Exhibit 10.1
CATASTROPHE QUOTA SHARE REINSURANCE AGREEMENT
DATED DECEMBER 23, 2002
among
PXRE REINSURANCE COMPANY,
PXRE REINSURANCE LTD.
and
P-1 RE LTD.
TABLE OF CONTENTS
Page
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ARTICLE I DEFINED TERMS; INTERPRETATION OF AGREEMENT..............................................................4
1.1 Definitions...................................................................................4
1.2 Interpretation...............................................................................10
ARTICLE II BUSINESS COVERED......................................................................................11
2.1 Business Covered.............................................................................11
2.2 Premiums.....................................................................................11
2.3 Follow the Fortunes..........................................................................11
2.4 Aggregate Limit..............................................................................11
2.5 Reinsurance Amount...........................................................................13
ARTICLE III SUBPORTFOLIO BLOCK REQUIRED CAPITAL; REQUIRED CAPITAL................................................14
3.1 Timing of Provisional Calculations and Notice................................................14
3.2 Timing of Final Calculations and Notices.....................................................14
3.3 Computation of Subportfolio Block Required Capital...........................................15
3.4 Computation of Required Capital..............................................................15
3.5 Computation of Subportfolio Block Participation Rate.........................................16
3.6 Subportfolio Block Minimum Retained Amount...................................................16
ARTICLE IV PAYMENTS; CALCULATION OF AMOUNTS......................................................................17
4.1 Settlement Dates.............................................................................17
4.2 Cash Call Demand.............................................................................17
4.3 Related Definitions..........................................................................18
4.4 Limited Recourse.............................................................................21
4.5 Indemnity Payments...........................................................................21
4.6 Interest on Late Payments....................................................................21
4.7 Federal Excise Tax...........................................................................21
ARTICLE V [INTENTIONALLY OMITTED]................................................................................21
ARTICLE VI RUN-OFF EXTENSION.....................................................................................22
ARTICLE VII [INTENTIONALLY OMITTED]..............................................................................23
ARTICLE VIII REPORTS TO REINSURER; INQUIRIES BY REINSURER........................................................23
8.1 Reports......................................................................................23
8.2 Access to Records and Audits.................................................................23
8.3 Agreement with Calculations..................................................................24
8.4 Disputed Calculations........................................................................24
8.5 Availability of Information..................................................................24
8.6 Binding Determination; Expenses..............................................................24
8.7 Settlement...................................................................................24
8.8 Content of Notices...........................................................................25
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ARTICLE IX COLLATERAL............................................................................................25
9.1 Security.....................................................................................25
9.2 Collateral Release...........................................................................25
9.3 Final Collateral Release.....................................................................25
9.4 Unauthorized Reinsurance.....................................................................25
9.5 Assignments of Assets........................................................................26
9.6 Settlements..................................................................................26
9.7 Withdrawals from Securities Account and Regulatory Trust.....................................26
9.8 Further Assurances...........................................................................27
9.9 Waivers by Reinsurer.........................................................................28
9.10 No Waiver by Company.........................................................................28
9.11 Expenses.....................................................................................28
ARTICLE X EARLY TERMINATION......................................................................................29
10.1 Voluntary Termination........................................................................29
10.2 Involuntary Termination......................................................................29
10.3 Effectiveness................................................................................30
10.4 Settlement...................................................................................31
ARTICLE XI NOTICES .............................................................................................31
11.1 Notices......................................................................................31
ARTICLE XII ERRORS AND OMISSIONS.................................................................................32
12.1 Errors and Omissions.........................................................................32
ARTICLE XIII OFFSET .............................................................................................32
13.1 Offset.......................................................................................32
ARTICLE XIV ARBITRATION..........................................................................................33
14.1 Binding Arbitration..........................................................................33
14.2 Arbitration Panel............................................................................33
14.3 Expenses.....................................................................................33
14.4 Jurisdiction.................................................................................33
14.5 Limitation...................................................................................34
ARTICLE XV CONFIDENTIALITY.......................................................................................34
15.1 Confidential Information Provided to Reinsurer...............................................34
15.2 Confidential Identities......................................................................34
15.3 Exceptions...................................................................................34
15.4 Compelled Disclosure.........................................................................35
15.5 Injunctions..................................................................................35
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ARTICLE XVI MISCELLANEOUS........................................................................................35
16.1 No Rescission................................................................................35
16.2 Amendments...................................................................................36
16.3 Governing Law................................................................................36
16.4 Insolvency Clause............................................................................36
16.5 Jurisdiction; Service of Process.............................................................36
16.6 GAAP.........................................................................................37
16.7 Currency of Calculation......................................................................37
16.8 Wire Transfers...............................................................................37
16.9 Damage Restriction...........................................................................37
16.10 Headings.....................................................................................37
16.11 Assignment...................................................................................37
16.12 Severability.................................................................................37
16.13 Business Day Convention......................................................................37
16.14 Counterparts.................................................................................37
16.15 Time of the Essence..........................................................................38
SCHEDULES
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Settlement Schedule
Commutation and Collateral Release Schedule
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This CATASTROPHE QUOTA SHARE REINSURANCE AGREEMENT (this "Agreement"),
dated as of the 23rd day of December, 2002, is entered into by and among PXRE
REINSURANCE COMPANY, a Connecticut insurance company ("PRC"), PXRE REINSURANCE
LTD., a Bermuda insurance company (together with PRC, the "Company") and P-1 RE
LTD., a Bermuda exempted Class 3 insurance company (the "Reinsurer").
This Agreement sets forth the terms and conditions under which the
Reinsurer has agreed to provide reinsurance with respect to the Reinsurance
Contracts.
DEFINED TERMS; INTERPRETATION OF AGREEMENT
Definitions. In this Agreement:
"2003 Initial Reinsurance Amount" has the meaning set forth in Section 2.5.
"2003 Reinsurance Amount" has the meaning set forth in Section 2.5.
"2004 Reinsurance Amount" has the meaning set forth in Section 2.5.
"Account Control Agreement" means the Account Control Agreement dated as of the
date hereof among the Company, the Reinsurer and Citibank.
"Aggregate Limit" means any of the Initial Period Aggregate Limit, Final Period
Aggregate Limit, Stub Period Aggregate Limit, Coverage Period Aggregate Limit
and Uninsured Period Aggregate Limit.
"Aggregate Modeled Year Result" has the meaning set forth in Section 3.4.
"Agreement" has the meaning set forth in the preamble to this Agreement.
"Allocated Loss Adjustment Expenses", as used in this Agreement, shall mean the
Company's costs and expenses allocable to specific claims attaching to the
Reinsurance Contracts and that are incurred in the investigation, appraisal,
adjustment, settlement, litigation, defense or appeal of such specific claims,
including statutory penalties, court costs and costs of supersedeas and appeal
bonds, and including:
(a) pre-judgment interest, unless included as part of the award or
judgment;
(b) post-judgment interest; and
(c) legal expenses and costs incurred in connection with coverage
questions and legal actions connected thereto, including
declaratory judgment expense.
Allocated Loss Adjustment Expenses shall not include the Company's office
expenses and salaries of employees of the Company.
"Attachment Period" means any of the following time periods:
Time Period Referred to Herein As
----------- ---------------------
January 1, 2003 through and including December 31, 2003 2003 Attachment Period
January 1, 2004 through and including December 31, 2004 2004 Attachment Period
"Attachment Period Portfolio" means, for each Attachment Period, the portfolio
comprised of such Attachment Period's Property Catastrophe Subportfolio and such
Attachment Period's Specialty Subportfolio. For the avoidance of doubt, the
phrase "2003 Attachment Period Portfolio" means the Attachment Period Portfolio
for the 2003 Attachment Period.
"Attachment Period Portfolio Gain Amount" has the meaning set forth in Section
4.3.
"Attachment Period Portfolio Loss Amount" has the meaning set forth in Section
4.3.
"Auditor Engagement Letter" means the letter agreement dated the date hereof
between the Reinsurer and KPMG LLP.
"Business Day" means a day (other than a Saturday or a Sunday) on which banks
are open for commercial business in Hamilton, Bermuda and in New York, New York,
U.S.A.
"Calculation Date" has the meaning set forth in Section 3.2.
"Capital Report" has the meaning set forth in Section 3.1.
"Cash Call Demand" has the meaning set forth in Section 4.2.
"Cash Call Loss Amount" has the meaning set forth in Section 4.2.
"CATRADER Model" means AIR Worldwide Corporation's CATRADER(R) modeling
software.
"Change of Control" has the meaning set forth in Section 10.1.
"Citibank" means Citibank, N.A.
"Common Shares" means those shares of the share capital of the Reinsurer
designated as Class A Common Shares.
"Collateral" means the Securities Account and all of the cash, investment
property and other Financial Assets and other property held therein.
"Commutation Amount" has the meaning set forth in the Commutation and Collateral
Release Schedule.
"Commutation Charge" has the meaning set forth in Section 6.3.
"Commutation Notice" has the meaning set forth in Section 6.1.
"Company" has the meaning set forth in the preamble to this Agreement.
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"Confidential Identities" has the meaning set forth in Section 15.2.
"Confidential Information" has the meaning set forth in Section 15.4.
"Confidential Information Provided to Reinsurer" has the meaning set forth in
Section 15.1.
"Consented Court" has the meaning set forth in Section 14.4.
"Contract Simulation Result" has the meaning set forth in Section 3.3.
"Coverage Period" has the meaning set forth in Section 2.4.
"Coverage Period Aggregate Limit" has the meaning set forth in Section 2.4.
"Expense Allowance" means an amount equal to $5,820,000 due to the Reinsurer
from the Company.
"Final Excluded Losses" has the meaning set forth in Section 4.3.
"Final Period" has the meaning set forth in Section 2.4.
"Final Period Aggregate Limit" has the meaning set forth in Section 2.4.
"Financial Assets" means, in relation to the Reinsurer, any cash or other assets
credited to a Securities Account at, or otherwise held by, Citibank to be held
upon the terms of the Account Control Agreement and securing the obligations of
the Reinsurer.
"First Attachment Period Result" has the meaning set forth in the Settlement
Schedule.
"GAAP" means generally accepted accounting principles as in effect from time to
time in the United States.
"Impaired Capital Percentage" has the meaning set forth in Section 3.5.
"Indemnity Letter" means the Indemnity Letter, dated December 5, 2002, between
the Reinsurer and Codan Services Limited and Codan Trust Company Limited.
"Independent Accountant" means an independent certified public accountant agreed
upon by the Reinsurer and the Company or, failing such agreement within 30 days
after the Reinsurer has provided notice of a dispute to the Company under
Section 8.3, determined by arbitration in accordance with the provisions of
Article XIV.
"Initial Excluded Losses" has the meaning set forth in Section 4.3.
"Initial Period" has the meaning set forth in Section 2.4.
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"Initial Period Aggregate Limit" has the meaning set forth in Section 2.4.
"Initial Required Capital" means, for each Attachment Period Portfolio, 137% of
the Required Capital for such Attachment Period Portfolio with the Date of
Computation being January 1st of such Attachment Period Portfolio's Attachment
Period.
"Insurance Manager Agreement" means the Insurance Manager Agreement dated the
date hereof between the Reinsurer and Marsh Management Services (Bermuda) Ltd.
"Inuring Reinsurance" has the meaning set forth in Section 4.3.
"Investors" means the holders from time to time of the Common Shares.
"LIBOR Rate" means the rate of interest equal to the rate for U.S. dollar
deposits for a period of three months based on information presented on Telerate
Page 3750 as of 11:00 a.m. London time on the Business Day on which a payment is
due, which shall then be in effect for the succeeding period of time until such
payment is made; provided, however, if the rate described above does not appear
on the Telerate System on any applicable interest determination date, the LIBOR
Rate shall be the rate for deposits in dollars for a three month period on the
Reuters Page "LIBOR01" (or such other page as may replace the LIBOR01 Page on
that service for the purpose of displaying such rates), as of 11:00 a.m. (London
Time), on each day that the LIBOR Rate is determined hereunder. The LIBOR Rate
shall be based on an actual/360 day count basis.
"Master Services Agreement" means the Services Agreement dated the date hereof
between the Reinsurer and Codan Services Limited.
"Model" has the meaning set forth in Section 3.3.
"Modeled Contract" has the meaning set forth in Section 3.3.
"Net Attachment Period Result" has the meaning set forth in the Settlement
Schedule.
"Net Settlement Amount" has the meaning set forth in the Settlement Schedule.
"Noninuring Reinsurance Programs" has the meaning set forth in Section 4.3.
"Obligations to PRC" has the meaning set forth in Section 9.4.
"On-Going Participation Percentage" or "OPP" means, for each Attachment Period
Portfolio, until otherwise adjusted by the delivery of a Commutation Notice for
such Attachment Period Portfolio as provided herein, 100% and thereafter, such
percentage (not less than 0% nor greater than the On-Going Participation
Percentage then in effect for such Attachment Period Portfolio) as specified in
such Commutation Notice.
"P1 Portfolio" means the reinsurance portfolio of the Company constituted by the
Subportfolio Blocks for both Attachment Periods.
"Peak Required Capital" means, for each Attachment Period Portfolio, the
Required Capital for such Attachment Period Portfolio with the Date of
Computation being the July 1st of such Attachment Period Portfolio's Attachment
Period.
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"Person" means any individual, corporation, partnership, limited liability
company, limited liability partnership, trust, unincorporated association, or
other legal entity, and any government or any governmental agency or political
subdivision thereof.
"PRC" means PXRE Reinsurance Company, a Connecticut domiciled Reinsurer.
"PRC Report" has the meaning set forth in Section 9.4.
"Premiums" means premiums earned and reinstatement premiums earned on the
Reinsurance Contracts included in the P1 Portfolio.
"Projected Required Capital" means, for each Attachment Period Portfolio, 142%
of the Required Capital for such Attachment Period Portfolio with the Date of
Computation being January 1st of such Attachment Period Portfolio's Attachment
Period.
"PXT" means PXRE Group Ltd.
"Regulatory Trust" means the collateral trust account established pursuant to
the Regulatory Trust Agreement to allow PRC to take statutory financial
statement credit for the reinsurance provided hereunder, in accordance with the
Connecticut Insurance Code and the New York Insurance Law.
"Regulatory Trust Agreement" means the Regulatory Trust Agreement dated as of
the date hereof among PRC, the Reinsurer and Citibank.
"Reinsurance Contract" means any contract, binder, cover note or slip evidencing
an obligation to provide reinsurance or retrocessional coverage that is included
in the P1 Portfolio, provided, however, that such coverage incepts on or between
January 1, 2003 through July 1, 2003 (with respect to the 2003 Attachment
Period) or on or between January 1, 2004 through July 1, 2004 (with respect to
the 2004 Attachment Period).
"Reinsurer" has the meaning set forth in the preamble to this Agreement.
"Reinsurer Obligations" means all obligations of the Reinsurer to the Company
under this Agreement, the Account Control Agreement and the Regulatory Trust
Agreement.
"Required Capital" has the meaning set forth in Section 3.4.
"Reserves" means, for each Attachment Period Portfolio, the reserves properly
allocable to such Attachment Period Portfolio. Such reserves shall be consistent
with those reflected in the quarterly GAAP financial statements of PXT for the
immediately preceding fiscal quarter; provided, however, that, for purposes of
the January Settlement Dates, such reserves shall be determined based upon a
reasonable estimate of the reserves for the immediately preceding December GAAP
financial statements. For the avoidance of doubt, the parties acknowledge that
Reserves shall include reserves for losses incurred but not reported.
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"Securities Account" means, the securities account established pursuant to the
Account Control Agreement. The Securities Account is a "securities account" as
defined in the Uniform Commercial Code of New York.
"Service Agreements" means the Master Services Agreement, the Insurance Manager
Agreement, the Indemnity Letter, and the Auditor Engagement Letter, each as
defined in the Subscription Agreement.
"Settlement Date" has the meaning set forth in Section 4.1.
"Settlement Date Report" has the meaning set forth in Section 4.1.
"Settlement Table" means a table included in the Settlement Schedule to this
Agreement.
"Stub Period" has the meaning set forth in Section 2.4.
"Stub Required Capital" means, for each Attachment Period Portfolio, the
Required Capital for such Attachment Period Portfolio with the Date of
Computation being April 1, 2004.
"Subportfolio Block" means that group of all Reinsurance Contracts written with
respect to a particular Subportfolio with terms commencing during a particular
Attachment Period. For the avoidance of doubt, there will be four Subportfolio
Blocks: 2003 Attachment Period Specialty Subportfolio, 2004 Attachment Period
Specialty Subportfolio, 2003 Attachment Period Property Catastrophe Subportfolio
and the 2004 Attachment Period Property Catastrophe Subportfolio.
"Subportfolio Block Expenses" has the meaning set forth in Section 4.3.
"Subportfolio Block Losses" has the meaning set forth in Section 4.3.
"Subportfolio Block Minimum Retained Amount" has the meaning set forth in
Section 3.6.
"Subportfolio Block Participation Rate" has the meaning set forth in Section
3.5.
"Subportfolio Block Premiums" has the meaning set forth in Section 4.3.
"Subportfolio Block Required Capital" has the meaning set forth in Section 3.3.
"Subportfolios" mean the following subportfolios of the Company:
(a) "Specialty Subportfolio" consisting of all Reinsurance
Contracts which are classified by the Company as: (i) Aviation
excess of loss reinsurance and retrocessional business, (ii)
Satellite reinsurance and retrocessional business, (iii)
Marine excess of loss reinsurance and retrocessional business,
and (iv) Risk excess of loss reinsurance and retrocessional
business; and
(b) "Property Catastrophe Subportfolio" consisting of all
Reinsurance Contracts which are classified by the Company as:
(i) North American property catastrophe reinsurance or
retrocessional business; (ii) International property
catastrophe reinsurance or retrocessional business; and (iii)
London Market property catastrophe reinsurance or
retrocessional business.
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"Subportfolio Modeled Year Result" has the meaning set forth in Section 3.3.
"Subscription Agreement" means the Subscription and Purchase Agreement dated as
of December 23, 2002 among the Reinsurer and the Investors specified therein,
relating to the sale and purchase of the Common Shares, as amended from time to
time.
"Surplus Event" has the meaning set forth in Section 10.1.
"Stub Period Aggregate Limit" has the meaning set forth in Section 2.4.
"Tail Required Capital" means, for each Attachment Period Portfolio, the
Required Capital for such Attachment Period Portfolio with the Date of
Computation being the first day following the end of such Attachment Period
Portfolio's Attachment Period.
"Transaction Documents" means this Agreement, the Subscription Agreement, the
Account Control Agreement, the Insurance Manager Agreement, the Master Services
Agreement, the Option Agreement, the Indemnity Letter and the Auditor Engagement
Letter.
"Transferred Premium" shall have the meaning set forth in Section 2.2.
"Trustee" means the trustee of the P1 Re Purpose Trust.
"Uninsured Period" has the meaning set forth in Section 2.4.
"Uninsured Period Aggregate Limit" has the meaning set forth in Section 2.4.
1.2 Interpretation.
(a) Any reference in this Agreement to a Section or Article number
refers to a Section or Article of this Agreement unless
otherwise indicated. Any reference in this Agreement to any
document or agreement defined in this Article I shall mean
such document or agreement as originally executed or as
amended or supplemented from time to time with the consent of
the parties hereto. Accounting terms not otherwise defined
herein, have the meanings assigned to them by generally
accepted accounting principles as in effect in the United
States of America, as applied on a consistent basis by the
relevant party.
(b) For the purposes of Article IX hereof only, all terms not
otherwise defined herein (i) relating to any Collateral, any
security interest in any Collateral, the Account Control
Agreement or Citibank as securities intermediary under the
Account Control Agreement and (ii) defined in the Uniform
Commercial Code of New York, shall have the meanings set forth
in such Uniform Commercial Code.
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BUSINESS COVERED
2.1 Business Covered. Subject to the terms and conditions of this
Agreement, Reinsurer hereby reinsures, on a risk attaching basis, the
liability of the Company resulting from losses that arise out of all
Reinsurance Contracts contained in each of the Subportfolio Blocks that
constitute the P1 Portfolio, which Reinsurance Contracts have terms
commencing during an Attachment Period.
2.2 Premiums. The Company shall cede to the Reinsurer its proportionate
share of the Premiums, which proportionate share shall be calculated in
accordance with Article IV. Premiums due to the Reinsurer shall be
retained by the Company on a funds withheld basis, except for an amount
equal to $5,820,000 which shall be transferred by the Company to the
Reinsurer on January 1, 2003 (the "Transferred Premium"), until
settlement in accordance with Article IV.
2.3. Follow the Fortunes. Other than as expressly provided in this
Agreement, all business of the Company reinsured with the Reinsurer
under this Agreement will be subject in all respects to the same terms
and conditions, interpretations, waivers, the exact proportions of
premiums collected and the same modifications, alterations, and
cancellations as the relevant Reinsurance Contracts written by the
Company. Subject to the limits of cover under this Agreement, the
liability of the Reinsurer with respect to the reinsurance provided
hereunder shall follow that of the Company under and in relation to the
relative Reinsurance Contract, including any and all Allocated Loss
Adjustment Expenses incurred directly by the Company in connection with
the litigation, defense and settlement of claims made against the
Company under the relative Reinsurance Contract. The Company shall be
the sole judge as to what constitutes a claim or loss covered under the
Reinsurance Contracts and as to the Company's liability thereunder and
as to the amounts which it shall be proper for the Company to pay
thereunder, and the Reinsurer shall be bound by the judgment of the
Company as to the liability and obligation of the Company under any of
the Reinsurance Contracts.
2.4 Aggregate Limit.
(a) In no event shall the Reinsurer's maximum liability under this
Agreement exceed the assets held in the Securities Account
plus 76% of the aggregate Subportfolio Block Premiums held by
the Company, less any investment income earned on the
Collateral which remains in the Securities Account. The
Reinsurer's liability for losses arising under any Reinsurance
Contract included within the P1 Portfolio shall be determined
on a risk attaching basis; provided, however, the Reinsurer's
aggregate maximum liability for each of the Attachment Period
Portfolios under this Agreement shall be subject to
sublimitations on a loss occurring basis in the amounts set
forth below for each of the specified periods for such
Attachment Period Portfolio:
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Period Period Term Limit Name Aggregate Limit
- ----------------------------------------------------------------------------------------------------------------------
Initial Period First six months of Initial Period Aggregate Initial Required Capital plus 76%
such Attachment Period Limit of the sum of the Subportfolio
Block Premiums for such Attachment
Period for the Attachment Period
Portfolio Reinsurance Contracts in
force during the Initial Period.
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Final Period The first six months Final Period Aggregate Tail Required Capital plus 76% of
beginning as of the end Limit the sum of the Subportfolio Block
of such Attachment Premiums for such Attachment
Period Period for the Attachment Period
Portfolio Reinsurance Contracts in
force after December 31st of such
Attachment Period.
- ----------------------------------------------------------------------------------------------------------------------
Stub Period The period commencing Stub Period Aggregate Stub Required Capital plus 76% of
15 months after the Limit the sum of the Subportfolio Block
beginning of each Premiums for such Attachment
Attachment Period and Period for the Attachment Period
ending at the end of Portfolio Reinsurance Contracts in
the 18th month force after April 1, 2004 of such
following the beginning Attachment Period.
of each Attachment
Period
- ----------------------------------------------------------------------------------------------------------------------
Coverage Period Such Attachment Period Coverage Period Peak Required Capital plus 76% of
and the first six Aggregate Limit the sum of the Subportfolio Block
months beginning as of Premiums for the Attachment Period
the end of such for all Attachment Period
Attachment Period Portfolio Reinsurance Contracts in
force during such Attachment
Period.
- ----------------------------------------------------------------------------------------------------------------------
Uninsured Period With respect to each Uninsured Period $0.
Attachment Period, the Aggregate Limit
period of time
beginning immediately
after the end of 18
month following the
beginning of such
Attachment Period
- ----------------------------------------------------------------------------------------------------------------------
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(b) Solely for the purposes of calculating the aggregate limit
amounts set forth in Section 2.4(a), the Subportfolio Block
Premiums associated with the respective contracts shall be the
full twelve month premiums.
(c) On July 31st of each Attachment Period, the Company shall
calculate the Peak Required Capital for such Attachment Period
and deliver a written notice to the Reinsurer setting forth
the Peak Required Capital for such Attachment Period.
2.5 Reinsurance Amount. The Reinsurance Amount for each Attachment Period
shall be determined in accordance with the following provisions:
(a) "2003 Initial Reinsurance Amount" means $195,000,000.
(b) "2003 Reinsurance Amount" means:
(i) As of February 15, 2003, the lesser of;
(a) The 2003 Initial Reinsurance Amount; or
(b) Projected Required Capital for the 2003
Attachment Period.
(ii) As of July 31, 2003, the least of:
(a) The 2003 Initial Reinsurance Amount;
(b) Projected Required Capital for the 2003
Attachment Period; or
(c) Peak Required Capital (which shall be
measured as of July 31, 2003).
(c) "2004 Reinsurance Amount" means the least of:
(i) The 2003 Reinsurance Amount minus Attachment Period
Portfolio Loss Amount, if any, for the 2003 -----
Attachment Period Portfolio;
(ii) Projected Required Capital for the 2004 Attachment
Period; or
(iii) Peak Required Capital (which shall be measured as of
July 31, 2004, and, if less than (a) or (b), the 2004
Reinsurance Amount shall equal such Peak Required
Capital).
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ARTICLE III
SUBPORTFOLIO BLOCK REQUIRED CAPITAL; REQUIRED CAPITAL
3.1 Timing of Provisional Calculations and Notice.
(a) 2003 Attachment Period. On the date hereof, the Company shall
deliver to the Reinsurer a written notice (the "Capital
Report"), which shall set forth the following with respect to
the 2003 Attachment Period Portfolio:
(i) the projected Subportfolio Block Required Capital for
each Subportfolio;
(ii) the Subportfolio Block Minimum Retained Amount;
(iii) the projected Subportfolio Block Participation Rate;
(iv) the projected Initial Required Capital; and
(v) the projected Peak Required Capital.
(b) 2004 Attachment Period. Not later than November 15, 2003, the
Company shall deliver to the Reinsurer a new Capital Report,
which shall set forth the following with respect to the 2004
Attachment Period Portfolio:
(i) the projected Subportfolio Block Required Capital for
each Subportfolio;
(ii) the Subportfolio Block Minimum Retained Amount;
(iii) the projected Subportfolio Block Participation Rate;
(iv) the projected Initial Required Capital;
(v) the projected Peak Required Capital; and
(vi) the Tail Required Capital for the 2003 Attachment
Period Portfolio.
3.2 Timing of Final Calculations and Notices. Within 45 days following the
inception of each Attachment Period (the date determined, the
"Calculation Date"):
(a) the Company shall, taking into account such Attachment Period
Portfolio Reinsurance Contracts in force as of the Calculation
Date, recalculate and finalize with respect to such Attachment
Period Portfolio (the Date of Computation being the beginning
of such Attachment Period): (i) the Subportfolio Block
Required Capital for each Subportfolio Block, (ii) the
Subportfolio Block Participation Rates for each Subportfolio
Block and (iii) the Required Capital;
(b) the Company shall provide to the Reinsurer a written notice
setting forth the results of the recalculations required
pursuant to Section 3.2(a), based on the same assumptions
underlying the preceding Capital Report with respect to such
Attachment Period Portfolio such report shall also set forth
the Reinsurance Amount; and
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(c) On July 31st of each Attachment Period, the Company shall
deliver a notice finalizing the Reinsurance Amount and Peak
Required Capital for such Attachment Period.
3.3 Computation of Subportfolio Block Required Capital. The "Subportfolio
Block Required Capital" for each Subportfolio Block shall be determined
as follows:
(a) For such Subportfolio Block, as of the Date of Computation,
each Reinsurance Contract in such Subportfolio Block that is
in force on such Date of Computation (each, a "Modeled
Contract") shall be run through, in the case of the Property
Catastrophe Subportfolio, the CATRADER Model or, in the case
of the Specialty Subportfolio, the Company's proprietary model
(collectively, the "Model"). The Model shall be used to
simulate the loss exposure of the Modeled Contact for a
one-year period beginning as of the Date of Computation and
assuming that the Modeled Contract's coverage is in force for
the entire one-year period following the Date of Computation.
Any assumptions to be made with respect to the Model shall be
consistent with the Company's ordinary course of business.
(i) Using appropriate actuarial methodologies, the
Company shall use the Model to generate simulations
of 50,000 years for each Modeled Contract. For each
Modeled Contract, for each year of simulation, the
"Contract Simulation Result" shall be (i) the twelve
month Premium for such Modeled Contract, minus (ii)
modeled losses (if any), plus (iii) applicable
reinstatement premiums (if any), minus (iv) expenses
equal to 24% of twelve month Premium and applicable
reinstatement premiums for such Modeled Contract.
(ii) For each simulated year, the Contract Simulation
Result for each Modeled Contract for such simulated
year shall be summed (each such result, a
"Subportfolio Modeled Year Result").
(iii) The "Subportfolio Block Required Capital" shall be an
amount equal to the 50th worse year in terms of
losses (expressed in U.S. Dollars) of the 50,000
Subportfolio Modeled Year Results.
3.4 Computation of Required Capital. For each Attachment Period Portfolio,
the "Required Capital" as of the Date of Computation shall be
determined as follows:
(a) The Subportfolio Block Required Capital as of the Date of
Computation shall be computed for such Attachment Period's
Property Catastrophe Subportfolio and such Attachment Period's
Specialty Subportfolio solely for purposes of determining the
Subportfolio Modeled Year Results for each of the
Subportfolios (and the actuarial methodologies utilized shall
be appropriate in providing for the determination made
pursuant to paragraph (b) below).
15
(b) For each of the simulated 50,000 years, the "Aggregate Modeled
Year Result" shall equal the aggregate of (a) the Subportfolio
Modeled Year Result for each Subportfolio multiplied by (b)
such Subportfolio's Subportfolio Block Participation Rate.
(c) The Required Capital shall be an amount equal to the 50th
worse year in the terms of losses (expressed in U.S. Dollars)
of the 50,000 Aggregate Modeled Year Results.
3.5 Computation of Subportfolio Block Participation Rate.
(a) "Subportfolio Block Participation Rate" means, for each
Subportfolio Block, as of the beginning of such Subportfolio
Block's Attachment Period, the lesser of:
(i) 65% (or as otherwise mutually agreed), and
(ii) the percentage resulting from dividing:
(a) (i) such Subportfolio Block's Subportfolio
Block Required Capital multiplied by 142%,
less (ii) the Subportfolio Block Minimum
Retained Amount for such Subportfolio Block;
by
(b) such Subportfolio Block's Subportfolio Block
Required Capital multiplied by 142% (in each
case, the Date of Computation being January
1st of the applicable Attachment Period).
(b) Notwithstanding the foregoing, in the 2004 Attachment Period,
if the Subportfolio Block Minimum Retained Amount for such
Subportfolio Block is less than the Subportfolio Block Minimum
Retained Amount for the Subportfolio Block of the same
Subportfolio for 2003 Attachment Period (i.e. the 2004
Attachment Period Property Catastrophe Subportfolio and the
2003 Attachment Period Property Catastrophe Subportfolio), the
Subportfolio Block Participation Rate shall be the lesser of
(unless otherwise mutually agreed) (i) the 2003 Subportfolio
Block's Subportfolio Block Participation Rate as determined
pursuant to (a) above and (ii) the calculation performed in
this paragraph 3.4(a).
(c) On the Calculation Date in 2004, the Company shall evaluate
whether the Reinsurer has sufficient capital to support the
Projected Required Capital for the 2004 Attachment Period. If
the 2004 Reinsurance Amount is less than the Projected
Required Capital for the 2004 Attachment Period, then all
Subportfolio Block Participation Rates for the 2004 Attachment
Period shall be reduced by the Impaired Capital Percentage.
"Impaired Capital Percentage" means the percentage resulting
from dividing (i) the Projected Required Capital for 2004 less
the 2004 Reinsurance Amount, by (ii) the Projected Required
Capital for 2004.
16
3.6 Subportfolio Block Minimum Retained Amount. "Subportfolio Block Minimum
Retained Amount" means, for each Subportfolio Block:
(a) with respect to the 2003 Attachment Period, the dollar amount
for such Subportfolio Block as set forth in the Capital
Report; and
(b) with respect to 2004 Attachment Period, the dollar amounts set
forth in the updated Capital Report, which amounts shall be
determined in the sole discretion of the Company, provided,
however, that, except in the event of a Change of Control or a
Surplus Event (each as defined in Section 10.1 hereof), the
Subportfolio Block Minimum Retained Amounts for the 2004
Attachment Period may not exceed 135% of the Subportfolio
Block Minimum Retained Amounts for the 2003 Attachment Period.
ARTICLE IV
PAYMENTS; CALCULATION OF AMOUNTS
4.1 Settlement Dates. Each Attachment Period Portfolio shall be settled on
the dates (each such date, a "Settlement Date") and in the proportions
set forth on the table included in the Settlement Schedule (the
"Settlement Table"). On each Settlement Date, the Company shall
calculate the results with respect to each Attachment Period Portfolio
subject to settlement on such date and provide the Reinsurer with a
written report setting forth such results (the "Settlement Date
Report"). For the January and March Settlement Dates, the Attachment
Period Portfolio results shall be determined as of the immediately
preceding December 31, and for the August Settlement Date, the
Attachment Period Portfolio results shall be determined as of the
immediately preceding June 30.
(a) If, with respect to any Attachment Period Portfolio such
Settlement Date Report reflects a positive Net Settlement
Amount, then the Company shall pay to the Reinsurer, by
deposit into the Securities Account on such Settlement Date.
(b) If, with respect to any Attachment Period Portfolio, such
Settlement Date Report reflects negative Net Settlement
Amount, then within 5 Business Days following such Settlement
Date, the Company shall be entitled to cause assets to be
withdrawn from the Securities Account and/or the Regulatory
Trust and to utilize and apply such assets to satisfy such
obligation of the Reinsurer to the Company.
(c) The payments due with respect to all Attachment Period
Portfolios settled on the same Settlement Date shall be made
on a net basis.
(d) On the second Settlement Date that occurs for each Attachment
Period Portfolio, the Settlement Date Report provided on such
second Settlement Date shall be accompanied by a certificate
from an Independent Accountant certifying the accuracy of the
calculation of such Attachment Period Portfolio Gain Amount or
Attachment Period Portfolio Loss Amount for such Attachment
Period Portfolio.
17
4.2 Cash Call Demand. On each of July 1, 2003, January 1, 2004, July 1,
2004 and January 1, 2005, if, in the six month period ending on the end
of the month immediately preceding the referenced date, (i) the
aggregate of all loss payments that have been made by the Company (net
of subrogation recoveries received) in such six month period with
respect to the Reinsurance Contracts within the Attachment Period
Portfolio(s) exceed (ii) the aggregate of all premiums collected by the
Company with respect to the Reinsurance Contracts within the Attachment
Period Portfolio(s) in such six month period (the portion of such
excess, which portion is for the account of the Reinsurer, such
determination taking into account the applicable Aggregate Limits for
the Attachment Period Portfolio(s), being the "Cash Call Loss Amount"),
then the Company may provide notice thereof to the Reinsurer setting
forth information with respect to and demanding payment of the Cash
Call Loss Amount (a "Cash Call Demand"). Within 10 Business Days
following the Reinsurer's receipt of such Cash Call Demand, the Company
shall be entitled to cause an amount equal to the Cash Call Loss Amount
to be withdrawn from the Securities Account and/or the Regulatory Trust
and to utilize and apply such assets to satisfy such obligation of the
Reinsurer to the Company. Any such amounts paid by the Reinsurer shall
be taken into account in determining future settlements between the
Company and the Reinsurer in connection with applicable Attachment
Period Portfolio Gain Amounts and Attachment Period Portfolio Loss
Amounts.
4.3 Related Definitions. In this Agreement the following amounts will be
measured as of the end of the month immediately preceding the
referenced date:
(a) "Attachment Period Portfolio Gain Amount" means, with respect
to each Attachment Period Portfolio:
(i) the sum of such Attachment Period Portfolio's
Subportfolio Block Premiums, less
(ii) the sum of such Attachment Period Portfolio's
Subportfolio Block Losses, less
(iii) the 50% of the Transferred Premium (for the
Settlement Dates on January 15, 2004 and January 15,
2005 only), less
(iv) the sum of such Attachment Period Portfolio's
Subportfolio Block Expenses, plus
(v) the 50% of the Expense Allowance (for the Settlement
Dates on January 15, 2004 and January 15, 2005 only);
plus
(vi) the sum of the following:
(a) if a positive number (such number, "Initial
Excluded Losses"), that portion of
Subportfolio Block Losses (inclusive of both
losses and associated Reserves) arising from
losses occurring during the Initial Period
minus the Initial Period Aggregate Limit;
(b) if a positive number (such number ("Final
Excluded Losses"), that portion of
Subportfolio Block Losses (inclusive of both
losses and associated Reserves) arising from
losses occurring during the Final Period
minus the Final Period Aggregate Limit; and
18
(c) if a positive number, that portion of
Subportfolio Block Losses (inclusive of both
losses and associated Reserves) arising from
losses occurring during the Coverage Period
minus the Coverage Period Aggregate Limit
minus the Initial Excluded Loss minus the
Final Excluded Loss. For the avoidance of
doubt, it is the parties' intention that the
Company shall bear all losses incurred in
excess of the applicable aggregate limits.
If the result is zero or a negative number, there is no
Attachment Period Portfolio Gain Amount as of such Settlement
Date.
(b) "Attachment Period Portfolio Loss Amount" means, with respect
to each Attachment Period Portfolio:
(i) the sum of such Attachment Period Portfolio's
Subportfolio Block Premiums, less
(ii) the sum of such Attachment Period Portfolio's
Subportfolio Block Losses, less
(iii) the 50% of the Transferred Premium (for the
Settlement Dates on January 15, 2004 and January 15,
2005 only), less
(iv) the sum of such Attachment Period Portfolio's
Subportfolio Block Losses, Expenses, plus
(v) the 50% of the Expense Allowance (for the Settlement
Dates on January 15, 2004 and January 15, 2005 only),
plus
(vi) the sum of the following:
(a) if a positive number (such number, "Initial
Excluded Losses"), that portion of
Subportfolio Block Losses (inclusive of both
losses and associated Reserves) arising from
losses occurring during the Initial Period
minus the Initial Period Aggregate Limit;
(b) if a positive number (such number "Final
Excluded Losses"), that portion of
Subportfolio Block Losses (inclusive of both
losses and associated Reserves) arising from
losses occurring during the Final Period
minus the Final Period Aggregate Limit; and
(c) if a positive number, that portion of
Subportfolio Block Losses (inclusive of both
losses and associated Reserves) arising from
losses occurring during the Coverage Period
minus the Coverage Period Aggregate Limit
minus the Initial Excluded Loss minus the
Final Excluded Loss. For the avoidance of
doubt, it is the parties intention that the
Company shall bear all losses incurred in
excess of the applicable aggregate limits;
19
(d) that portion of Subportfolio Block Losses
(inclusive of both losses and associated
Reserves) arising from losses occurring
during the Uninsured Period.
(vii) provided, that in no case may the Attachment Period
Portfolio Loss Amount exceed the Attachment Period
Reinsurance Amount.
If the result is zero or a positive number, there is no
Attachment Period Portfolio Loss Amount as of such Settlement
Date.
(c) "Subportfolio Block Premiums" means, with respect to each
Subportfolio Block, the product of:
a. all Premiums earned on Reinsurance Contracts included
in such Subportfolio, times
b. Subportfolio Block Participation Rate applicable to
such Subportfolio Block.
(d) "Subportfolio Block Losses" means, with respect to each
Subportfolio Block, the product of:
a. (i) all loss payments that have been made on Reinsurance
Contracts included in such Subportfolio, net of
recoveries fo subrogation and Inuring Reinsurance,
plus
(ii) all outstanding Reserves, at the time of such
calculation, related to Reinsurance Contracts
included in such Subportfolio, net of recoveries for
subrogation and Inuring Reinsurance,
times
b. Subportfolio Block Participation Rate applicable to
such Subportfolio Block.
"Noninuring Reinsurance Programs" of the Company shall mean
(i) the excess of loss reinsurance programs of the Company
existing at the date hereof and all renewals thereof effected
on terms materially similar to terms existing at the date
hereof, determined in the Company's sole discretion, and (ii)
the Facultative Obligatory Quota Share Reinsurance Agreement
between the Company and Select Re Ltd., taken together, which
retrocessional coverage protection shall be solely for the
account of the Company. In the event the Company should
determine to purchase retrocessional coverage additional to
its Noninuring Reinsurance Programs, the Company shall so
notify the Reinsurer, which may then elect to participate
along with the Company in the purchase of any such additional
loss protection. If the Reinsurer elects to participate in the
purchase of such additional loss protection, the Reinsurer and
Company agree to amend this Agreement to provide for such
purchase, and the payment for such purchase by the Reinsurer
and such additional reinsurance shall be considered "Inuring
Reinsurance."
20
(e) "Subportfolio Block Expenses" means, with respect to each
Subportfolio Block, 24% of Subportfolio Block Premiums.
4.4 Limited Recourse. The Company shall not have any recourse, direct or
indirect, under this Agreement or any of the Transaction Documents or
any certificate or other writing delivered in connection herewith or
therewith against (i) the Reinsurer or any of its assets, except those
assets maintained in the Securities Account and the Regulatory Trust,
(ii) the Trustee in its individual capacity, (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Trustee
in its individual capacity or of Codan Services Limited or of Marsh
Management Services (Bermuda) Limited, except as any such Person may
have expressly agreed (it being understood that the Trustee has no such
obligations in its individual capacity), and (iv) any Investor or any
other owner of a beneficial interest in the Reinsurer, in respect of
the obligations of the Reinsurer under this Agreement or any of the
Transaction Documents.
4.5 Indemnity Payments. If the Reinsurer becomes obligated to provide
indemnification to a party that is providing services to the Reinsurer
pursuant to one of the Service Agreements, and (i) if an action or
inaction by the Company was the direct or indirect cause of the
liability or expense that gave rise to such requirement to provide such
indemnity, then the Company shall pay (or reimburse the Reinsurer for)
the amount of such indemnity, (ii) if an action or inaction by the
Reinsurer that was consented to, approved or directed by the Investors
was the direct or indirect cause of the liability or expense that gave
rise to such requirement to provide such indemnity, then the Reinsurer
shall pay the amount of such indemnity, and (iii) if neither (i) nor
(ii) is applicable, the Company shall pay (or reimburse the Reinsurer
for) one-half of the amount of such indemnity.
4.6 Interest on Late Payments. To the extent that any amount payable by
either party under this Agreement is not paid when due, the party owing
such amount shall pay such amount plus interest at the LIBOR Rate plus
4% from (and including) the date such amount was due hereunder until
(but excluding) the date that such amount is paid.
4.7 Federal Excise Tax. The Company shall bear the responsibility for and
pay to the Internal Revenue Service any United States Federal Excise
Tax which are applicable to Premiums or remittances under this
Agreement to the appropriate authorities.
ARTICLE V
[INTENTIONALLY OMITTED]
21
ARTICLE VI
RUN-OFF EXTENSION
6.1 On each Commutation Date, the Reinsurer shall have the option to cease
participation in both Attachment Period Portfolio's Attachment Period
Portfolio Gain and Attachment Period Portfolio Loss as of, in the case
of the August 15 Commutation Date, the immediately preceding June 30,
and, in the case of the March 31 Commutation Date (as such date may be
accelerated), the immediately preceding December 31 by delivering
notice to the Company to such effect on or prior to such Commutation
Date. Such Commutation Notice shall specify the on-going percentage
interest (the "On-Going Participation Percentage") of the Reinsurer in
the continued development of the Attachment Period Portfolios. No later
than 5 days prior to each Commutation Date, the Company shall deliver
notice to the Reinsurer setting forth the Commutation Amount, if any,
for such Commutation Date and a statement setting forth for each
Attachment Period Portfolio, such Attachment Period Portfolio's
Attachment Period Portfolio Gain, Attachment Period Portfolio Loss, and
Reserves for such immediately preceding June 30 or December 31, as the
case may be. The Company shall include in such notice an explanation as
to how it determined the Commutation Amount, provided, however, that
the Reinsurer shall have no right to contest the validity or
appropriateness of such determination, which shall be the sole
discretion of the Company.
6.2 The Commutation Amount shall be an amount determined in accordance with
the Commutation and Collateral Release Schedule.
6.3 Upon delivery of a Commutation Notice, the Reinsurer shall pay a
"Commutation Charge" determined as follows to the Company:
(a) If the Reinsurer delivers such notice with respect to the
first Commutation Offer Date, the Commutation Charge shall
equal (i) 100% minus the On-Going Participation Percentage,
multiplied by (ii) the Commutation Amount.
(b) If the Reinsurer delivers such notice with respect to the
second Commutation Offer Date, the Commutation Charge shall
equal (i) the On-Going Participation Percentage in effect
prior to such Commutation Date minus the On-Going
Participation Percentage, multiplied by (ii) the Commutation
Amount.
(c) If the Reinsurer delivers such notice with respect to any
Commutation Date after the second Commutation Date, the
Commutation Charge shall be $0.
6.4 On the Commutation Date, the Company shall release from the Collateral
Account to the Reinsurer an amount equal to the balance in the
Collateral Account multiplied by one minus a fraction the numerator of
which is the On-Going Participation Percentage (as adjusted to reflect
the Commutation Notice) and the denominator of which is the On-Going
Participation Percentage for the immediately preceding June 30 or
December 31, as the case may be. The Company shall deduct the
Commutation Charge, if any, from the amount released from the
Collateral Account.
22
ARTICLE VII
[INTENTIONALLY OMITTED]
ARTICLE VIII
REPORTS TO REINSURER; INQUIRIES BY REINSURER
8.1 Reports. In addition to each Settlement Date Report, PRC Report (as
described in Section 9.4) and other reports required herein to be
provided by the Company, the Company shall provide to the Reinsurer:
(a) within 15 days after the end of each calendar month to which
this Agreement applies, a bordereau of treaties authorized
and/or bound within the P1 Portfolio (on a cumulative to date
basis). The Company shall make a good faith effort to identify
all such treaties for which a loss event has occurred as of
the date such bordereau is sent to the Reinsurer. Unless the
Reinsurer notifies the Company of an objection within 30 days
of the Reinsurer's receipt of such bordereau, such bordereau
shall be conclusive as to whether or not a contract is
included in the P1 Portfolio and the allocation of such
contract to a Subportfolio Block, notwithstanding any errors
in the modeling, assumptions or reporting; the Reinsurer,
however, reserves its right to seek redress for wrongful
inclusion, exclusion or allocation of treaties if the Company
has acted with gross negligence or not in good faith;
(b) within 45 days after the end of each calendar quarter to which
this Agreement applies, the Company's estimate of the
Attachment Period Portfolio Gain Amount or Attachment Period
Portfolio Loss Amount with respect to each Attachment Period
Portfolio for the period up to the date of such estimate;
(c) on or prior to the May 31 after the end of each calendar year
to which this Agreement applies, the audited financial
statements of the Company for such calendar year, prepared by
the Company in accordance with applicable United States
statutory accounting principles (with respect to PRC) and
Bermuda statutory accounting principles (with respect to PXRE
Reinsurance Ltd.) and reviewed by the Company's regularly
engaged independent certified public accountant;
(d) on or prior to the April 15 after the end of each calendar
year to which this Agreement applies, a copy of the Annual
Report on Form 10-K filed by PXT with the United States
Securities and Exchange Commission; and
(e) within 60 days after the end of each calendar year to which
this Agreement applies, the information necessary for the
Reinsurer to comply with Section 7(i) of the Subscription
Agreement.
23
8.2 Access to Records and Audits. After receipt of a Settlement Date
Report, Cash Call Demand or audited financial statement of the Company,
the Reinsurer or its authorized representatives shall, at the expense
of the Reinsurer, have the right at any reasonable time and in a
reasonable manner to make inquiries of officers of the Company
responsible therefor regarding, and the right to review, audit and
inspect the books and records of the Company relating to, the P1
Portfolio and the calculations in such reports and the components
thereof and at the expense of the Reinsurer, make copies of the
records, documents and other media, and to discuss the same with the
Company's officers responsible therefor, during normal business hours
of the Company and in a manner that is not disruptive to the operations
in the ordinary course of business of the Company, subject to the
confidentiality provisions set forth in Article XV hereof.
8.3 Agreement with Calculations. The Reinsurer shall be deemed to have
agreed to the calculations set forth in any Settlement Date Report
unless, within 20 Business Days of receipt thereof, the Reinsurer
notifies the Company in writing that the Reinsurer disputes any such
calculations.
8.4 Disputed Calculations. If the Reinsurer gives notice of a dispute to
the Company pursuant to Section 8.3, and if the Reinsurer or its
designated representative and the Company are unable to agree upon such
disputed calculation within 30 days after the Reinsurer has given
notice of such dispute, such dispute shall be determined by an
Independent Accountant; provided, however, that the Reinsurer may defer
submission of such a dispute to the Independent Accountant pending the
completion of an audit pursuant to Section 8.2. For the avoidance of
doubt, such a dispute may relate only to such calculations, and shall
not relate to the accuracy or actuarial certainty of Reserves.
8.5 Availability of Information. The Reinsurer and the Company shall on
request promptly make available to the Independent Accountant, at the
Company's offices, such assistance, documents and information as such
Independent Accountant may require for the purpose of resolving the
dispute and shall use their reasonable efforts to obtain a prompt
resolution of the dispute.
8.6 Binding Determination; Expenses. In each case under this Agreement, the
Independent Accountant shall be deemed to act as an expert and not as
an arbitrator, and its determination shall be conclusive and binding
upon the Reinsurer and the Company. The expenses of any determination
by the Independent Accountant under this Article VIII shall be borne
(i) by the Company if the determination of the Independent Accountant
is that the difference between the disputed calculation as calculated
by the Company and the corresponding calculation as calculated by the
Independent Accountant is an amount that is greater (regardless of
which calculation is higher) than 2% of the disputed Attachment Period
Portfolio Gain Amount or Attachment Period Portfolio Loss Amount in
effect in connection with such calculation, and (ii) by the Reinsurer
if the determination of the Independent Accountant is that such
difference is less than or equal to 2% of the disputed Attachment
Period Portfolio Gain Amount or Attachment Period Portfolio Loss Amount
in effect in connection with such calculation.
24
8.7 Settlement. If as a result of the determination of the Independent
Accountant it is established that an overpayment or an underpayment to
the Reinsurer by the Company or by the Reinsurer to the Company has
occurred, the party which received the overpayment (or made the
underpayment) shall pay the amount of the overpayment or underpayment
as follows:
(a) In the case of an overpayment by the Reinsurer or an
underpayment by the Company, the Company shall pay the amount
of the overpayment or underpayment to the Reinsurer within 5
Business Days of the Independent Accountant's determination,
with interest thereon (from the date of such overpayment or
underpayment) at the LIBOR Rate, and
(b) In the case of an overpayment by the Company or an
underpayment by the Reinsurer, the Reinsurer shall pay the
amount of the overpayment or underpayment to the Company on
the Settlement Date next following the Independent
Accountant's determination (or, if there is no such Settlement
Date, within 5 Business Days of the Independent Accountant's
determination), with interest thereon (from the date of such
overpayment or underpayment) at the LIBOR Rate.
8.8 Content of Notices. All notices to be provided by the Company, setting
forth any payment amounts, shall include the calculations that were
made by the Company hereunder in order to determine such payment
amounts.
ARTICLE IX
COLLATERAL
9.1 Security. The Reinsurer shall enter into the Account Control Agreement
and the Regulatory Trust Agreement and, in connection therewith,
establish a securities account and a collateral trust account,
respectively, for the benefit of the Company, with respect to the
reinsurance provided pursuant to this Agreement. The Reinsurer hereby
grants to the Company, as security for the payment and performance in
full of all Reinsurer Obligations, (i) a security interest in, and
pledges and assigns to the Company, all of the Collateral, and (ii) the
sole beneficial interest in the Regulatory Trust.
9.2 Collateral Release. The Company shall order the release from the
Securities Account of Collateral on the dates and the amounts set forth
in the Commutation and Collateral Release Schedule and as otherwise
expressly provided herein.
9.3 Final Collateral Release. The Company shall order the release of all
assets in the Securities Account and the Regulatory Trust at such time
when all Reinsurer Obligations have been paid in full.
9.4 Unauthorized Reinsurance. The Reinsurer's obligations to PRC shall be
secured by the Regulatory Trust, as more fully described below. The
parties hereto intend that the Regulatory Trust be structured to allow
PRC to reflect on its statutory financial statements a reduction in
liability for the reinsurance ceded by PRC to the Reinsurer pursuant to
this Agreement. At such time when PRC shall first establish on its
books Reserves with respect to the Reinsurance Contracts within the
scope of this Agreement, PRC shall provide to the Reinsurer a report
(the "PRC Report") setting forth the portion of such Reserves which PRC
reasonably believes is for the account of the Reinsurer (such portion
being the "Obligations to PRC"). Within 10 days following the date of
such PRC Report, the Reinsurer shall deposit assets into the Regulatory
Trust in an amount equal to the amount of the Obligations to PRC set
forth in such PRC Report in excess of any funds withheld by PRC
hereunder. Within 30 days after the end of each calendar quarter to
which this Agreement applies, PRC shall provide to the Reinsurer an
updated PRC Report setting forth the updated Obligations to PRC. Within
5 days following the date of each such updated PRC Report the Reinsurer
shall instruct Citibank to:
25
(i) move funds from the Securities Account to the
Regulatory Trust such that the amount of assets in
the Regulatory Trust securing the Obligations to PRC,
after such deposit, is equal to the amount of the
Obligations to PRC; or
(ii) release assets from the Regulatory Trust back to the
Securities Account by such amounts as PRC reasonably
determines (in its sole discretion) are no longer
required to secure the Obligations to PRC; provided,
however, that in no event shall the amount of the
assets held in the Regulatory Trust be less than the
Obligations to PRC in excess of any funds withheld by
PRC hereunder.
At all times during the term of this Agreement, the Reinsurer shall
have on deposit in the Regulatory Trust assets in an amount equal to
the Obligations to PRC that are to be secured by the Regulatory Trust.
9.5 Assignments of Assets. The Reinsurer, prior to depositing assets into
the Securities Account or the Regulatory Trust, shall execute
assignments, endorsements in blank or transfer legal title to Citibank
in its capacity of securities intermediary of the Securities Account or
trustee of the Regulatory Trust, as applicable, of all assets, in order
that the Company, or Citibank upon the direction of the Company, may
whenever necessary negotiate any such assets without consent or
signature from the Reinsurer or any other Person.
9.6 Settlements. All settlements of account between the Company and the
Reinsurer shall be made in cash or its equivalents.
9.7 Withdrawals from Securities Account and Regulatory Trust. The assets in
the Securities Account and the Regulatory Trust may be withdrawn by the
Company at any time, notwithstanding any other provision in this
Agreement, and shall be utilized and applied by the Company or any
successor by operation of law of the Company, including, without
limitation, any liquidator, rehabilitator, receiver or conservator of
the Company, without diminution because of insolvency on the part of
the Company or the Reinsurer, only for the following purposes:
(a) to reimburse the Company for the Reinsurer's share of premiums
returned to counterparties of the Reinsurance Contracts on
account of cancellations of such Reinsurance Contracts if not
otherwise paid by the Reinsurer;
26
(b) to reimburse the Company for the Reinsurer's share of losses
paid by the Company pursuant to the provisions of the
Reinsurance Contracts if not otherwise paid by the Reinsurer;
(c) where the Company has received notification of termination of
the Securities Account or Regulatory Trust, and where any of
the Reinsurer's Obligations under this Agreement remain
unliquidated and undischarged, 10 days prior to such
termination, to deposit funds in a separate account with the
Company in an amount (including, but not limited to, amounts
for Reserves) at least equal to the deduction, for reinsurance
ceded, from the Company's liabilities for Reinsurance
Contracts ceded under this Agreement; and
(d) to pay other amounts due to the Company under this Agreement.
The Company shall promptly return to the Reinsurer any amounts
withdrawn that are in excess of the actual amount required.
9.8 Further Assurances.
(a) The Reinsurer shall do, make, execute and deliver all such
additional and further acts, things, deeds, assurances and
instruments as the Company may reasonably and with specificity
require to perfect, or more completely to vest in and assure
to the Company, its rights under this Article IX or in any of
the Collateral or the assets in the Regulatory Trust,
including, without limitation:
(i) obtaining governmental and other third party consents
and approvals specifically requested by the Company;
and
(ii) taking any actions required by Section 8-106 and/or
Section 9-106 of the Uniform Commercial Code, as
applicable in each relevant jurisdiction, with
respect to the Collateral or giving the Company
"control" (as such term is defined in, respectively,
such Section 8-106 and Section 9-106) of the
Collateral.
(b) The Reinsurer irrevocably authorizes the Company at any time
and from time to time in the sole discretion of the Company,
and appoints the Company as its attorney-in-fact, to act on
behalf of the Reinsurer (i) to execute on behalf of the
Reinsurer as debtor and to file financing statements necessary
or desirable in the Company's sole discretion to perfect and
to maintain the perfection and priority of interest of the
Company in the Securities Account and property therein and
(ii) to file a carbon, photographic or other reproduction of
this Agreement or any financing statement with respect to the
Securities Account and property therein as a financing
statement in such offices as the Company in its sole
discretion deems necessary or desirable to perfect and to
maintain the perfection and priority of the interests of the
Company in the Securities Account and property therein. This
appointment is coupled with an interest and is irrevocable.
27
9.9 Waivers by Reinsurer. The Reinsurer waives demand, notice, protest,
notice of acceptance of this Agreement, notice of credit extended,
Collateral or assets received or delivered or other action taken in
reliance hereon and all other demands and notices of any description.
With respect to the obligations of the Reinsurer hereunder and the
Collateral and the Regulatory Trust, the Reinsurer assents to any
extension or postponement of the time of payment by the Reinsurer or
any other indulgence, to any substitution, exchange or release of or
failure to perfect any security interest in any Collateral, to the
addition or release of any Person primarily or secondarily liable, to
the acceptance of partial payment thereon and the settlement,
compromising or adjusting of any thereof, all in such manner and at
such time or times as the Company may deem advisable.
9.10 No Waiver by Company. All rights and remedies of the Company with
respect to the obligations of the Reinsurer hereunder, the Collateral
or the Regulatory Trust shall be cumulative and may be exercised
singularly, alternatively, successively or concurrently at such time or
at such times as the Company deems expedient. The Company shall not be
deemed to have waived any of its rights upon or under the obligations
of the Reinsurer hereunder, the Collateral or the Regulatory Trust
unless such waiver shall be in writing and signed by the Company. No
delay or omission on the part of the Company in exercising any right
shall operate as a waiver of such right or any other right. A waiver on
any one occasion shall not be construed as a bar to or waiver of any
right on any future occasion. The Company shall not be required to
marshal any present or future collateral security (including but not
limited to the assets in the Regulatory Trust or the Collateral) for,
or other assurances of payment of, the obligations of the Reinsurer
hereunder or any of them or to resort to such collateral security or
other assurances of payment in any particular order, and all of its
rights hereunder and in respect of such collateral security and other
assurances of payment shall be cumulative and in addition to all other
rights, however existing or arising. To the extent that it lawfully
may, the Reinsurer hereby agrees that it will not invoke any law
relating to the marshalling of collateral which might cause delay in or
impede the enforcement of the Company's rights under this Agreement or
under any other instrument or agreement evidencing or securing any
Reinsurer Obligations, and, to the extent that it lawfully may, the
Reinsurer hereby irrevocably waives the benefits of all such laws (but
nothing in this sentence is intended to waive any right of the parties
to engage in any dispute resolution procedure provided for in this
Agreement). The Company agrees that it will not re-hypothecate any of
the assets in the Regulatory Trust or the Collateral to secure
obligations of the Company.
9.11 Expenses. Any and all expenses, including reasonable attorneys' fees
and disbursements, incurred or paid by the Company in protecting,
preserving or enforcing the Company's rights with respect to any of the
Collateral or the Regulatory Trust shall constitute obligations secured
by the Collateral and the Regulatory Trust. Upon the final payment and
satisfaction in full in cash of all of the Reinsurer Obligations and
after making any payments required by Section 9-608(a)(1)(C) and
Section 9-615(a)(3)(A) of the Uniform Commercial Code, any excess shall
be returned to the Reinsurer.
28
ARTICLE X
EARLY TERMINATION
10.1 Voluntary Termination. The Reinsurer may terminate the reinsurance
coverage under this Agreement upon the occurrence of a Change of
Control or Surplus Event, provided, however, that the Reinsurer
provides the Company with at least 10 days' prior written notice of its
intention to terminate. The Company shall provide the Reinsurer with
written notice of a potential Change of Control or Surplus Event no
later than 30 days prior to the occurrence of such event.
"Change of Control" means (i) the acquisition by any "person" (as such
term is used in Sections 13(d) and 14(d) of the United States
Securities and Exchange Act of 1934) directly or indirectly, of
securities of the Company representing 50% or more of the combined
voting power of PXT then outstanding securities; or (ii) approval by
the stockholders of PXT of (A) any merger, sale, consolidation,
amalgamation or similar transaction involving PXT with any other
corporation, other than a merger, consolidation or amalgamation in
which the Company is the surviving entity or a merger, consolidation or
amalgamation which results in the holders of the voting securities of
PXT outstanding immediately prior thereto holding immediately
thereafter securities representing more than 55% of the combined voting
power of the voting securities of PXT or such surviving entity
outstanding immediately after such merger, consolidation or
amalgamation, or (B) any sale or other disposition (in one transaction
or a series of related transactions) of all, or substantially all, of
the assets of PXT.
"Surplus Event" means any public or private sale by PXT or its
affiliates of equity or debt securities that results in an increase of
at least $150 million in the combined statutory capital and surplus of
the Company.
10.2 Involuntary Termination. The Company or the Reinsurer may terminate the
reinsurance coverage under this Agreement by notice to the other party
at any time upon the happening of circumstances set forth in (a) below,
and the party with respect to which the circumstances set forth in (b)
below have not occurred may terminate the reinsurance coverage under
this Agreement by notice to the other party at any time upon the
happening of circumstances set forth in (b) below with respect to such
other party:
(a) any Person having lawful authority over either party and whose
directives or other regulations are binding upon either party
(including, without limitation, an insurance regulator) orders
the Company to cease writing or reinsuring the Reinsurance
Contracts or orders the Reinsurer to cease reinsuring the
Reinsurance Contracts; or
(b) a party commencing any case or other proceeding relating to
such party under any bankruptcy, reorganization, arrangement,
insolvency, conservatorship, receivership, readjustment of
debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect, or if any such case
or other proceeding shall be commenced against a party, and
such party indicates its approval thereof, consent thereto or
acquiescence therein or such case or other proceeding shall
not have been dismissed within ninety (90) days following the
filing thereof, or a party shall make an assignment for the
benefit of creditors or shall petition or apply for the
appointment of a trustee or other custodian, liquidator or
receiver of such party or of any substantial part of the
assets of such party.
29
10.3 Effectiveness.
(a) Any termination of the reinsurance coverage pursuant to
Section 10.1:
(i) shall be effective for the Attachment Period in which
the closing of the transaction causing a Change of
Control or Surplus Event occurs, and every
Reinsurance Contract bound by the Company on or after
the date of the closing of the transaction causing
the Change of Control or Surplus Event, as the case
may be, shall be excluded from such Attachment Period
Portfolio for all purposes herein (and, if necessary,
the Attachment Period Portfolio Loss and Attachment
Period Portfolio Gain Amounts shall be retroactively
adjusted to reflect such exclusion and appropriate
adjusting payments made); and
(ii) shall not affect the obligations of the parties with
respect to:
(a) Reinsurance Contracts bound by the Company
prior to the date of the closing of the
transaction causing the Change of Control or
Surplus Event, nor for any Attachment Period
Portfolio prior to the Attachment Period in
which such closing occurs; and
(b) those obligations which are otherwise
expressly payable hereunder notwithstanding
such termination.
(b) Unless otherwise required by law, any termination of the
reinsurance coverage pursuant to Section 10.2:
(i) shall be effective for the Attachment Period in which
the date of receipt of termination notice by the
non-terminating party occurs, and every Reinsurance
Contract bound by the Company on or after the date of
receipt of notice shall be excluded from such
Attachment Period Portfolio for all purposes herein
(and, if necessary, the Attachment Period Portfolio
Loss and Attachment Period Portfolio Gain Amounts
shall be retroactively adjusted to reflect such
exclusion and appropriate adjusting payments made);
and
(ii) shall not affect the obligations of the parties with
respect to:
(a) Reinsurance Contracts bound by the Company
prior to the date of receipt of such
termination notice by the non-terminating
party, nor for any Attachment Period
Portfolio prior to the Attachment Period in
which such closing occurs; and
30
(b) obligations which are otherwise expressly
payable hereunder notwithstanding such
termination.
10.4 Settlement. If the reinsurance coverage is terminated pursuant to this
Article X, then Settlement shall occur on within 45 days of the
calendar quarter immediately following the one year anniversary of (i)
the closing of the transaction causing the Change of Control or Surplus
Event, in the case of a Voluntary Termination and (ii) receipt of the
notice of termination by the non-terminating party, in the case of an
Involuntary Termination, in both cases in accordance with the
settlement procedures under Article IV, it being understood and agreed
that between the date of the circumstance (as specified in the
foregoing clauses (i) and (ii)) giving rise to any termination and the
date of Settlement as herein provided, all interim Settlements shall be
made consistent with the provisions governing the same, without
diminution or alteration except as may be expressly therein provided.
Notwithstanding the foregoing, in no event shall the provisions of this
Section 10.4 be construed in a way to effectively delay a Settlement
Date from a date on which it would otherwise, in accordance with the
other provisions of this Agreement, have been scheduled to occur. All
Reserves included in any Settlement hereunder shall be consistent with
the Reserves reflected in the Company's GAAP financial statements as of
the end of the immediately preceding calendar quarter. Upon final
settlement hereunder, the Company shall cause the release to the
Reinsurer of any Collateral remaining in the Securities Account.
ARTICLE XI
NOTICES
11.1 Notices. Any notice or information to be given, delivered or provided
pursuant to this Agreement to any of the parties shall be in writing
and be deemed received, served, delivered or provided if they are (i)
delivered by hand, when delivered in person against written receipt,
(ii) by prepaid mail, on the third Business Day after deposit in the
United States or international mail, (iii) by recognized express
courier, on the next day after deposit with such courier or (iv) by
facsimile transmission, on the date of confirmation of receipt, to the
following address or facsimile number:
(a) in the case of the Reinsurer, by copies to:
P-1 Re Ltd.
Clarendon House
2 Church Street
Hamilton HM 12
Bermuda
Attention: The Secretary
31
and
Marsh Management Services (Bermuda) Ltd.
P.O. Box HM 1826
Hamilton HM HX
Bermuda
(b) in the case of the Company, by copies to:
PXRE Reinsurance Company
399 Thornall Street
Edison, NJ 08837
Attn: President
and
PXRE Reinsurance Ltd.
Swan Building
26 Victoria Street
Hamilton HM 12
Bermuda
Attn: President
or to such other address or facsimile number and/or for the attention
of any other individual and/or copied to any other Person designated
pursuant to a written notice provided in accordance with this Article
XI.
ARTICLE XII
ERRORS AND OMISSIONS
12.1 Errors and Omissions. Errors or omissions on the part of the Company or
the Reinsurer shall not invalidate the reinsurance under this
Agreement. However, the Company or the Reinsurer, as the case may be,
shall be obligated to correct any such error or omission promptly after
discovery thereof.
ARTICLE XIII
OFFSET
13.1 Offset. Amounts owing between the Company and the Reinsurer under this
Agreement may be set off against each other, but neither the Company
nor the Reinsurer shall have the right to set off against any amount
owing by that party under this Agreement any amount owed to that party
under any other agreement.
32
ARTICLE XIV
ARBITRATION
14.1 Binding Arbitration. As a condition precedent to any right of action
hereunder (except for the exercise of any rights or remedies available
to the Company in respect of the Collateral or the Regulatory Trust),
any dispute arising out of the interpretation, performance or breach of
this Agreement, including the formation or validity thereof, shall be
determined by binding arbitration. Each party irrevocably submits to
binding arbitration in New York, New York, under the commercial
arbitration rules then in effect of the American Arbitration
Association. The arbitration panel shall consist of three arbitrators,
one to be appointed by the Company, one to be appointed by the
Reinsurer and the third to be appointed by the common agreement of the
two arbitrators appointed by the Company and the Reinsurer; provided,
however, that such submission shall not prejudice or delay the Company
or Citibank in the exercise of any rights or remedies available to
either of them under or in respect of any of the Collateral or the
Regulatory Trust. The accuracy and actuarial certainty of Reserves
shall not be subject to dispute or arbitration hereunder.
14.2 Arbitration Panel. The arbitrators shall hold a hearing in New York,
New York to resolve the issues at which each party may be represented
by counsel. In determining the resolution of any issue, the decision of
a majority of the arbitrators shall control. The disposition by a
majority of the arbitrators shall be final and binding upon the parties
to this Agreement. The arbitrators shall have no power to award
punitive or consequential damages but may award attorneys' fees in
favor of the prevailing party. The arbitrators shall be required to
agree that the identities of the parties and the nature and existence
of the arbitration proceedings shall be kept confidential.
14.3 Expenses. Except as otherwise provided in the arbitrators' award or the
commercial arbitration rules then in effect of the American Arbitration
Association, the reasonable fees and expenses of any such arbitration
shall be borne equally by the parties or as they otherwise may agree.
14.4 Jurisdiction. A judgment on the arbitrators' award may be entered in
any court having jurisdiction over the parties. The parties hereby
consent to the non-exclusive jurisdiction of the United States District
Court located in the Borough of Manhattan, New York, New York, for such
purposes, provided, however, that, if (but only if) such United States
District Court does not have jurisdiction, the parties hereby consent
to the non-exclusive jurisdiction of the courts of the State of New
York in the Borough of Manhattan for such purposes (such United States
District Court or, in the absence of jurisdiction, any such court of
the State of New York, being herein referred to as a "Consented
Court"). Each party irrevocably waives any objection which it may have
at any time to the laying of venue of any suit, action or proceeding
arising out of or relating to the enforcement of any judgment of the
arbitrators brought in a Consented Court, irrevocably waives any claim
that any such suit, action or proceeding brought in such Consented
Court has been brought in an inconvenient forum and further irrevocably
waives the right to object, with respect to such claim, suit, action or
proceeding brought in such Consented Court for the enforcement of any
judgment of the arbitrators, that such Consented Court does not have
jurisdiction over such party.
33
14.5 Limitation. The provisions of this Article XIV shall not apply to any
legal action by the Company against the Reinsurer or an Investor with
respect to their obligations under the confidentiality provisions of
any agreement or applicable law, including without limitation the
provisions of Article XV hereof.
ARTICLE XV
CONFIDENTIALITY
15.1 Confidential Information Provided to Reinsurer. The Reinsurer
acknowledges that the information provided from time to time by the
Company to the Reinsurer in connection with this Agreement is
confidential and proprietary ("Confidential Information Provided to
Reinsurer") to the Company. Accordingly, the Reinsurer agrees that all
Confidential Information Provided to Reinsurer shall be kept
confidential by the Reinsurer and that the Reinsurer shall not disclose
or cause to be disclosed such information to third parties; provided,
however, that Confidential Information Provided to Reinsurer may be
disclosed by the Reinsurer (i) to its advisors who have agreed to be
bound by the terms of this Article XV, (ii) to examiners, auditors and
investigators having regulatory authority over the Reinsurer, (iii) to
each Investor (it being acknowledged that each such Investor will be
bound by the confidentiality provisions of the Subscription Agreement
and any other confidentiality agreement to which it is a party with the
Reinsurer or the Company), (iv) as required by applicable law, and (v)
in circumstances in which the Reinsurer has obtained the Company's
written consent prior to such disclosure. It is acknowledged that any
breach by an Investor of the confidentiality obligations of such
Investor under any agreement with the Company to which such Investor is
a party will be a breach by such Investor but will not be a breach by
the Reinsurer or any other Investor of its obligations under this
Article XV.
15.2 Confidential Identities. The Company agrees that the identity of the
Investors (the "Confidential Identities") is confidential. Accordingly,
the Confidential Identities shall be kept confidential by the Company
and the Company shall not disclose or cause to be disclosed such
Confidential Identities to third parties; provided, however, that the
Confidential Identities may be disclosed by the Company (i) to its
advisors who have agreed to be bound by the terms of this Article XV,
(ii) to examiners, auditors and investigators having regulatory
authority over the Company, (iii) to each Investor and their
representatives, (iv) as required by applicable law, and (v) in
circumstances in which the Company has obtained the written consent of
the applicable Investor prior to such disclosure.
15.3 Exceptions. The term "Confidential Information Provided to Reinsurer,"
as used in this Article XV, shall not include (i) information that is
in the public domain at the time the Confidential Information Provided
to Reinsurer is provided or becomes known hereunder; (ii) information
that becomes part of the public domain through no act or omission of
the Reinsurer or any third party to which the Reinsurer is permitted to
provide Confidential Information Provided to Reinsurer hereunder; or
(iii) information that is disclosed to the Reinsurer by a third party
(other than an Investor or representative of an Investor, unless such
Investor or representative of an Investor has such knowledge
independently of this Agreement), provided, however, that the Reinsurer
does not have actual knowledge that such third party is prohibited from
disclosing such information; (iv) information that the Reinsurer can
demonstrate, to the satisfaction of the Company, was already in its
possession at the time the Confidential Information Provided to
Reinsurer is provided or becomes known hereunder; or (v) information
which the Reinsurer can demonstrate, to the satisfaction of the
Company, is independently developed by the Reinsurer without reference
to, or use of, the Confidential Information Provided to Reinsurer. The
term "Confidential Identities," as used in this Article XV, shall not
include the identity of an Investor if it is in the public domain that
such Person is an Investor at the time the Confidential Identity is
disclosed or becomes known hereunder or if such identity becomes part
of the public domain through no act or omission of the Company or any
third party to which the Company is permitted to disclose the
Confidential Identities hereunder or if such identity is disclosed to
the Company by a third party, provided, however, that the Company does
not have actual knowledge that such third party is prohibited from
disclosing such identity.
34
15.4 Compelled Disclosure. In the event that the Reinsurer or the Company
becomes, on the advice of its own legal counsel, legally compelled
(whether by any subpoena, interrogatory, deposition, request for
documents order, writ or other legal process) to disclose any
Confidential Information Provided to Reinsurer or Confidential
Identities, respectively (Confidential Information Provided to
Reinsurer or Confidential Identities also being referred to herein as
the "Confidential Information"), the Reinsurer or the Company, shall,
if it may lawfully do so, immediately notify the other party hereto of
the receipt of such legal process whereupon such other party may seek
an appropriate protective order or other relief. The Reinsurer or
Company may disclose any Confidential Information in accordance with
such legal process in the event that the other party fails to obtain
any protective order or other relief but shall disclose only that
portion of the Confidential Information which is necessary to comply
with such legal process after taking reasonable steps in an effort to
ensure that the portion of the Confidential Information so disclosed
will be treated confidentially by the party to which it has been so
disclosed.
15.5 Injunctions. Given the sensitive nature of the Confidential
Information, the Reinsurer and Company agree that the other party may
be irreparably damaged by any unauthorized disclosure thereof. The
Reinsurer and Company therefore agree that either of them may enforce
the provisions of this Article XV by legal action against the other,
including injunctive and other equitable relief.
35
ARTICLE XVI
MISCELLANEOUS
16.1 No Rescission. The Reinsurer's obligations under this Agreement (i) are
irrevocable and not subject to rescission, irrespective of the validity
or enforceability of any of the Reinsurance Contracts or the
Subscription Agreement or the validity or value of the Common Shares,
and (ii) shall not be released or discharged other than by payment and
performance hereunder.
16.2 Amendments. This Agreement may not be amended except by a writing
executed by the Reinsurer and the Company. The Reinsurer shall not
make, and the Reinsurer shall use its best efforts to cause others not
to make, any amendment to its Memorandum of Association, Bye-laws or
the Subscription Agreement without the prior written consent of the
Company, such consent to not be unreasonably withheld provided,
however, the Reinsurer shall be entitled to amend its Memorandum of
Association, Bye-laws or the Subscription Agreement without the consent
of the Reinsured to the extent such amendment does not, or will not,
have a material adverse effect on the ability of the Reinsurer to
perform its obligations hereunder.
16.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without reference to
its choice of law principles and not including its insurance regulatory
laws).
16.4 Insolvency Clause. In the event of insolvency of the Company, the
reinsurance under this Agreement 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 Reinsurance
Contracts without diminution because of the insolvency of the Company
except as provided by law or except where a Reinsurance Contract
specifically provides another payee of such reinsurance in the event of
the insolvency of the Company.
16.5 Jurisdiction; Service of Process.
(a) In the event PRC alleges that the Reinsurer has failed to
perform its obligations under this Agreement, the Reinsurer,
at the request of PRC, shall promptly:
(i) submit to the jurisdiction of the arbitration panel
described in Article XIV or of any court of competent
jurisdiction in any state of the United States;
(ii) comply with all requirements necessary to give such
arbitration panel or court jurisdiction; and
(iii) abide by the final decision of such arbitration panel
or court, or any appellate court in the event of an
appeal.
(b) The Reinsurer hereby designates the Insurance Commissioner of
the State of Connecticut as its lawful attorney upon whom may
be served any lawful process in any action, suit or proceeding
instituted by or on behalf of PRC provided, however, that if
PRC makes series of process on the Insurance Commissioner of
the State of Connecticut, it will provide a copy of such
service of process to the Reinsurer in accordance with the
notice requirement of Article XI.
36
(c) This Section 16.5 is not intended to conflict with or
override, and is expressly subject to, the obligation of the
parties to this Agreement to arbitrate certain disputes as
provided in this Agreement.
16.6 GAAP. All calculations made pursuant to this Agreement shall be made in
accordance with GAAP.
16.7 Currency of Calculation. All amounts shall be calculated and payable in
U.S. dollars. All premiums, losses and other amounts originally
expressed in a foreign currency shall be converted to U.S. dollars at
the exchange rate used by the Company in accordance with the books and
records of the Company.
16.8 Wire Transfers. All payments required under this Agreement shall be
made in U.S. dollars by wire transfer in immediately available funds in
accordance with such wire transfer instructions as either party may
from time to time provide to the other in writing at least 10 Business
Days before any such payment is due.
16.9 Damage Restriction. In no event shall any party hereto have the right
to seek or recover punitive or consequential damages hereunder.
16.10 Headings. Headings herein are for convenience of reference and shall
have no effect on the interpretation of this Agreement.
16.11 Assignment. Neither the Reinsurer nor the Company may assign its rights
hereunder without the consent of the other. The Reinsurer shall have
the right to novate and assign its rights and obligations hereunder to
another reinsurer in whole or in part at any time; provided, however,
that such novation and assignment shall be subject to the reinsurer
being acceptable to the Company, in its sole discretion, and such
novation and assignment shall not result in any adverse accounting
treatment to the Company. The novation and assignment shall be subject
to the same terms and provisions as provided in this Agreement.
16.12 Severability. The provisions of this Agreement are severable and if any
one clause or provision hereof shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part
thereof, in such jurisdiction, and shall not in any manner affect such
clause or provision in any other jurisdiction, or any other clause or
provision of this Agreement in any jurisdiction, except where the
severing of any such clause or provision would cause the agreements
herein to fail of their essential purpose.
16.13 Business Day Convention. If any payment under this Agreement is due and
payable on a day which is not a Business Day, or if any notice or
report is required to be given on a day which is not a Business Day,
such payment shall be due and payable or such notice or report shall be
given on the next succeeding Business Day.
37
16.14 Counterparts. This Agreement may be executed in separate counterparts,
and all such counterparts taken together shall constitute one
agreement. A facsimile of an executed Agreement shall have the same
effect as the original Agreement.
16.15 Time of the Essence. Time is of the essence in this Agreement.
[Signatures Follow on Next Page]
38
IN WITNESS WHEREOF, the Company and the Reinsurer have executed this
Catastrophe Quota Share Reinsurance Agreement as of the date first above
written.
PXRE REINSURANCE COMPANY
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
PXRE REINSURANCE LTD.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
P-1 RE LTD.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
39
Settlement Schedule
The table below sets forth the "Net Settlement Amount" for each Attachment
Period Portfolio for each Settlement Date.
- ---------------------------------------------------------------------------------------------------------------------
Attachment 15-Jan-04 15-August-04 15-Jan-05 15-August-05 31-March-06 15-August-06 31-March-07
Period Portfolio
- ---------------------------------------------------------------------------------------------------------------------
2003 NAPR DIP DIP DIP DIP DIP DIP
- ---------------------------------------------------------------------------------------------------------------------
2004 NAPR DIP DIP DIP DIP
- ---------------------------------------------------------------------------------------------------------------------
This table, for the sake of brevity, does not reflect the Settlement Dates after
March 31, 2007(1). A Settlement Date shall occur each August 15 and March 31(1)
thereafter. Each such Settlement Date shall provide for the Net Settlement
Amount being the DIP on such Settlement Date.
- -----------------------------------
"Net Attachment Period Result" or "NAPR" means, for each Attachment Period
Portfolio, for each Settlement Date, the Attachment Period Portfolio Gain minus
the Attachment Period Portfolio Loss for such Attachment Period Portfolio as
calculated for such Settlement Date.
"First Attachment Period Result" or "FAPR" means, for each Attachment Period
Portfolio, the Net Attachment Period Result for such Attachment Period Portfolio
as of its first Settlement Date plus the Delta in Profit for such Attachment
Period Portfolio as of its second Settlement Date.
"Delta in Profit" or "DIP" means, for each Attachment Period Portfolio, for each
Settlement Date after the first Settlement Date, (A) the Net Attachment Period
Result for such Settlement Date minus the Net Attachment Period Result for such
Attachment Period Portfolio as of the immediately preceding Settlement Date
multiplied by (B) the On-Going Participation Percentage for such Attachment
Period Portfolio then in effect.
- --------
(1) or, if earlier, the date upon which PXT files its Annual Report on
Form 10-K with the SEC
A-1
Commutation and Collateral Release Schedule
- ----------------------------------------------------------------------------------------------------------------------
Commutation Date Commutation Amount
- ----------------------------------------------------------------------------------------------------------------------
August, 20, 2005 An amount set by the Company in its sole discretion
- ----------------------------------------------------------------------------------------------------------------------
five days after the March 31, 2006 Settlement Date (as The least of:
such date may be adjusted). (a) an amount equal to 20% of the Reserves allocable to
the P1 Portfolio;
(b) an amount equal to 10% of 2003 Initial Required
Capital; or
(c) an amount determined in the Company's discretion.
- ----------------------------------------------------------------------------------------------------------------------
August 20, 2006 $0
- ----------------------------------------------------------------------------------------------------------------------
five days after the March 31, 2007 Settlement Date (as $0
such date may be adjusted) and each Settlement Date
thereafter.
- ----------------------------------------------------------------------------------------------------------------------
five days after each successive Settlement Date. $0
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Collateral Release Date Amount of Collateral Released
An amount (if positive) equal to:
- ----------------------------------------------------------------------------------------------------------------------
February 15, 2003 2003 Initial Reinsurance Amount minus 2003 Reinsurance
Amount plus any investment income earned on the
Collateral not previously distributed.
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August 15, 2003 2003 Reinsurance Amount (as of 2/15/03) minus 2003
Reinsurance Amount (as of 7/31/03) plus any investment
income earned on the Collateral not previously
distributed.
- ----------------------------------------------------------------------------------------------------------------------
August 15, 2004 FAPR for the 2003 Attachment Period Portfolio plus any
investment income earned on the Collateral not
previously distributed.
- ----------------------------------------------------------------------------------------------------------------------
August 15, 2004 2003 Reinsurance Amount minus ($75 million + the 2004
Reinsurance Amount) plus any investment income earned
on the Collateral not previously distributed.
- ----------------------------------------------------------------------------------------------------------------------
August 15, 2005 FAPR for 2004 Attachment Period Portfolio plus any
investment income earned on the Collateral not
previously distributed.
- ----------------------------------------------------------------------------------------------------------------------
August 15, 2005 The balance in the Collateral Account in excess of
$75,000,000 (or such lesser amount as the Company may
elect in its sole discretion) plus any investment
income earned on the Collateral not previously
distributed.
- ----------------------------------------------------------------------------------------------------------------------
A-2
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March 31, 2006 Settlement Date (as such date Any investment income earned on the Collateral not
may be adjusted). previously distributed, plus the balance in the
Collateral Account in excess of (a) $50,000,000 (or such
lesser amount as the Company may elect in its sole
discretion) multiplied by (b) the OPP in effect following
the immediately preceding Commutation Date.
- ----------------------------------------------------------------------------------------------------------------------
August 15, 2006 Any investment income earned on the Collateral not
previously distributed, plus the balance in the
Collateral Account in excess of (a) $50,000,000 (or
such lesser amount as the Company may elect in its sole
discretion) multiplied by (b) the OPP in effect
following the immediately preceding Commutation Date.
- ----------------------------------------------------------------------------------------------------------------------
March 31, 2007 Settlement Date (as such date Any investment income earned on the Collateral not
may be adjusted) and each August 15 and previously distributed, plus the balance in the
March 31 Settlement Date thereafter. Collateral Account in excess of (a) $25,000,000 (or such
lesser amount as the Company may elect in its sole
discretion) multiplied by (b) the OPP in effect following
the immediately preceding Commutation Date.
- ----------------------------------------------------------------------------------------------------------------------
A-3