurer shall accept 10% of the Company's net
liability for losses on policies incepting during the term of this Agreement. As
consideration, the Reinsurer shall receive a 10% share of the net written
premiums, less ceding commission as described in Article III, generated by such
policies. In the event the Reinsurer elects to renew this Agreement for annual
periods following December 31, 1999 the participation shall be 8% on the first
renewal, 6% on the second renewal, 4% on the third renewal and 2% on the fourth
renewal.
ARTICLE III
COMMISSION
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The Reinsurer shall allow the Company a commission of 10.8% of the ceded written
premium for policies with effective dates from January 1, 1995 and through
December 31, 1995. For policies with effective dates in each subsequent
underwriting year, the commission shall be equal to the rate of the Company's
incurred underwriting expenses (as recorded in the Company's statutory
statement) to net written premium for the prior calendar year.
ARTICLE IV
REPORTS AND ACCOUNTS
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The Company shall furnish within forty-five days after the close of each
calendar quarter an account reflecting the following separately for each
underwriting year:
A. Net written premium ceded during the quarter (credited).
B. Commission on the ceded premium (debited).
C. Net paid losses (debited).
D. Net paid adjustment expenses (debited).
E. Net outstanding losses.
F. Net unearned premium.
If the balance of A through D is a credit such amount shall be
remitted with the account. If the balance of A through D is a
debit, the Reinsurer shall remit such amount within 15 days of
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receipt of the account. Accounts by line of business shall also
be provided by the Company including the aforementioned
information.
ARTICLE V
DEFINITION
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Underwriting year shall mean all policies with effective dates from 12:01 A.M.,
pacific standard time, January 1st through December 31st of each calendar year.
Net written premium or net losses or net liability shall mean the gross amount
less deductions for all other reinsurance.
CURRENCY
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All premium and loss payments hereunder shall be in United States currency.
ARTICLE VI
ACCESS TO RECORDS
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The Reinsurer or its duly appointed representatives shall have free access at
all reasonable times to such books and records of those Divisions, Departments
and Branch Offices of the Company which are directly involved with the subject
matter business of this Agreement as shall reflect premium and loss transactions
of the Company for the purpose of obtaining any and all information concerning
this Agreement or the subject matter hereof. All non- public information
provided in the course of the inspection shall be kept confidential by the
Reinsurer as against third parties.
ARTICLE VII
INSOLVENCY
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The portion of any risk or obligation assumed by the Reinsurer, when such
portion is ascertained, shall be payable on demand of the Company at the same
time as the Company shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and the
reinsurance shall be payable by the Reinsurer on the basis of the liability of
the Company under the contract or contracts reinsured without diminution because
of the insolvency of the Company. In the event of the insolvency of the Company,
this reinsurance shall be payable directly to the Company, or to its liquidator,
receiver, conservator or statutory successor. Immediately upon demand, on the
basis of the liability of the Company without diminution because of the
insolvency of the Company or because the liquidator, receiver, conservator or
statutory successor of the Company has failed to pay all or a portion of any
claim. It is agreed, however, that the liquidator, receiver, conservator or
statutory successor of the Company shall give written notice to the Reinsurer of
the pendency of a claim against the Company which would involve a possible
liability on the part of the Reinsurer, indicating the policy or bond reinsured,
within a reasonable time after such claim is filed in the conservation or
liquidation proceeding or in the receivership. It is further agreed that during
the pendency of such claim the 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 that it may deem available to the Company
or its liquidator, receiver, conservator, or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to the approval of
the Court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may accrue to
the Company solely as a result of the defense undertaken by the Reinsurer.
ARTICLE VIII
ARBITRATION
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A. All disputes or differences arising out of the interpretation of this
Agreement shall be submitted to the decision of two arbitrators, one to be
chosen by each party, and in the event of the arbitrators failing to agree,
to the decision of an umpire to be chosen by the arbitrators. The
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arbitrators and umpire shall be disinterested active or retired executive
officials of fire or casualty insurance or reinsurance companies or
Underwriters at Lloyd's, London. If either of the parties fails to appoint
an arbitrator within one month after being required by the other party in
writing to do so, or if the arbitrators fail to appoint an umpire within
one month of a request in writing by either of them to do so, such
arbitrator or umpire, as the case may be, shall at the request of either
party be appointed by a Justice of the Supreme Court of the State of New
York.
B. The arbitration proceeding shall take place in the city in which the
Company's Head Office is located. The applicant shall submit its case
within one month after the appointment of the court of arbitration, and the
respondent shall submit its reply within one month after the receipt of the
claim. The arbitrators and umpire are relieved from all judicial formality
and may abstain from following the strict rules of law. They shall settle
any dispute under the Agreement according to an equitable rather than a
strictly legal interpretation of its terms.
C. Their written decision shall be provided to both parties within ninety days
of the close of arbitration and shall be final and not subject to appeal.
D. Each party shall bear the expenses of his arbitrator and shall jointly and
equally share with the other the expenses of the umpire and of the
arbitration.
E. This Article shall survive the termination of this Agreement.
ARTICLE IX
ERRORS AND OMISSIONS
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Any inadvertent delay, omission or error shall not relieve either party hereto
from any liability which would attach to it hereunder if such delay, omission or
error had not been made, provided such delay, omission or error is rectified
immediately upon discovery.
ARTICLE X
LOSS & LOSS ADJUSTMENT EXPENSE
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The Company alone and at its full discretion shall adjust, settle or compromise
all claims and losses. All such adjustments, settlements, and compromises shall
be binding on the Reinsurer in proportion to its participation. The Company
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 payments made and costs and expenses incurred
in connection therewith or in taking legal advice therefor shall be shared by
the Reinsurer proportionately. The Reinsurer shall, on the other hand, benefit
proportionately from all reductions of losses by salvage, compromise or
otherwise.
ARTICLE XI
EXTRA CONTRACTUAL OBLIGATIONS
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This Agreement shall protect the Company where the ultimate net loss includes
any extra contractual obligations. The term "extra contractual obligations" is
defined as those liabilities not covered under any other provision of the
Contract 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 Company 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 the preparation of the defense or in the trail of any action
against its insured or reinsured or in the preparation of prosecution of an
appeal consequent upon such action. The Reinsurer's liability for extra
contractual obligations shall not exceed their participation of the maximum
limit of liability on the policy from which the extra contractual obligation
arises.
The date on which any extra contractual obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original disaster
and/or casualty. However, this Article shall not apply where the loss has been
incurred due to fraud or a member of the Board of Directors or a corporate
officer of the Company 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.
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ARTICLE XII
OFFSET
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Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset any undisputed balance or balances, whether on account
of premiums or on account of losses or otherwise, due from such party to the
other party hereto under this Agreement.
ARTICLE XIII
TERMINATION
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Either party may terminate this Agreement with thirty days' notice in the event
that:
1. One party should at any time become insolvent, or suffer any
impairment of capital, or file a petition in bankruptcy, or go
into liquidation or rehabilitation, or have a receiver appointed,
or be acquired or controlled by any other insurance company or
organization, or
2. Any law or regulation of any Federal or any State or any Local
Government of any jurisdiction in which the Company is doing
business should render illegal the arrangement made herein, or
3. With the agreement of the other party.
In the event of termination, the Reinsurer shall refund to the Company the
applicable unearned premium minus the ceding commission and shall continue to
remain liable for all losses occurring prior to the date of termination.
However, if this Contract shall terminate while a loss occurrence covered
hereunder is in progress, it is agreed that, subject to the other conditions of
this Contract, the Reinsurer is responsible for its proportion of the entire
loss.
ARTICLE XIV
TAX
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In consideration of the terms under which this Agreement is issued, the Company
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 or to the District of Columbia.
ARTICLE XV
LETTER OF CREDIT
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The Reinsurer agrees to provide and maintain in place a Letter of Credit,
acceptable to the Company, for the benefit of the Company equal to its share of
assumed liability which shall include unearned premium reserve, calculated on a
monthly pro rata basis, and outstanding loss and loss adjustment reserve,
including incurred but not reported losses calculated on the basis of the
requirement of the California Department of Insurance and/or other applicable
insurance regulatory agencies.
The initial Letter of Credit shall be provided written 60 days of the first
accounting report submitted to the Reinsurer by the Company in the amount
specified in the preceding paragraph. Subsequent adjustments, when requested by
the Company, shall be made to the Letter of Credit for any subsequent accounts
within 60 days of the submission of such account.
In the event the Letter of Credit and/or requested adjustments are not received
by the due date the Company may withhold amounts due the Reinsurer until such
Letter of Credit is received.
Notwithstanding any other provisions in this agreement the Company may draw on
this Letter of Credit at any time, however only for one or more of the
following:
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1. to reimburse the Company for the Reinsurer's share of premiums
returned to the owners of policies reinsured under the
reinsurance agreement on account of cancellations of such
policies,
2. to reimburse the Company for the Reinsurer's share of losses paid
by the Company under the terms and provisions of the policies
reinsured under the reinsurance agreement,
3. to fund an account with the Company in an amount at least equal
to the deduction, for reinsurance ceded, from the Company's
liabilities for policies ceded under the agreement. Such amount
shall include, but not be limited to, amounts for policy
reserves, claims and losses incurred and unearned premium
reserves, and
4. to pay any other amounts the Company claims are due under the
reinsurance agreement.
ARTICLE XVI
COUNTERPARTS
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This Agreement may be executed in counterparts, each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives.
20TH CENTURY INSURANCE COMPANY
Date: September 13, 1995. By: William L. Mellick Title: President
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AMERICAN INTERNATIONAL INSURANCE COMPANY
Date: 8/8/95 By: J. Ernst Hansen Title: President
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