Exhibit 99.1
Summary of Indicative Terms and Conditions
Underwriting and Reinsurance Arrangement
Chubb Re
Trenwick America Reinsurance Corporation
Underwriting Agreement
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Parties Chubb Re, Inc. ("Chubb Re") and
Trenwick America Reinsurance
Corporation ("Underwriting Manager").
Term Commences on November 1, 2002 and
expires on December 31, 2003. Both
parties can cancel the Underwriting
Agreement at any time.
Services Provided Subject to Chubb Re's approval,
Underwriting Manager shall cause all of
its U.S. reinsurance business both new
and renewing during the Term of the
Underwriting Agreement to be
underwritten on behalf of Chubb Re.
Chubb Re's approval will not be
unreasonably withheld. Any such
reinsurance business declined by Chubb
Re may be underwritten by the
Underwriting Manager with the
Underwriting Manager as the Reinsurer.
Underwriting authority may be cancelled
by Chubb Re for any change in
Underwriting Manager's key management.
Underwriting Manager will not
underwrite on behalf of any third party
during the term of the Underwriting
Agreement without the prior written
approval of Chubb Re.
Chubb Re shall have no obligations or
liability regarding business
underwritten by Underwriting Manager on
behalf of a third party or where
Underwriting Manager is the reinsurer.
Maximum Amount of Underwriting Manager will be permitted
Premiums to underwrite business on behalf of
Chubb Re during the Term of the
Underwriting Agreement having gross
written premiums (based upon original
estimates provided by ceding companies)
of up to $ 400 million.
Expense Reimbursement Underwriting Manager shall be entitled
to receive a monthly expense
reimbursement equal to 2.0% of the
gross written premiums underwritten on
behalf of Chubb Re pursuant to the
Underwriting Agreement collected during
the applicable month. The payment of
66-2/3% of the Expense Reimbursement
shall be made by Chubb Re as if paid
from the Experience Account and the
payment of the remaining 33-1/3% of the
Expense Reimbursement shall be made
directly by Chubb Re to the
Underwriting Manager. The total Expense
Reimbursement payable to Underwriting
Manager shall be subject to a cap of
$6.5 million. The minimum total Expense
Reimbursement shall be $5.5 million.
Notwithstanding the foregoing, should
either party choose to cancel the
Underwriting Agreement before December
31, 2003, the minimum Expense
Reimbursement shall be prorated based
upon the proportion of time the
Underwriting Agreement was in effect.
Fronting Fee For purposes of calculating the
Experience Account, the Fronting Fee
will be the greater of 5% of gross
written premiums underwritten on behalf
of Chubb Re or $15 million.
For purposes of calculating the
attachment point for the Stop Loss
Reinsurance Agreement and the Override,
the Fronting Fee will be 5% of gross
written premiums underwritten on behalf
of Chubb Re.
A deposit fee of $5 million will be
paid to Chubb Re at signing with
additional payments of $5 million on
1/1/03 and $1.257 million on 3/31/03,
6/30/03, 9/30/03 and 12/31/03. The
actual Fronting Fee retained by Chubb
Re will be the greater of million or 5%
on 66-2/3% of the gross written
premiums underwritten on behalf of
Chubb Re pursuant to the Underwriting
Agreement
In the event that the Underwriting
Agreement is terminated by Underwriting
Manager or Chubb Re before January 1,
2003, the Fronting Fee shall be the
greater of (a) 5% of the gross written
premiums underwritten on behalf of
Chubb Re or (b) $5 million.
In the event that the Underwriting
Agreement is terminated by Underwriting
Manager or Chubb Re between January 1,
2003 and December 31, 2003, the
Fronting Fee shall be the greater of
(a) 5% of the gross written premiums
underwritten on behalf of Chubb Re or
(b) $15 million.
Experience Account A notional Experience Account shall be
established equal to the following:
Premiums collected (net of ceding commission,
reinsurance brokerage)
plus Investment credit on Experience Account
balances
plus Recoverable reinsurance payments (including
payments under the Stop Loss Reinsurance
Agreement)
minus Paid losses and L.A.E
minus Expense Reimbursement
minus Fronting Fee
minus Reinsurance premiums paid (net of ceding
commission)
For purposes of calculating the
Experience Account, ceding commission
includes profit commission and sliding
scale payments to ceding companies.
The Experience Account will earn an
investment credit at a rate equal to
the three year U.S. Treasury Bill as of
the close of business on the first
business day of the applicable time
period. The investment credit will be
calculated each March 31, June 30,
September 30 and December 31 and shall
be based upon the average daily balance
in the Experience Account during the
applicable three month period.
Profit Commission 66-2/3% of the Experience
Account;However, for purposes of
calculating the Profit Commission,
Experience Account shall include the
following after "minus Reinsurance
Premiums paid (net of ceding
commission)"above: "minus Unpaid Losses
and L.A.E. (case, IBNR and additional
case reserves).
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Profit Commission Payment March 31, 2006 25% of cumulative indicated Profit
Schedule Commission
September 30, 2006 50% of cumulative indicated Profit
Commission, less prior Profit
Commission paid
March 31, 2007 75% of cumulative indicated Profit
Commission, less prior Profit
Commission paid
September 30, 2007 100% of cumulative indicated Profit
Commission, less prior Profit
Commission paid
Profit Commission shall be adjusted
semi-annually thereafter, taking into
account prior Profit Commission
payments, until expiration of
underlying liabilities or mutual
agreement.
Premium Processing Chubb Re shall process all premiums
received in connection with the
Underwriting Agreement. All premiums
received shall be in the name of Chubb
Re, on behalf of Federal Insurance
Company and shall not be at any time
deposited into any account of
Underwriting Manager, any affiliate
thereof or any third party.
Claim Processing Chubb Re and Underwriting Manager shall
jointly adjust and settle any claim
arising under the business underwritten
pursuant to the Underwriting Agreement;
provided that Chubb Re shall have final
authority with respect to each such
claim or settlement.
Stop Loss Reinsurance Agreement
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Parties Federal Insurance Company ("Chubb Re")
and Trenwick America Reinsurance
Corporation ("Reinsurer").
Term Covers treaties incepting between
November 1, 2002 and December 31, 2003.
Coverage 100% quota share of the paid
losses,L.A.E. and unpaid losses (case
and IBNR including additional case
reserves) on all business underwritten
on behalf of Chubb Re pursuant to the
Underwriting Agreement in excess of the
following net amount related to such
business:
Attachment point
Premiums collected (net of ceding commission
and reinsurance brokerage)
plus Recoverable reinsurance payments (including
payments under the Stop Loss Reinsurance
Agreement)
minus Expense Reimbursement
minus Reinsurance premiums paid (net of ceding
commission)
minus Profit Commission paid to Underwriting Manager
minus Fronting Fee
For purposes of determining the
reinsurance agreement attachment point,
ceding commission includes profit
commission and sliding scale payments
to ceding companies.
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Override Chubb Re will pay to Reinsurer a 30%
override on 33-1/3% of the amount by
which (a) 90% of premiums collected
less the ceding commission, reinsurance
brokerage and Fronting Fee, plus
investment income on Experience Account
balances plus recoverable reinsurance
payments (including payments under the
Stop Loss Reinsurance Agreement) exceed
(b) the sum of paid losses plus unpaid
losses (case and IBNR) plus Expense
Reimbursement plus reinsurance premiums
paid (net of ceding commission).
For purposes of calculating the
Override, ceding commission includes
profit commission and sliding scale
payments to ceding companies.
Override shall be first paid on
September 30, 2007 and adjusted
semi-annually thereafter, taking into
account prior Profit Commission
payments, until expiration of
underlying liabilities or mutual
agreement.
Collateral As a condition precedent to entering
into the Stop Loss Reinsurance
Agreement, Reinsurer shall make a
security deposit of $50 million (the
"Security Deposit") at signing securing
the payment for reserves in respect of
unearned premium, known outstanding
losses (including additional case
reserves) and expenses that have been
reported to Reinsurer, losses and
expenses paid by Chubb Re but not
recovered from Reinsurer, return profit
commission, plus reserves for losses
and expenses incurred but not reported
and any other amounts due to Chubb Re
under the Stop Loss Reinsurance
Agreement or the Underwriting Agreement
("Reinsurer's Obligations"). If
Reinsurer fails to provide such
Security Deposit upon signing the Stop
Loss Reinsurance Agreement, then the
Stop Loss Reinsurance Agreement and the
Underwriting Agreement shall be void ab
initio. Additionally, Reinsurer will
pay additional amounts to Chubb Re for
the Security Deposit, so that the
Security Deposit is equal to the
greater of $50,000,000 or the amount of
the Reinsurer's Obligations, subject to
the reductions below. Notwithstanding
anything to the contrary, given the
long term nature of the Stop Loss
Reinsurance Agreement, the amount of
the cash deposit may be greater than
the Reinsurer's obligations under the
Stop Loss Reinsurance Agreement.
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Collateral (Continued) The Security Deposit will earn an
investment credit at a rate equal to
the three year U.S. Treasury Bill as of
the close of business on the first
business day of the applicable time
period. The investment credit will be
calculated each March 31, June 30,
September 30 and December 31 and shall
be based upon the average daily balance
of the Security Deposit during the
applicable three month period.
Any amount of the Security Deposit
(plus the amount of accrued investment
credits on the Security Deposit) in
excess of the amount required under the
following schedule shall be returned to
Reinsurer provided that the Reinsurer
has an A.M. Best rating of A- or
better:
March 31, 2006 The greater of (a) $40 million or (b)
the amount equal to the Reinsurer's
Obligations
September 30, 2006 The greater of (a) $30 million or (b)
the amount equal to the
Reinsurer's Obligations
March 31, 2007 The greater of (a) $20 million or (b)
the amount equal to the Reinsurer's
Obligations
September 30, 2007 The greater of (a) $10 million or (b)
the amount equal to the Reinsurer's
Obligations
January 1, 2008 The amount equal to the Reinsurer's
and thereafter Obligations
If Reinsurer reacquires an A- rating
from A.M. Best and its rating
subsequently falls below A-, then no
further reductions will be allowed as
of the date of the downgrade.
At quarterly intervals, Chubb Re shall
prepare a specific statement showing
Reinsurer's Obligations, for the sole
purpose of amending the amount of the
Security Deposit. If the statement
shows Reinsurer's Obligations exceed
the amount of the required Security
Deposit as of the statement date,
Reinsurer shall within 5 days after
receipt of the notice of such excess
pay to Chubb Re the amount of such
excess so that the total amount of the
Security Deposit equals the statement
amount.
On January 1, 2012, regardless of
whether Reinsurer has reacquired an A-
rating from A.M. Best, that portion of
the Security Deposit which exceeds
positive difference (if any) of (a) the
Reinsurer's Obligations minus (b) the
amount in the Experience Account, will
be returned to Reinsurer.
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General Terms
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Determination of IBNR To be determined by Chubb Re, provided
that applicable IBNR shall be the same
as IBNR utilized by Chubb Re for
financial and statutory reporting
purposes. Underwriting
Manager/Reinsurer shall have the right
to audit at its own expense any
determination of IBNR made by Chubb Re.
Underwriting Manager/Reinsurer shall
not have the right to dispute Chubb
Re's calculation of IBNR until after
December 31, 2006. Any dispute as to
IBNR which cannot be settled between
Underwriting Manager/Reinsurer and
Chubb Re shall be submitted to a
qualified independent actuary selected
jointly by the Chubb Re and
Underwriting Manager/Reinsurer. If the
parties cannot agree to an actuary,
each party shall nominate three
persons. Each party will then decline
two of the nominees, and the actuary
will be chosen from the remaining
nominees by the drawing of lots.
Reporting Underwriting Manager/Reinsurer and
Chubb Re shall each use their best
efforts to cooperate in the exchange of
information necessary for each party's
financial reporting and regulatory
compliance.
Business Protection Chubb Re agrees that for one year after
the date of termination of the
Underwriting Agreement, it will not
underwrite any reinsurance treaty which
is underwritten on its behalf by
Underwriting Manager, unless Chubb Re
independently underwrote such
reinsurance treaty at the time it was
underwritten on its behalf by
Underwriting Manager.
Event of Default The following events shall
constitute Events of Default for
purposes of the Underwriting Agreement
and the Stop Loss Reinsurance
Agreement:
o Creditors attach or take
possession of any material
amount of Underwriting
Manager/Reinsurer's assets; or
o Underwriting Manager/Reinsurer
voluntarily or involuntarily
enters into rehabilitation,
dissolution, winding-up,
liquidation, administration or
reorganization proceedings
under applicable bankruptcy,
insolvency or similar law;
provided, that, the entry by
the Underwriting Manager/
Reinsurer into a letter of
understanding or a mutual
consent order with the
Connecticut Department of
Insurance as a result of the
Underwriting Agreement or the
Stop Loss Reinsurance
Agreement in and of itself
shall not constitute an Event
of Default; provided, that
nothing in the letter or order
contradicts the aforementioned
Events of Default under this
Event of Default section.
Upon the occurrence of an Event of
Default, there will be no Profit
Commission paid or reduction in the
amount of Collateral until the earlier
of (a) the cessation of the Event of
Default or (b) January 1, 2012, at
which time the Profit Commission
payment schedule and Collateral
reduction schedule shall recommence at
the point at which the Event of Default
occurred.
Governing Law: New York
Dispute Resolution Arbitration in New York, New York
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Other Disclosure/announcement of agreement
and/or the use of Chubb's name in any
marketing or advertising material to be
pre-approved by Chubb Re and the
Underwriting Manager/Reinsurer.
Loss Payments - Due from Reinsurer to
Chubb Re within 5 days of Reinsurer
receiving a payment request from Chubb
Re.
Agreed and Accepted:
Dated: October 25, 2002
CHUBB RE, INC. ON BEHALF OF ITSELF
AND FEDERAL INSURANCE COMPANY
By: /s/ John Berger
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Name: John Berger
Title: Pres. & CEO
TRENWICK AMERICA REINSURANCE CORPORATION
By: /s/ Stephen Binet
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Name: Stephen Binet
Title: President & CEO
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