EXHIBIT 10.6.1.2
ADVERSE DEVELOPMENT
AGREEMENT OF REINSURANCE
between
CGU INSURANCE COMPANY and the
following affiliated companies:
AMERICAN CENTRAL INSURANCE COMPANY
AMERICAN EMPLOYERS' INSURANCE COMPANY
CGU INSURANCE COMPANY OF ILLINOIS
CGU INSURANCE COMPANY OF NEW JERSEY
CGU INSURANCE COMPANY OF NEW YORK
COMMERCIAL UNION INSURANCE COMPANY
COMMERCIAL UNION MIDWEST INSURANCE COMPANY
COMMERCIAL UNION YORK INSURANCE COMPANY
CU HOMELAND INSURANCE COMPANY
CU LLOYD'S OF TEXAS
THE EMPLOYERS' FIRE INSURANCE COMPANY
FARMERS AND MERCHANTS INSURANCE COMPANY
GA INSURANCE COMPANY OF NEW YORK
GENERAL ACCIDENT INSURANCE COMPANY
GENERAL ACCIDENT REINSURANCE COMPANY OF AMERICA
GENERAL ASSURANCE COMPANY
HAWKEYE-SECURITY INSURANCE COMPANY
MIDWESTERN INSURANCE COMPANY
NATIONAL FARMERS UNION PROPERTY AND CASUALTY COMPANY
NATIONAL FARMERS UNION STANDARD INSURANCE COMPANY
NORTH PACIFIC INSURANCE COMPANY
THE NORTHERN ASSURANCE COMPANY OF AMERICA
OREGON AUTOMOBILE INSURANCE COMPANY
POTOMAC INSURANCE COMPANY OF ILLINOIS
TRI-STATE INSURANCE COMPANY
UNITED SECURITY INSURANCE COMPANY
One Beacon Street
Boston, Massachusetts 02108
(herein collectively referred to as the "Company")
and
POTOMAC INSURANCE COMPANY
One Beacon Street
Boston, Massachusetts 02108
(herein referred to as the "Reinsurer")
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In consideration of the promises set forth in this Agreement, the parties agree
as follows:
ARTICLE I - CONDITIONS PRECEDENT
The following are conditions precedent to the Reinsurer's obligations under this
Agreement:
(1) The payment of the Layer One and Layer Two reinsurance premiums
by the Closing Date;
(2) The Stop Loss and Adverse Development Covers on Accident Year
2000 that the Company entered into with CUREPOOL Ltd., Bermuda,
are commuted by the Closing Date; and
(3) The Reference Document is in effect on the Closing Date.
ARTICLE II - SCOPE OF AGREEMENT
The Company shall cede to the Reinsurer the business described in this
Agreement, and the Reinsurer shall accept such business as reinsurance from the
Company. The terms of this Agreement shall determine the rights and obligations
of the Company and the Reinsurer.
ARTICLE III - PARTIES TO THE AGREEMENT
This Agreement is solely between the Company and the Reinsurer. When more than
one Company is named as a party to this Agreement, the first Company named shall
be the agent of the other companies as to all matters pertaining to this
Agreement. Performance of the obligations of each party under this Agreement
shall be rendered solely to the other party. However, if the Company becomes
insolvent, the liability of the Reinsurer shall be modified to the extent set
forth in the article entitled INSOLVENCY OF THE COMPANY. In no instance shall
any insured or reinsured of the Company or any claimant against an insured or
reinsured of the Company have any rights under this Agreement.
ARTICLE IV - BUSINESS COVERED
This Agreement shall apply to Ultimate Net Loss on all classes of business
written by the Company on or before December 31, 2000, with respect to claims
with accident dates December 31, 2000 and prior which are paid on or after the
Closing Date, other than business excluded by the article entitled EXCLUSIONS.
ARTICLE V - TERM
This Agreement will be effective on the Closing Date, and continue in full force
until all obligations and liabilities incurred by each party under the Agreement
are fully performed and discharged, unless sooner terminated by commutation or
by mutual agreement.
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ARTICLE VI - COMPANY RETENTION
The Company Retention will be the amount of Ultimate Net Loss equal to:
(1) The sum of:
(a) The amount of the Company's nominal (undiscounted) loss
and Allocated and Unallocated Loss Adjustment Expense
reserves on the Business Covered recorded on the books of
the Company at the Closing Date, net of any other
reinsurance, deductibles, or self-insured retentions (all
three preceding items, whether collectible or not); and
(b) Any nominal (undiscounted) loss and Allocated and
Unallocated Loss Adjustment Expense reserves on the
Business Covered recorded by White Mountains Insurance
Group, Ltd. in excess of those on the Company's books at
the Closing Date.
Less
(2) $170,000,000.
ARTICLE VII - LIABILITY OF THE REINSURER
(A) Subject to the provisions of paragraph (B) and the article entitled
LAYER TWO SUNSET PROVISION, the Reinsurer's limit of liability for
Ultimate Net Loss on the Business Covered shall in no event exceed:
(1) LAYER ONE
$570,000,000 of Ultimate Net Loss in excess of the Company
Retention.
(2) LAYER TWO
$80,000,000 of Ultimate Net Loss in excess of the sum of (1) the
Company Retention; (2) $570,000,000; and (3) the Corridor Layer.
(B) In addition, subject to the Layer Two sunset provision:
(1) If there are no Significant Negative Results then,
notwithstanding the Layer One Reinsurer's limit of liability of
$570,000,000 as stipulated above, the Reinsurer's limit of
liability for Layer One will in no event exceed that amount of
Layer One liability that will result in an Economic Loss to the
Reinsurer of $28,000,000; and
(2) If there are Significant Negative Results then:
(a) Notwithstanding the Layer One Reinsurer's limit of
liability of $570,000,000, the Reinsurer's limit of
liability for Layer One will
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in no event exceed that amount of Layer One liability that
will result in an Economic Loss to the Reinsurer of
$24,000,000, and
(b) Notwithstanding the Layer Two Reinsurer's limit of
liability of $80,000,000, the Reinsurer's limit of
liability for Layer Two will in no event exceed that
amount of Layer Two liability that will result in an
Economic Loss to the Reinsurer of $4,000,000.
ARTICLE VIII - LAYER TWO SUNSET PROVISION
The maximum amount of Reinsurer's Layer Two liability under the Agreement shall
not exceed the amount of the Company's ceded payments and/or reserves for Layer
Two losses on the Business Covered recorded in its December 31, 2001 financial
statements and reported to the Reinsurer by certified or registered mail on or
before February 15, 2002. The Company may elect to permanently waive in writing
all or a portion of its Layer Two recoveries from the Reinsurer at any time.
ARTICLE IX - DEFINITIONS
(1) COMPANY RETENTION
This term shall mean the amount the Company shall retain for its
own account pursuant to the article entitled COMPANY RETENTION.
(2) CLOSING DATE
This term shall mean the date on which the acquisition of the
Company by White Mountains Insurance Group, Ltd. closes.
(3) REFERENCE DOCUMENT
This term shall mean the reinsurance agreement between the
Reinsurer and National Indemnity Company to cover discontinued
operations and other exposures of the Company and the Reinsurer
signed and dated on March 15, 2001 and attached hereto as
Attachment A.
(4) CORRIDOR LAYER
This term shall mean the additional layer of $550,000,000 of
Ultimate Net Loss in excess of the sum of (1) the Company
Retention and (2) $570,000,000, which the Company shall also
retain net for its own account.
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(5) ULTIMATE NET LOSS
Subject to the Loss Limitation, this term shall mean all
payments by the Company in settlement of claims or losses,
payment of benefits, or satisfaction of judgments or awards,
including Allocated Loss Adjustment Expense, prejudgment
interest which erodes the policy limit, and Unallocated Loss
Adjustment Expense, net of other reinsurance, deductibles, or
self-insured retentions (all three preceding items, whether
collectible or not), salvage, subrogation and all other
recoveries. If the Company becomes insolvent, this definition
shall be modified to the extent set forth in the article
entitled INSOLVENCY OF THE COMPANY.
Notwithstanding the provisions of the article entitled
MANAGEMENT OF CLAIMS AND LOSSES, this term shall also include
100% of Losses in Excess of Policy Limits and 100% of Extra
Contractual Obligations within the constraints of the Loss
Limitation.
(6) ALLOCATED LOSS ADJUSTMENT EXPENSE
This term shall mean expenditures by the Company within the
terms of its policies in the direct defense of claims and in
connection with Losses in Excess of Policy Limits and Extra
Contractual Obligations and as allocated to an individual claim
or loss (other than for office expenses and for the salaries and
expenses of employees of the Company or of any subsidiary or
related or wholly owned company of the Company) made in
connection with the disposition of a claim, loss, or legal
proceeding including investigation, negotiation, and legal
expenses; court costs; prejudgment interest which does not erode
the policy limit; and prejudgment interest.
This term shall also be deemed to include any Declaratory
Judgment Expenses incurred by the Company. The date on which a
Declaratory Judgment Expense is incurred by the Company shall be
deemed, in all circumstances, to be the date of the original
occurrence.
(7) DECLARATORY JUDGMENT EXPENSE
This term shall mean expense incurred by the Company in bringing
or in defending a declaratory judgment action brought to
determine the Company's obligations to its insured with respect
to a specific claim under a policy (or coverage part thereof)
reinsured hereunder.
(8) UNALLOCATED LOSS ADJUSTMENT EXPENSE
This term shall mean any loss adjustment expenses which are not
Allocated Loss Adjustment Expenses. Coverage of Unallocated Loss
Adjustment Expenses hereunder is limited to 5% of the sum of (1)
loss and (2) Allocated Loss Adjustment Expense, net of other
reinsurance, deductibles, or self-insured retentions (all three
preceding items, whether collectible or not), salvage,
subrogation and all other recoveries, paid under this Agreement.
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(9) LOSS IN EXCESS OF POLICY LIMITS AND EXTRA CONTRACTUAL
OBLIGATIONS
(a) The term "Loss in Excess of Policy Limits" shall mean a
payment made to a third party claimant in excess of the
policy limit resulting from an action taken by the insured
or assignee arising from a third party claimant being
awarded an amount in excess of the Company's policy limit
as a result of the Company's failure to settle within the
policy limit or of the Company's alleged or actual
negligence or bad faith in rejecting an offer of
settlement or in the preparation of the defense or in the
trial of any action against its insured or in the
preparation or prosecution of an appeal consequent upon
such action.
(b) The term "Extra Contractual Obligation" shall mean a loss
which is not covered under any other provision of this
Agreement and which arises from the Company's handling of
any claim on the Business Covered.
The date on which a Loss in Excess of Policy Limits or an Extra
Contractual Obligation is incurred by the Company shall be
deemed, in all circumstances, to be the date of the original
occurrence.
There shall be no coverage hereunder where the Loss in Excess of
the Policy Limit or the Extra Contractual Obligation has been
incurred due to the fraud or criminal conduct of a member of the
Board of Directors, a corporate officer of the Company, or any
other employee of the Company, acting individually or
collectively or in collusion with any individual or corporation
or any other organization or party involved in the
investigation, defense or settlement of any claim covered
hereunder.
Any insurance or reinsurance, whether collectible or not, which
indemnifies or protects the Company against claims which are the
subject matter of this definition and any contribution,
subrogation, or recovery shall inure to the benefit of the
Reinsurer and shall be deducted to arrive at the amount of the
Company's Ultimate Net Loss.
(10) LOSS LIMITATION
If there are Significant Negative Results, then for purposes of
calculating Ultimate Net Loss utilized in determining the
Company Retention, the Corridor Layer and the Reinsurer's
liability, the maximum amount of loss, Allocated Loss Adjustment
Expense and Unallocated Loss Adjustment Expense includable with
respect to Non-Reviewed Lines and Losses shall not exceed the
sum of (1) nominal (undiscounted) reserves carried net of
reinsurance (whether collectible or not) on such Non-Reviewed
Lines and Losses at the Closing Date, and (2) $200,000,000.
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However, this Loss Limitation will be waived if the Company has
paid Optional Retrospective Premium of $40,000,000 or greater as
stipulated in the article entitled REINSURANCE PREMIUM.
(11) NON-REVIEWED LINES AND LOSSES
This term shall mean the aggregate liability arising from (i)
reserve lines (as distinguished from accident years) not
reviewed by Tillinghast in its draft report dated January 18,
2001 on Loss and Allocated Loss Adjustment Expenses as of
6/30/00 for the CGU Insurance Group; plus (ii) the following
reserve lines or types of losses: umbrella, Extra Contractual
Obligations, Loss in Excess of Policy Limits, Declaratory
Judgment Expense, pools and associations, asbestos, lead,
environmental and pollution losses, Ohio uninsured motorist
losses, financial guarantees, data damage losses, and
construction defect losses; plus (iii) all losses specifically
listed on Schedule 3 of the Reference Document.
(12) SIGNIFICANT NEGATIVE RESULTS
This term shall mean that the Company records ceded payments
and/or reserves for Layer Two losses on the Business Covered in
its December 31, 2001 financial statements, regardless of
whether the Company subsequently elects to waive all or a
portion of Layer Two recoveries from the Reinsurer.
(13) ECONOMIC LOSS
(a) As respects Layer One:
If there are no Significant Negative Results, this term
shall mean the Net Present Value of Ultimate Net Loss
payments made by Reinsurer in Layer One less the sum of
(i) the Net Present Value of Layer One reinsurance premium
paid and (ii) the Net Present Value of Optional
Retrospective Premium actually paid to the Reinsurer as
stipulated in the article entitled REINSURANCE PREMIUM.
If there are Significant Negative Results at any time
after the Closing Date, this term shall mean the Net
Present Value of Ultimate Net Loss payments made by the
Reinsurer in Layer One less the sum of (i) the Net Present
Value of Layer One reinsurance premium paid and (ii) if
positive, the difference between the Net Present Value of
Optional Retrospective Premium actually paid to the
Reinsurer and $40,000,000.
(b) As respects Layer Two, this term shall mean the Net
Present Value of Ultimate Net Loss payments made by
Reinsurer in Layer Two less the Net Present Value of Layer
Two reinsurance premium paid.
(14) NET PRESENT VALUE
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For purposes of calculating Economic Loss, any payments made by
either the Reinsurer or the Company will be discounted back to
the Closing Date, using the five-year United States Treasury
Bill effective yield at the Closing Date.
ARTICLE X - EXCLUSIONS
This Agreement shall not apply to:
(1) Business covered in the Reference Document;
(2) 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 of 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;
(3) Nuclear risks, as defined in the "Nuclear Incident Exclusion
Clauses - Liability - Reinsurance - U.S.A. and Canada", "Nuclear
Incident Exclusion Clause - Physical Damage - Reinsurance -
U.S.A. and Canada", "Nuclear Incident Exclusion Clauses -
Physical Damage and Liability (Boiler and Machinery) -
Reinsurance - U.S.A., and Canada", and the "Nuclear Energy Risks
Exclusions Clause - Reinsurance - Worldwide excluding U.S.A. and
Canada", attached hereto; and
(4) War risks as follows:
As regards interests which at time of loss or damage are on
shore, no liability shall attach hereto in respect of any loss
or damage which is occasioned by war, invasion, hostilities,
acts of foreign enemies, civil war, rebellion, insurrection,
military or usurped power, or martial law or confiscation by
order of any government or public authority.
This War Exclusion Clause shall not, however, apply to interests
which at time of loss or damage are within the territorial
limits of the United States of America (comprising the fifty
States of the Union and the District of Columbia, its
territories and possessions including the Commonwealth of Puerto
Rico and including Bridges between the U.S.A. and Mexico
provided they are under United States ownership), Canada, St.
Pierre and Miquelon, provided such interests are insured under
policies endorsements or binders containing a standard war or
hostilities or warlike operations exclusion clause.
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Nevertheless, this clause shall not be construed to apply to
riots, strikes, civil commotion, vandalism, malicious damage
including acts committed by the agent of any government, party
or faction engaged in war, hostilities, or other warlike
operation, providing such agent is acting secretly and not in
connection with any operations of military or naval armed forces
in the country where the interest insured is situated.
ARTICLE XI - MANAGEMENT OF CLAIMS AND LOSSES
The Company shall investigate and settle or defend all claims and losses. When
requested by the Reinsurer, the Company shall permit the Reinsurer, at the
expense of the Reinsurer, to be associated with the Company in the defense or
control of any claim, loss, or legal proceeding which involves or is likely to
involve the Reinsurer. All payments of claims or losses by the Company within
the terms and limits of its policies which are within the limits set forth
herein shall be binding on the Reinsurer, subject to the terms of this
Agreement.
However, the Company shall obtain the Reinsurer's prior approval with respect to
(i) any one settlement in excess of $10,000,000 and (ii) every settlement in
excess of $3,000,000, once the aggregate of all settlements in excess of
$10,000,000 made after the Closing Date reaches $40,000,000. In determining
whether the Reinsurer's prior approval is required hereunder, settlements are
calculated net of any other reinsurance, deductibles, or self-insured retentions
(all three preceding items, whether collectible or not). If the Company
permanently waives all of its Layer Two recoveries from the Reinsurer in writing
then no such prior approval of settlements is required.
ARTICLE XII - RECOVERIES
The Company shall pay to or credit the Reinsurer with the Reinsurer's portion of
any recovery obtained from salvage, subrogation, or other insurance.
The Reinsurer shall be subrogated to the rights of the Company to the extent of
its loss payments to the Company. The Company agrees to enforce its rights of
salvage, subrogation, and its rights against insurers.
ARTICLE XIII - OTHER REINSURANCE
Except for any reinsurance on business covered in the Reference Document, the
Company will not enter into or modify reinsurance arrangements on or after
December 31, 2000, which cover accident years 2000 and prior without the
Reinsurer's approval, which shall not be unreasonably withheld. However, the
Reinsurer's approval shall not be necessary for any modification to reinsurance
arrangements covering accident years 2000 and prior, as long as such
modification has absolutely no impact on the Reinsurer's liability and the
Reinsurer's Economic Loss in this Agreement. Further, if there are no
Significant Negative Results, the Reinsurer's approval on reinsurance
arrangements covering accident years 2000 and prior, shall not be required after
December 31, 2007.
To be covered under Layer Two, the Company may not enter any reinsurance
agreement(s) structured to potentially generate individually or in the aggregate
more than $200,000,000 of before-tax 2001 income (under either GAAP or SAP),
without the Reinsurer's approval,
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which shall not be unreasonably withheld. Such agreement(s) include but would
not be limited to loss portfolio transfers, stop loss agreements, and finite
quota share agreements.
If changes are made in the Reference Document, this Agreement shall continue to
apply as if such changes had not been made.
ARTICLE XIV - REINSURANCE PREMIUM
The Company shall pay the following reinsurance premiums to the Reinsurer on the
Closing Date:
(1) A Layer One reinsurance premium of $235,000,000;
(2) A Layer Two reinsurance premium of $40,000,000.
In addition, within 90 days after the close of each calendar quarter after the
Closing Date until the quarter ending December 31, 2002, the Company shall pay
to the Reinsurer additional reinsurance premiums equal to net premiums received
during the quarter for retrospectively rated insurance policies written on the
Business Covered and which is incurred on or after the Closing Date. However,
the Company may elect not to pay any such additional reinsurance premium
("Optional Retrospective Premium") and such election shall affect the
calculation of Economic Loss.
ARTICLE XV - REPORTS AND REMITTANCES
(a) CLAIMS AND LOSSES
Within 30 days after the close of each calendar quarter, the
Company shall render to the Reinsurer a report of the Ultimate
Net Loss paid by the Company during the quarter on the Business
Covered and the Reinsurer's portion, if any, thereof. Any amount
payable by the Reinsurer to the Company shall be paid within 15
business days after receipt of such report.
(b) GENERAL
In addition to the reports required by (a) above, the Company
shall furnish such other information as may be required by the
Reinsurer for the completion of the Reinsurer's quarterly and
annual statements and internal records.
All reports shall be rendered on forms or in format acceptable
to the Company and the Reinsurer.
ARTICLE XVI - OPTION FOR ADDITIONAL CEDED BUSINESS
If there are Significant Negative Results, the Reinsurer or its assignee has the
option, but not the obligation, (the "Reinsurer's Option") to require any or all
of the insurers comprising the Company to enter into a first dollar quota share
reinsurance agreement with the Reinsurer
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or its assignee (the "Quota Share Agreement") of up to 25% covering one or more
of the following lines of business in territories selected by the Reinsurer or
its assignee: Auto Liability, Auto Physical Damage, Homeowners, Other Liability,
Commercial Multiple Peril, Property, Inland Marine, and Umbrella. Such Quota
Share Agreement shall pass risk transfer tests under GAAP and SAP risk transfer
guidelines.
The ceding commission shall equal the ratio of prior year acquisition cost to
written premium corresponding to the included lines of business, territories and
selected companies, but shall be no more than 16% in the aggregate. The
Reinsurer or its assignee has the sole discretion to select the lines of
business, territories, companies and the quota share percentages to assume which
it may prospectively modify on an annual basis, within the parameters of this
provision. The Quota Share Agreement shall terminate on January 1, 2007.
The Reinsurer's Option will expire when and if the Company has paid Optional
Retrospective Premium of $40,000,000 or greater.
ARTICLE XVII - COMMUTATION
The Company may commute this Agreement at December 31, 2007, or any subsequent
December 31 (the date selected being the "Commutation Date"), provided that
there are no Significant Negative Results, by giving 60 days written notice to
the Reinsurer by certified or registered mail. The commutation shall be
effective upon:
(1) Payment of the Experience Balance, as defined below, by the
Reinsurer to the Company on or before the Commutation Date, and
(2) Delivery by the Company to the Reinsurer of a signed release in
a form satisfactory to the Reinsurer, on or before the
Commutation Date.
For purposes of this Article, the Experience Balance shall equal:
(a) The reinsurance premium (including Optional Retrospective
Premium) paid under the Agreement by the Company through the
date of evaluation; less
(b) The Reinsurer's fee of $8,000,000, plus 5% of the highest loss
and Allocated and Unallocated Loss Adjustment Expense ceded at
any point in time in excess of $490,000,000; less
(c) The Reinsurer's payments of Ultimate Net Loss to the Company
under this Agreement through the date of evaluation; plus
(d) The investment income on the amount, if any, by which (a) above
and previous investment income credits exceeds the sum of (b)
and (c) above, based on an effective yield equivalent to one
year United States Treasury bills on the Closing Date, and
annually thereafter.
ARTICLE XVIII - WARRANTY
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The Company warrants that it applies consistent accounting practices for carried
reserves with those carried at the Closing Date.
ARTICLE XIX - ERRORS AND OMISSIONS
The Reinsurer shall not be relieved of liability because of an error or
accidental omission of the Company in reporting any claim or loss or any
business reinsured under this Agreement, provided that the error or omission is
rectified promptly after discovery. If the error or omission relates to the
proper amount of reserves intended to have been recorded at the Closing Date, as
a result of an arithmetic error, the Company Retention shall be recalculated
accordingly.
ARTICLE XX - SPECIAL ACCEPTANCES
Business not within the terms of this Agreement may be submitted to the
Reinsurer for special acceptance and, if accepted by the Reinsurer, shall be
subject to all of the terms of this Agreement except as modified by the special
acceptance.
ARTICLE XXI - RESERVES AND TAXES
The Reinsurer shall maintain the required reserves as to the Reinsurer's portion
of unearned premium, if any, claims, losses, and Allocated and Unallocated Loss
Adjustment Expense.
The Company shall be liable for all premium taxes on premium ceded to the
Reinsurer under this Agreement. If the Reinsurer is obligated to pay any premium
taxes on this premium, the Company shall reimburse the Reinsurer; however, the
Company shall not be required to pay taxes twice on the same premium.
ARTICLE XXII - OFFSET
The Company or the Reinsurer may offset any balance, whether on account of
premium, commission, claims or losses, Allocated and Unallocated Loss Adjustment
Expense, salvage, or otherwise, due from one party to the other under this
Agreement or under any other agreement heretofore or hereafter entered into
between the Company and the Reinsurer.
ARTICLE XXIII - INSPECTION OF RECORDS
The Company shall allow the Reinsurer or its assignee to inspect, at reasonable
times, the records of the Company relevant to the business reinsured under this
Agreement, including the Company's files concerning claims, losses, or legal
proceedings which involve or are likely to involve the Reinsurer.
ARTICLE XXIV - ARBITRATION
All unresolved differences of opinion between the Company and the Reinsurer or
its assignee relating to this Agreement, including its formation and validity,
shall be submitted
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to arbitration consisting of one arbitrator chosen by the Company, one
arbitrator chosen by the Reinsurer or its assignee, and a third arbitrator
chosen by the first two arbitrators.
The party demanding arbitration shall communicate its demand for arbitration to
the other party by registered or certified mail, identifying the nature of the
dispute and the name of its arbitrator, and the other party shall then be bound
to name its arbitrator within 30 days after receipt of the demand.
Failure or refusal of the other party to so name its arbitrator shall empower
the demanding party to name the second arbitrator. If the first two arbitrators
are unable to agree upon a third arbitrator after the second arbitrator is
named, each arbitrator shall name three candidates, two of whom shall be
declined by the other arbitrator, and the choice shall be made between the two
remaining candidates by drawing lots. The arbitrators shall be impartial and
shall be active or retired officers of property or casualty insurance or
reinsurance companies.
The arbitrators shall adopt their own rules and procedures and are relieved from
judicial formalities. In addition to considering the rules of law and the
customs and practices of the insurance and reinsurance business, the arbitrators
shall make their award with a view to effecting the intent of this Agreement.
The decision of the majority of the arbitrators shall be in writing and shall be
final and binding upon the parties.
Each party shall bear the cost of its own arbitrator and shall jointly and
equally bear with the other party the expense of the third arbitrator and other
costs of the arbitration. In the event both arbitrators are chosen by one party,
the fees of all arbitrators shall be equally divided between the parties.
The arbitration shall be held at the times and places agreed upon by the
arbitrators.
ARTICLE XXV - INSOLVENCY OF THE COMPANY
In the event of the insolvency of the Company, the reinsurance proceeds will be
paid to the Company or the liquidator, with reasonable provision for
verification, on the basis of the claim allowed in the insolvency proceeding
without diminution by reason of the inability of the Company to pay all or part
of the claim, except as otherwise specified in the statutes of any state having
jurisdiction of the insolvency proceedings or except where the Agreement, or
other written agreement, specifically provides another payee of such reinsurance
in the event of insolvency.
The Reinsurer shall be given written notice of the pendency of each claim
against the Company on the policy(ies) reinsured hereunder within a reasonable
time after such claim is filed in the insolvency proceedings. The Reinsurer
shall have the right to investigate each such claim and to interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defenses
which it may deem available to the Company or its liquidator. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court approval,
against the insolvent 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.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate,
this day of , 200__,
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CGU INSURANCE COMPANY
and its affiliated companies
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Attest:
-----------------------------------
and this day of , 200__.
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POTOMAC INSURANCE COMPANY
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Attest:
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TABLE OF CONTENTS
to
ADVERSE DEVELOPMENT
AGREEMENT OF REINSURANCE
between
CGU INSURANCE COMPANY
and
POTOMAC INSURANCE COMPANY
PAGE
Article I CONDITIONS PRECEDENT..................................................................2
Article II SCOPE OF AGREEMENT....................................................................2
Article III PARTIES TO THE AGREEMENT..............................................................2
Article IV BUSINESS COVERED......................................................................2
Article V TERM..................................................................................2
Article VI COMPANY RETENTION.....................................................................3
Article VII LIABILITY OF THE REINSURER............................................................3
Article VIII LAYER TWO SUNSET PROVISION............................................................4
Article IX DEFINITIONS...........................................................................4
Article X EXCLUSIONS............................................................................8
Article XI MANAGEMENT OF CLAIMS AND LOSSES.......................................................9
Article XII RECOVERIES............................................................................9
Article XIII OTHER REINSURANCE.....................................................................9
Article XIV REINSURANCE PREMIUM..................................................................10
Article XV REPORTS AND REMITTANCES..............................................................10
Article XVI OPTION FOR ADDITIONAL CEDED BUSINESS.................................................11
Article XVII COMMUTATION..........................................................................11
Article XVIII WARRANTY.............................................................................12
Article XIX ERRORS AND OMISSIONS.................................................................12
Article XX SPECIAL ACCEPTANCES..................................................................12
Article XXI RESERVES AND TAXES...................................................................12
Article XXII OFFSET...............................................................................12
Article XXIII INSPECTION OF RECORDS................................................................13
Article XXIV ARBITRATION..........................................................................13
Article XXV INSOLVENCY OF THE COMPANY............................................................13
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