EXHIBIT (i)(1)
SERVICE AND EXPENSE AGREEMENT
between
AMERICAN HOME ASSURANCE COMPANY
AMERICAN INTERNATIONAL INSURANCE COMPANY
BIRMINGHAM FILE INSURANCE COMPANY OF PENNSYLVANIA
COMMERCE AND INDUSTRY INSURANCE COMPANY
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.
THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA
TRANSATLANTIC REINSURANCE COMPANY
and
AMERICAN INTERNATIONAL GROUP, INC.
This agreement made this first day of February 1974 between AMERICAN HOME
ASSURANCE COMPANY, AMERICAN INTERNATIONAL INSURANCE COMPANY, BIRMINGHAM FIRE
INSURANCE COMPANY OF PENNSYLVANIA, COMMERCE AND INDUSTRY INSURANCE COMPANY,
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., THE INSURANCE COMPANY
OF THE STATE OF PENNSYLVANIA, TRANSATLANTIC REINSURANCE COMPANY (hereinafter
collectively called the "Companies") and AMERICAN INTERNATIONAL GROUP, INC.
(hereinafter called "AIG").
W I T N E S S E T H:
WHEREAS, the Companies are all subsidiaries of AIG and share among
themselves and with certain other subsidiaries and affiliates of AIG certain
expenses, equipment, office space, service and personnel, and it is desired that
AIG of one or more of its subsidiaries, including one or more of the Companies,
furnish certain of such equipment, office space, services and personnel to the
Companies and certain of AIG's other subsidiaries and affiliates, and
WHEREAS, the Companies are subject to the provisions of Section 69-e of the
New York Insurance Law.
NOW, THEREFORE, it is agreed as follows:
1. AIG shall furnish or cause to be furnished, at cost, services and
facilities to the Companies denominated and classified as follows:
(a) Electronic data processing, advertising, marketing and public
relations, accounting, actuarial, tax and internal audit services, Law
Department, Investment Department, Claims Department, underwriting and
production services, systems and planning, corporate insurance including
placement, reporting of claims and administration of coverages for all desired
forms of property and casualty and architectural and decorating services, the
cost of which shall be
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allocated on the basis of time studies, except for machine bookkeeping in
connection with the services provided hereunder, which shall be allocated on the
basis of the number of entries made;
(b) Pension Plan portfolio management services costs shall be allocated on
the basis of the total number of employees per company which are enrolled in the
pension programs;
(c) Office services (including form design, office layout and construction
of same, supervision of moving, planning telephone installation in connection
with moves, typing pool, reproduction and maintaining and purging archives) are
allocated based upon a weighted average of its two major functions: purchase
orders (computed by company) and form requests (computed by company);
(d) A New York City situated employee cafeteria, coffee vending service and
an executive dining area, the cost of which shall be allocated in proportion to
the number of employees entitled to utilize such services;
(e) Payroll and Training and Education Departments and pension
administration services, the cost of which shall be allocated in proportion to
the number of employees (or members) serviced;
(f) Office space may be owned by AIG or its subsidiaries, or such
subsidiaries may lease from others, including cleaning, elevator service, repair
and engineering and warehouse and central files facilities, the cost of which
shall be allocated in proportion to the actual space used;
(g) A Personnel Department, the recruiting costs of which shall be
allocated in proportion to the referrals of prospective employees and the
administrative costs of which shall be allocated in proportion to the number of
employees on the payroll;
(h) Telephone and telephone switchboard services, the overhead costs of
which (including equipment, salaries, rent, heat, light, etc.) shall be
allocated in proportion to the number of telephone lines assigned;
(i) A Licensing Department, the cost of which shall be allocated, as
respects agency licensing, in proportion to the number of agents licensed, and
as respects company licensing, in proportion to the number of jurisdictions
entered;
(j) Executive automobiles, the purchase, rental, maintenance and/or
operational cost of which shall be allocated to the entity on whose behalf
incurred;
(k) A Traffic Department, the cost of which shall be allocated in
proportion to the number of requests for service processed;
(1) Medical and Dental Departments, the cost of which shall be allocated on
the basis of the number of employees entitled to service for those employees
based in New York City and on the basis of the number of visits for employees
who are not based in New York City;
(m) The maintenance and operation of a corporate airplane, the cost of
which (including
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the salaries and training costs of flying personnel) shall be allocated in
proportion to the number of air miles flown for each company;
(n) A company magazine, the publishing cost of which shall be allocated in
proportion to the number of copies furnished and the mailing and shipping costs
of which shall be allocated to the entity on whose behalf they are incurred;
(o) printing and reproduction services, the cost of which shall be
allocated on the basis of the number of jobs performed and the number of copies
made;
(p) A Purchasing Department, the cost of which shall be allocated in
proportion to the number of purchase orders processed and filled;
(q) A Supply Department, the cost of which shall be allocated 50% in
proportion to the number of requisitions and shipping orders filled, and 50% in
proportion to the amount of storage space used;
(r) A Mail and Communications Department, the cost of which shall be
allocated as follows:
(i) Cables and teletypes, in proportion to the numbers of such
communications handled.
(ii) Company messengers, in proportion to the number of errands
performed.
(iii) Mail handling, including inter-office mail, in proportion to
the number of mail stops serviced.
(iv) Postage, in proportion to the money volume of mailing per
company based on yearly-established factors.
2. Cost shall include salaries, space rental and other overhead expenses,
electricity, heat, water, building maintenance services, furniture and other
office equipment, supplies and special equipment such as reference libraries,
electronic data processing equipment and the like.
3. The allocations of expenses for the above services and facilities may be
made by the entity or department furnishing same, or may be made by AIG's
Comptroller's Department in accordance with the methods of allocation set forth
above.
4. Notwithstanding anything contained above to the contrary, the basis upon
which charges are computed by AIG's Comptroller's Department or by the entity
furnishing the service or facilities shall be billed to the Companies in
accordance with Regulation 30 of the New York Insurance Department and shall not
exceed cost to AIG. AIG will cause the departments responsible for supplying the
services and performing the functions herein specified to make an analysis at
least once during each calendar year of the expenses incurred by the department
and of the percentage thereof allocable to the Companies.
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5. There shall be quarterly xxxxxxxx by AIG to the Companies for all the
services and functions hereinabove specified. The amount of such xxxxxxxx may be
based upon budgeted costs or some other reasonable estimates, but if based upon
other than actual costs, such xxxxxxxx shall be adjusted annually to reflect
actual costs. The amount so billed shall be payable upon receipt of billing by
the Companies.
6. Any party may cancel this agreement by giving ninety days written notice to
all the others, provided that this agreement shall automatically terminate as to
any of the Companies which ceases to be a subsidiary or affiliate of AIG.
7. Notwithstanding anything to the contrary in the preceding paragraphs,
costs, other than the costs of the Investment Department, charged to any party
in the inter-company pooling agreement between American Home Assurance Company,
et al, dated as of January 1, 1971, as amended, shall be allocated, as between
the parties thereof, in accordance with the terms of such agreement. Likewise,
costs, other than the costs of the Investment Department, charged to any party
to the reinsurance agreements between New Hampshire Insurance Company, Granite
State Insurance Company and American Fidelity Company, effective December
31,1957 and between New Hampshire Insurance Company, Illinois National Insurance
Co. and Inland National Insurance Company, effective January 1, 1966, shall be
allocated, as between the parties thereof, in accordance with the terms of such
agreements.
8. Any party hereto in receipt of facilities, services, space or equipment
hereunder shall have the right at all times during business hours, and at its
own expense, to inspect the records of the entity providing such facilities,
services, space or equipment insofar as such records relate to the computation
of charges hereunder.
9. Any party hereto shall have unconditional right of ownership of any records
prepared on its behalf under this agreement.
10. All facilities, services, space or equipment supplied hereunder shall be of
good quality and suitable for the purpose for which they are intended.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed in New York, New York on the date first written above.
AMERICAN HOME ASSURANCE COMPANY
by: /s/
--------------------------------
Vice President
AMERICAN INTERNATIONAL INSURANCE
COMPANY by: /s/
--------------------------------
Vice President
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BIRMINGHAM FIRE INSURANCE COMPANY
OF PENNSYLVANIA by: /s/
--------------------------------
Vice President
COMMERCE AND INDUSTRY INSURANCE
COMPANY by: /s/
--------------------------------
Vice President
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA. by: /s/
--------------------------------
Vice President
THE INSURANCE COMPANY OF THE STATE
OF PENNSYLVANIA by: /s/
--------------------------------
Vice President
TRANSATLANTIC REINSURANCE COMPANY
by: /s/
--------------------------------
Vice President
AMERICAN INTERNATIONAL GROUP, INC.
by: /s/
--------------------------------
Vice President & Comptroller
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