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EXHIBIT 10.26
FINANCIAL PACIFIC
INSURANCE COMPANY
AGREEMENT NO. 8090
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VARIABLE QUOTA SHARE
AGREEMENT OF REINSURANCE
NO. 8090
between
GENERAL REINSURANCE CORPORATION
A Delaware corporation
having its principal offices at
Financial Centre
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ P.O. Box 10350
Stamford, Connecticut 06904-2350
(herein referred to as the "Reinsurer")
and
FINANCIAL PACIFIC INSURANCE COMPANY
Sacramento, California
(herein referred to as the "Company")
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In consideration of the promises set forth in this Agreement, the parties agree
as follows:
ARTICLE I - SCOPE OF AGREEMENT
The Company shall cede to the Reinsurer and the Reinsurer shall accept as
reinsurance from the Company the business described in the article entitled
BUSINESS COVERED. The terms of this Agreement shall determine the rights and
obligations of the parties.
ARTICLE II - PARTIES
This Agreement is solely between the Company and the Reinsurer. When more
than one Company is named as a party to this Agreement, the first Company named
shall be the agent of the other companies as to all matters pertaining to this
Agreement. Performance of the obligations of each party to this Agreement shall
be rendered solely to the other party; however, if the Company becomes
insolvent, the liability of the Reinsurer shall be modified to the extent set
forth in the article entitled INSOLVENCY OF THE COMPANY. In no
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instance shall any principal, indemnitor, or obligee of the Company or any
claimant against a principal, indemnitor, or obligee of the Company have any
rights under this Agreement.
ARTICLE III - BUSINESS COVERED
This Agreement shall apply to all surety business written by the Company,
except surety business written via direct mail operations which is excluded
hereunder.
ARTICLE IV - COMMENCEMENT AND TERMINATION
This Agreement shall apply to new and renewal bonds becoming effective on
and after July 1, 1995.
This Agreement may be terminated by either party sending to the other, by
certified mail to its principal office, notice stating the time and date when,
not less than 90 days after the date of mailing of such notice, termination
shall be effective. Upon termination of this Agreement, the Reinsurer shall
continue to be liable:
(a) With respect to bonds in force at the effective time and date of
termination which are written for an indefinite period containing a
valid cancellation clause, until the next renewal date of each such
bond following the effective date of termination of this Agreement;
and
(b) With respect to all other bonds in force at the effective time and
date of termination, until the termination date of the Company's
liability.
ARTICLE V - RETENTION AND LIMIT
As respects each bond subject to this Agreement, the Company shall retain
a percentage of each net loss and shall cede to the Reinsurer a percentage of
each net loss, in accordance with the Schedule of Reinsurance.
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SCHEDULE OF REINSURANCE
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GREATER OF CONTRACT LIMIT OF LIABILITY
PRICE OR BOND PENALTY COMPANY RETENTION OF THE REINSURER
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$ 1 - $ 100,000 50% 50%
$ 100,001 - $ 200,000 Greater of 30% or $ 50,000 Remainder
$ 200,001 - $1,000,000 Greater of 20% or $100,000 Remainder
$1,000,001 - $2,000,000 Greater of 10% or $200,000 Remainder
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In addition to payments for its share of net loss, the Reinsurer shall pay
to the Company its proportionate share of adjustment expense.
For purposes of this Agreement:
(a) As respects contract bonds, no single contract bond in excess of
$2,000,000 shall be subject to this Agreement and the uncompleted
work program (bonded and unbonded) of any principal shall not exceed
$4,000,000; and
(b) As respects subdivision bonds, no single subdivision bond in excess
of $2,000,000 shall be subject to this Agreement and the aggregate
in force liability of any one principal shall not exceed $4,000,000.
ARTICLE VI - DEFINITIONS
(a) COMPANY RETENTION
The Company shall retain for its own account the amount set forth as
the Company Retention. This requirement shall be satisfied if this
amount is retained by the Company or its affiliated companies under
common management or common ownership.
(b) NET LOSS
This term shall mean all loss payments made by the Company in the
settlement or mitigation of claims or potential claims (including
the prevention of defaults) on the surety business of the Company,
less salvage and subrogation recoveries and less amounts due from
all other reinsurance, whether collectible or not. This term shall
not include adjustment expense. If the Company becomes insolvent,
this definition shall be
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modified to the extent set forth in the article entitled INSOLVENCY
OF THE COMPANY.
(c) ADJUSTMENT EXPENSE
This term shall mean all allocated expense payments made by the
Company in the investigation, defense, settlement, or mitigation of
claims or potential claims (including the prevention of defaults) on
the surety business of the Company and in the recovery or attempted
recovery of loss payments. Office expenses and salaries of employees
of the Company or of any subsidiary or related or wholly owned
company of the Company are not allocated expense payments.
(d) EACH PRINCIPAL
This term shall mean one or more principals under the same
management and control, or one or more principals for whom bonds
were executed in reliance upon the indemnity of the same person,
firm or corporation, or in reliance upon the indemnity of a related
group of persons, firms, or corporations.
ARTICLE VII - EXCLUSIONS
This Agreement shall not apply to:
(a) Reinsurance assumed by the Company;
(b) Any liability of the Company arising from its participation or
membership in any insolvency fund;
(c) Bonds issued by the Company in connection with Small Business
Administration Guarantee under SBA 990 (or such form as may be used
in the future in place thereof);
(d) The advancement of any funds or loan guarantees provided by the
Company to any account;
(e) Bonds written on behalf of the Company's claims department;
(f) Bonds of the following classifications:
(1) Asbestos abatement/removal bonds;
(2) Bail bonds;
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(3) Bank depository bonds;
(4) Blue sky bonds;
(5) Co-surety not originated and controlled by the Company;
(6) Credit enhancement and financial guaranty insurance or bonds
classified by the Surety Association of America manual as
(noncontract) classes 580, 581 or 597;
(7) Dual obligee bonds without a "savings clause" or "California
clause";
(8) EPA or hazardous waste bonds including closure and
post-closure bonds;
(9) Fidelity bonds including financial institution bonds;
(10) Insurance company qualifying bonds;
(11) Lease bonds;
(12) Mortgage deficiency bonds;
(13) Mortgage guaranty bonds;
(14) Note guaranty bonds;
(15) Patent infringement bonds;
(16) Reclamation bonds;
(17) Self-insurer workers' compensation bonds;
(18) Security and Exchange Commission liability bonds.
ARTICLE VIII - SPECIAL ACCEPTANCES
Business not within the terms of this Agreement may be submitted to the
Reinsurer for special acceptance and, if accepted by the Reinsurer, shall be
subject to all of the terms of this Agreement except as modified by the special
acceptance.
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ARTICLE IX - EXTRA CONTRACTUAL OBLIGATIONS
Notwithstanding the provisions of the article entitled CLAIMS AND LOSSES,
if the Company incurs an extra contractual obligation, the Reinsurer shall
afford additional reinsurance to the Company for a share of 80% of the extra
contractual obligation. Such share will be in accordance with the Schedule of
Reinsurance set forth in the article entitled RETENTION AND LIMIT for the bond
out of which the extra contractual obligation arose. The liability of the
Reinsurer with respect to extra contractual obligations, shall not exceed
$1,000,000 any one principal nor $3,000,000 for the entire term of this
Agreement.
For purposes of this Article, the term "extra contractual obligation"
shall mean a loss which the Company is legally liable to pay, which is not
covered under any other provision of this Agreement and which arises from the
Company's handling of any claim on the bonds reinsured hereunder.
The date on which an extra contractual obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
loss.
This Article shall not apply where the extra contractual obligation has
been incurred due to the fraud or criminal conduct of a member of the Board of
Directors, a corporate officer of the Company, or any other employee of the
Company, acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the investigation,
defense or settlement of any claim covered hereunder.
Any insurance or reinsurance, whether collectible or not, which
indemnifies or protects the Company against claims which are the subject matter
of this Article and any contribution, subrogation, or recovery shall inure to
the benefit of the Reinsurer and shall be deducted to arrive at the amount of
the Company's loss.
ARTICLE X - CLAIMS AND LOSSES
The Company shall investigate and settle or defend all claims and losses.
When requested by the Reinsurer, the Company shall permit the Reinsurer, at the
expense of the
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Reinsurer, to be associated with the Company in the defense or control of any
claim, loss, or legal proceeding which involves or is likely to involve the
Reinsurer. All payments of claims or losses by the Company within the penal sum
or limits of its bonds and within the amount of reinsurance set forth in the
article entitled RETENTION AND LIMIT shall be binding on the Reinsurer, subject
to the terms of this Agreement.
ARTICLE XI - SALVAGE AND SUBROGATION
The Company shall pay to or credit the Reinsurer with the Reinsurer's
portion of any recovery obtained from salvage or subrogation.
The Reinsurer shall be subrogated to the rights of the Company to the
extent of their loss payments to the Company. The Company agrees to enforce its
rights of salvage and subrogation by taking whatever action is necessary to
recover its loss from an obligee, principal, indemnitor, or any other party who
caused or contributed to its loss or part thereof, or in the event that the
Company fails to or elects not to enforce its rights, at the Reinsurer's option,
the Company will assign those rights to the Reinsurer. Recoveries shall be
apportioned between the parties in the same ratio as the amounts of their
liabilities bear to the loss.
Article XII - REINSURANCE PREMIUM AND COMMISSION
The Company shall pay to the Reinsurer a reinsurance premium equal to the
proportion of Company's written premium for the business reinsured hereunder for
each bond that the cession to the Reinsurer bears to greater of contract price
or bond penalty on the same bond.
The reinsurance premium set forth above shall be subject to a fixed
commission allowance of 40%.
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ARTICLE XIII - REPORTS AND REMITTANCES
(a) QUARTERLY REPORTS
The Company shall report to the Reinsurer, within 45 days after the
close of each calendar quarter:
(1) The reinsurance premium written for the quarter; and
(2) The commission allowed on the reinsurance premium for the
quarter; and
(3) The Reinsurer's portion of claims, losses, and adjustment
expense paid during the quarter by year of claim or loss; and
(4) The Reinsurer's portion of salvage recovered during the
quarter by year of claim or loss.
Any amount due the Reinsurer shall be remitted with such report and
any amount due the Company shall be remitted immediately upon
verification of such report.
The Company shall also report to the Reinsurer, within 45 days after
the close of each quarter:
(i) The Reinsurer's portion of reserves for claims, losses, and
adjustment expense at the end of the quarter by year of claim
or loss; and
(ii) The reinsurance premium unearned and the contribution for the
quarter to the reinsurance premium in force.
All reinsurance reports may be sent to:
ASD Treaty Accounting Department
General Reinsurance Corporation
Financial Centre
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
All reinsurance premiums and any other amounts due the Reinsurer may
be remitted to the following lockbox address:
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General Reinsurance Corporation
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
(b) GENERAL
In addition to the reports required by (a) above, the Company shall
furnish such other information as may be required by the Reinsurer
for the completion of the Reinsurer's quarterly and annual
statements and internal records.
All reports shall be rendered on forms or in format acceptable to
the Company and the Reinsurer.
ARTICLE XIV - ERRORS AND OMISSIONS
The Reinsurer shall not be relieved of liability because of an error or
accidental omission by the Company in reporting any premium, claim, or loss
reinsured under this Agreement, provided that the error or omission is rectified
promptly after discovery.
The Reinsurer shall be obligated only for the return of the premium paid
for business reported but not reinsured under this Agreement.
Article XV - RESERVES AND TAXES
The Reinsurer shall maintain the required reserves as to the Reinsurer's
portion of claims and losses.
The Company shall be liable for all premium taxes on business ceded to the
Reinsurer under this Agreement. If the Reinsurer is obligated to pay any premium
taxes on this business, the Company shall reimburse the Reinsurer; however, the
Company shall not be required to pay taxes twice on the same premium.
ARTICLE XVI - INSPECTION OF RECORDS
The Company shall allow the Reinsurer to inspect, at reasonable times, the
records of the Company relevant to the business reinsured under this Agreement,
including Company
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files concerning claims, losses, or legal proceedings which involve or may
involve the Reinsurer.
ARTICLE XVII - OFFSET
The Company or the Reinsurer may offset any balance, whether on account of
premium, commission, claims or losses, adjustment expense, salvage, or
otherwise, due from one party to the other under this Agreement or under any
other agreement heretofore or hereafter entered into between the Company and the
Reinsurer.
ARTICLE XVIII - ARBITRATION
Any unresolved difference of opinion between any of the Reinsurer and the
Company shall be submitted to arbitration by three arbitrators. One arbitrator
shall be chosen by the Reinsurer(s), and one shall be chosen by the Company. The
third arbitrator shall be chosen by the other two arbitrators within ten (10)
days after they have been appointed. If the two arbitrators cannot agree upon a
third arbitrator, each arbitrator shall nominate three persons of whom the other
shall reject two. The third arbitrator shall then be chosen by drawing lots. If
either party fails to choose an arbitrator within thirty (30) days after
receiving the written request of the other party to do so, the latter shall
choose both arbitrators, who shall choose the third arbitrator. The arbitrators
shall be impartial and shall be active or retired persons whose principal
occupation is or was an officer of property and casualty insurance or
reinsurance companies.
The party requesting arbitration (the "Petitioner") shall submit its brief
to the arbitrators within thirty (30) days after notice of the selection of the
third arbitrator. Upon receipt of the Petitioner's brief, the other party (the
"Respondent") shall have thirty (30) days to file a reply brief. On receipt of
the Respondent's brief, the Petitioner shall have twenty (20) days to file a
rebuttal brief. Respondent shall have twenty (20) days from the receipt of
Petitioner's
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rebuttal brief to file its rebuttal brief. The arbitrators may extend the time
for filing of briefs at the request of either party.
The arbitrators are relieved from judicial formalities and, in addition to
considering the rules of law and the customs and practices of the insurance and
reinsurance business, shall make their award with a view to effecting the intent
of this Agreement. The decision of the majority shall be final and binding upon
the parties. The costs of arbitration, including the fees of the arbitrators,
shall be shared equally unless the arbitrators decide otherwise. The arbitration
shall be held at the times and places agreed upon by the arbitrators.
ARTICLE XIX - INSOLVENCY OF THE COMPANY
In the event of the insolvency of the Company, the reinsurance proceeds
will be paid to the Company or the liquidator immediately upon demand, with
reasonable provision for verification, on the basis of the amount of the claim
allowed in the insolvency proceeding without diminution by reason of the
inability of the Company to pay all or part of the claim.
The Reinsurer shall be given written notice of the pendency of each claim
against the Company on the bond(s) reinsured hereunder within a reasonable time
after such claim is filed in the insolvency proceedings. The Reinsurer shall
have the right to investigate each such claim and to interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defenses
which it may deem available to the Company or its liquidator. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court approval,
against the insolvent Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
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executed in duplicate,
this 11th day of August, 1995,
GENIE GENERAL CORPORATION
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President
Attest: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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and this 14th day of August, 1995.
FINANCIAL PACIFIC INSURANCE COMPANY
/s/ [SIG]
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Attest: /s/ ▇▇▇ ▇▇▇▇▇▇▇
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ENDORSEMENT NO. 1
Attached to and made a part of
VARIABLE QUOTA SHARE
AGREEMENT OF REINSURANCE
NO. 8090
between
GENERAL REINSURANCE CORPORATION
and
FINANCIAL PACIFIC INSURANCE COMPANY
IT IS MUTUALLY AGREED that, as respects new and renewal bonds becoming
effective on and after August 1, 1996, ARTICLE V is amended to read as follows:
"ARTICLE V - RETENTION AND LIMIT
As respects each bond subject to this Agreement, the Company shall retain
a percentage of each net loss and shall cede to the Reinsurer a percentage of
each net loss, in accordance with the Schedule of Reinsurance.
SCHEDULE OF REINSURANCE
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GREATER OF CONTRACT LIMIT OF LIABILITY
PRICE OR BOND PENALTY COMPANY RETENTION OF THE REINSURER
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$ 1 - $ 50,000 100% 0%
$ 50,001 - $ 100,000 Greater of 75% or $ 50,000 Remainder
$ 100,001 - $ 500,000 Greater of 40% or $100,000 Remainder
$ 500,001 - $1,000,000 Greater of 30% or $200,000 Remainder
$1,000,001 - $2,000,000 Greater of 25% or $300,000 Remainder
$2,000,001 - $3,000,000 Greater of 20% or $500,000 Remainder
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In addition to payments for its share of net loss, the Reinsurer shall pay
to the Company its proportionate share of adjustment expense.
For purposes of this Agreement:
(a) As respects contract bonds, no single contract bond in excess of
$3,000,000 shall be subject to this Agreement and the uncompleted
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program (bonded and unbonded) of any Principal shall not exceed
$6,000,000; and
(b) As respects subdivision bonds, no single subdivision bond in excess
of $3,000,000 shall be subject to this Agreement and the aggregate
in force liability of any one principal shall not exceed
$6,000,000."
IN WITNESS WHEREOF, the parties hereto have caused this Endorsement to be
executed in duplicate, this 23rd day of August 1996.
GENERAL REINSURANCE CORPORATION
[SIG]
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Vice President
Attest: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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and this __ day of _________, 199_.
FINANCIAL PACIFIC INSURANCE COMPANY
[SIG]
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Attest:
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