AMENDED AND RESTATED SELLERS RETROCESSION
AGREEMENT (IN RESPECT OF THE PERIOD TO 30 JUNE 2001)
(THE "REINSURANCE AGREEMENT")
BETWEEN
XL WINTERTHUR INTERNATIONAL RE, WINTERTHUR, SWITZERLAND
(GENERALLY KNOWN AS WIRE BUT FOR THE PURPOSES OF THIS REINSURANCE AGREEMENT,
THE "PRINCIPAL REINSURED")
AND
WINTERTHUR SWISS INSURANCE COMPANY, WINTERTHUR, SWITZERLAND
(THE "REINSURER")
RECITALS
A. By the Second Amended and Restated Agreement for the Sale and Purchase of
Winterthur International dated as of 15 February 2001 (the "SPA"), the
Reinsurer agreed to sell to XL Insurance Ltd the Operations.
B. Pursuant to the SPA, financial statements are being drawn up in respect of
the Operations as at 31 December 2000 (the "31.12.2000 Financial
Statements") and as at the Completion Date (the "Completion Financial
Statements").
C. In order to help fix more precisely the values of the loss and loss
adjustments expenses ("lae") provisions and other items in the unaudited
financial statements in respect of the Operations as at 30 June 2001 (the
"Unaudited Financial Statements"), the parties have agreed to enter into
this Reinsurance Agreement. This Reinsurance Agreement is intended to
cover the run off of unpaid loss and lae provisions and certain other
items (described herein under the heading "Calculation of Commutation
Payment") as at 30 June 2001 and to commute (a) when the Completion
Financial Statements have been agreed or otherwise determined (with an
unqualified (clean) audit opinion by KPMG in accordance with the SPA,
which shall not involve KPMG placing reliance on the continued existence
of this Reinsurance Agreement) and the Purchase Price has been determined
and paid ("Purchase Price Payment Date"), in each case in accordance with
the SPA, as at the date that the Completion Financial Statements have been
so agreed or otherwise determined or (b) if the Completion Financial
Statements have not been so agreed or otherwise determined and the
Purchase Price has not been determined and paid, in each case in
accordance with the SPA, on or before 31 December 2003, on and as at such
date thereafter (such date not being later than the Purchase Price Payment
Date) as the Principal Reinsured may determine in writing or, if the
Principal Reinsured does not so determine before the Purchase Price
Payment Date, the Purchase Price Payment Date.
D. This Amended and Restated Seller's Retrocession Agreement supersedes, in
all respects, the Sellers Retrocession Agreement (in respect of the period
to 30 June 2001) dated 24 July 2001 and made between the parties to this
Reinsurance Agreement (the "Original Reinsurance Agreement") but shall not
supersede, amend, modify or affect in any way, the Sellers Retrocession
Agreement (in respect of the period to 31.12.2000) made between the
parties dated 24 July 2001 (the "31.12.2000 Reinsurance Agreement").
Article 1 Period of Reinsurance Agreement
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This Reinsurance Agreement shall apply to policies forming part of the
Operations written on or prior to 30 June 2001.
Additional cover details as described in the attached Schedule.
Article 2 Business Covered
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This Reinsurance Agreement shall apply to the business as described in the
Schedule.
Article 3 Definitions
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Words and phrases defined in the SPA shall, in the absence of a definition in
this Reinsurance Agreement, bear the meaning attributed to them in the SPA.
Article 4 Reinsuring Clause
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The Reinsurer hereby agrees to indemnify the Principal Reinsured for the share
as set out in the Schedule of that part of the Reinsureds' aggregate ultimate
net loss in respect of the policies forming part of the Operations written on or
prior to 30 June 2001, which exceeds the amount of the deductible for the
aggregate ultimate net loss during the period of this Reinsurance Agreement, as
set out in the Schedule.
The sum recoverable under this Reinsurance Agreement shall be up to but not
exceeding the amount of cover for the aggregate ultimate net loss during the
period of this Reinsurance Agreement as set out in the Schedule.
Additional cover details as described in the attached Schedule.
Article 5 Definition of "Ultimate Net Loss"
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The term "ultimate net loss" shall mean, howsoever classified in the Unaudited
Financial Statements, the sums incurred by the Reinsureds in settlement of
losses during the period of this Reinsurance Agreement, and, for the purpose of
this Reinsurance Agreement, the term "incurred" shall include, howsoever
classified in the Unaudited Financial Statements, sums paid, case reserves, loss
expenses and reserves for incurred but not reported losses (in each case only
applying a discount if a discount was applied in the 31.12.2000 Financial
Statements, in which case such discount shall be applied on the same basis as it
was applied in the 31.12.2000 Financial Statements). The term "loss expenses"
shall include, howsoever classified in the Unaudited Financial Statements, all
the amounts incurred for actions, suits or proceedings and for other matters and
things relating to any loss recoverable hereunder at the discretion of the
Reinsured which in its judgement may be beneficial or expedient and all payments
made and costs and expenses incurred therefore shall be considered (including
for the avoidance of doubt allocated and unallocated lae). Salvages and
recoveries, including recoveries from all other reinsurances shall be deducted
from such loss to arrive at the amount of liability, if any, attaching
hereunder.
All salvages, recoveries or payments recovered or received subsequent to any
loss settlement hereunder shall be applied as if recovered or received prior to
the aforesaid settlement, and all necessary adjustments shall be made by the
parties hereto.
Nothing in this clause shall be construed to mean that losses are not
recoverable hereunder until the Reinsureds' ultimate net loss has been
ascertained and the Principal Reinsured shall be entitled to seek recovery under
this Reinsurance Agreement notwithstanding that a Reinsured has not exhausted
its rights under any reinsurance arrangements relating to the business protected
under this Reinsurance Agreement, provided that (i) the Principal Reinsured and
the Reinsureds have first sought in good faith to recover all reinsurance
recoverables under any such reinsurance arrangements, (ii) to the extent that
they have not been able to recover the same, used their respective reasonable
endeavours in good faith to assign all outstanding rights against any third
party under any such reinsurance arrangements and (iii) if they are not legally
able to assign such outstanding rights they shall (following payment by the
Reinsurer) continue to use their respective reasonable endeavours to exhaust
such outstanding rights and, in such case, if they make any recovery in the
course of any related proceedings or otherwise, the Principal Reinsured shall
account to the Reinsurer for any amounts so recovered by the Reinsureds but only
to the extent that the Principal Reinsured has made any recoveries against the
Reinsurer under this Reinsurance Agreement.
For the avoidance of doubt, the classification, characterisation or provision of
any amount in any financial statement or in any note, schedule, addendum or
other similar document (including, without limitation, the Unaudited Financial
Statements) shall not be determinative or evidence of its proper classification,
characterisation or provision by the Reinsureds.
Article 6 Disclosure, etc.
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The Principal Reinsured shall have no duty to make full disclosure of all
material facts of make a presentation of any risk in relation to this
Reinsurance Agreement to the extent that the same relate to any matter in
existence or arising prior to the date of this Reinsurance Agreement. The
Reinsurer acknowledges that it has not entered into this Reinsurance Agreement
on the basis of any representation, warranty or statement (express or implied)
made by the Principal Reinsured or any of the Reinsureds.
The Reinsurer and the Principal Reinsured shall act in good faith with respect
to the mutual exchange of information in relation to any matter arising on or
after the date of this Reinsurance Agreement and, without prejudice to the
generality of the foregoing, the Reinsurer and the Principal Reinsured shall
disclose to the other any material matters relating to the business protected by
this Reinsurance Agreement of which they become aware and arising on or after
the date of this Reinsurance Agreement. No breach of the obligations in this
paragraph of this Article 6 shall allow either party to avoid or otherwise
terminate this Reinsurance Agreement, the sole remedy for any such breach being
a claim for damages.
The Reinsurer acknowledges that the Principal Reinsured and the Reinsureds may
reorganise their existing business, such reorganisation potentially including a
transfer of some or all of their business to another member of the XL Insurance
Group. In the case of any reorganisation which is likely to affect adversely the
Reinsurer, the Principal Reinsured shall use reasonable endeavours in good faith
to inform the Reinsurer in advance of the reorganisation and the parties shall
consult in good faith with respect to the same.
Article 7 Underwriting Policy
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The Reinsureds undertake, to the extent they are legally able to do so and
except as may otherwise be required under Applicable Laws, not to commute,
terminate or make any material amendments to any reinsurance arrangement
(whether or not in force as at the date of this Reinsurance Agreement) relating
to the business protected under this Reinsurance Agreement except with the prior
written consent of the Reinsurer (which consent shall not be unreasonably
withheld or delayed) if any such commutation, termination or amendment is likely
to increase materially the Reinsurer's liability under this Reinsurance
Agreement. In the case of any other such commutation, termination or amendment,
the Principal Reinsured shall use reasonable endeavours in good faith to inform
the Reinsurer in advance of the such commutation, termination or amendment and
the parties shall consult in good faith with respect to the same.
Article 8 Reinsurance Premium
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The Principal Reinsured shall pay to the Reinsurer the reinsurance premium(s) as
set out in the Schedule.
Article 9 Taxes
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As original and/or as per attached Schedule.
Article 10 Claim Advices
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The Principal Reinsured shall advise the Reinsurer on a quarterly basis of
losses giving rise to claims hereunder together with an estimate of the
Reinsured's liability and thereafter keep the Reinsurer reasonably informed,
also on a quarterly basis, of any developments regarding the original claims.
Article 11 Claim Payments
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All loss settlements (excluding any EX GRATIA payments) made by the Reinsureds,
provided that such loss settlements are made in the ordinary course of business
and that the Principal
Reinsured and the Reinsureds shall have acted in good faith in making any loss
settlements and are within the terms of this Reinsurance Agreement, shall be
unconditionally binding upon the Reinsurer and amounts falling to the share of
the Reinsurer shall be payable by him upon reasonable evidence of the amount
paid or shortly due for payment being given by the Principal Reinsured. The
Reinsurer shall have the right to deduct any outstanding balances due to him
from the Reinsureds under or in connection with this Reinsurance Agreement from
any loss payment. For the purposes of this Article 11, an amount shall be deemed
"due" if (i) it has been so agreed in writing by the Principal Reinsured and the
Reinsurer or (ii) it has been finally determined or declared by a court, court
of arbitration or administration order.
Article 12 Accounting and Settlement of the Balances
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The accounts have to be drawn up by the Principal Reinsured, and as set out in
the Schedule, and are subject to review by the Reinsurer.
In the event of a disagreement between the Principal Reinsured and the Reinsurer
which cannot be resolved within 30 days of delivery of the accounts to the
Reinsurer, the provision of paragraph 3.2 and 3.11 of Part 2 of Schedule 5 of
the SPA shall apply MUTATIS MUTANDIS.
The settlement of the balances has to be effected as set out in the Schedule(s)
and coordinated via the Treasury Department of the Reinsurer.
Article 13 Errors and Omissions
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It is hereby understood and agreed that any inadvertent delays, omissions or
errors made in connection with this Reinsurance Agreement shall not be held to
relieve either of the parties hereto from any liability which would have
attached to them hereunder if such delay, omission or error had not occurred
provided that rectification is made promptly following discovery.
Article 14 Access to Records
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The Principal Reinsured shall procure (to the extent that it is legally able to
do so) that the Reinsurer or its designated representatives shall have free
access at any reasonable time to all records of the Reinsureds which pertain in
any way to this Reinsurance Agreement. Clause 18.4 of the SPA (Confidentiality)
shall apply to this Reinsurance Agreement.
Article 15 No Double Recovery
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The Principal Reinsured and the Reinsurer shall not be entitled to recover from
the Reinsurer or the Principal Reinsured, respectively, under this Reinsurance
Agreement and the 31.12.2000 Reinsurance Agreement more than once in respect of
the same losses and neither party shall be
liable for any losses to the extent that any losses have been recovered by such
party under the 31.12.2000 Reinsurance Agreement.
Article 16 Immediate Termination
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Either party shall have the right to terminate this Reinsurance Agreement
immediately by tendering notice of termination upon the other party if the
performance of this Reinsurance Agreement is rendered legally impossible.
Except as set out in this Article 16, neither party shall have any right to
terminate this Reinsurance Agreement.
In the event of this Reinsurance Agreement being terminated at any date other
than the Commutation Effective Date, the rights and obligations of both parties
under this Reinsurance Agreement shall remain in full force until the effective
date of termination. The Reinsurer shall remain responsible for any losses
incurred prior to termination which shall be determined in accordance with the
commutation terms hereunder.
Any notice of termination shall be communicated in writing by registered letter,
telex or telegram and addressed to the other party. In the event of an
interruption of communications any notice of termination shall be deemed to take
effect as soon as it is despatched or submitted for despatch.
Article 17 Commutation
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The Reinsurer and the Reinsureds shall be released from all rights and
obligations under this Reinsurance Agreement upon payment of the Commutation
Payment as defined in the Schedule(s).
Article 18 Rates of Exchange
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As per attached Schedule(s).
Article 19 Arbitration
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This Reinsurance Agreement is governed by Swiss law.
Notwithstanding that this Reinsurance Agreement is governed by Swiss law any
disputes arising out of this Reinsurance Agreement or concerning its
interpretation or validity shall be referred to a Court of Arbitration conducted
pursuant to the rules of the London Court of International Arbitration which
will take place in London and which shall consist of two
arbitrators, one to be appointed by each party, and a chairman who shall be
appointed by the arbitrators before they have studied the case material. The
arbitrators and the chairman shall be active or retired officials of companies
or underwriters carrying on a similar type of insurance and/or reinsurance
business to that protected hereunder.
If either party fails to appoint an arbitrator within four weeks after being
requested in writing by the other party to do so, or in the event of the
arbitrators failing to agree as to the appointment of the chairman within an
identical period after their own appointment, such arbitrator or chairman shall
be appointed by the President for the time being of the Institute of Chartered
Accountants in England and Wales.
The procedure shall be at the discretion of the Court of Arbitration. It shall
pronounce on the distribution between the parties of costs and charges. The
ruling of the Court of Arbitration shall be in writing, stating the reasons for
its decision and be signed. If one of the arbitrators refuses to sign the
decision, this shall have no bearing on its validity.
Article 20 Other Terms and Conditions
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As set out in the Schedule(s).
Schedule
Aggregate Excess of Loss Reinsurance Agreement
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General
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Principal Reinsured Winterthur International
Reinsureds The entities listed in Part 1 of Schedule 2 to
the SPA and the owners of the portfolios
listed as transferors in Part 2 of Schedule 2
to the SPA (but only in respect of the
relevant Operations and only until such
relevant Operations are transferred to XL
Insurance or any other Purchaser in accordance
with the SPA, after which time the Reinsured
in respect of such relevant Operations shall
be XL Insurance or any other Purchaser which
is the transferee of such relevant Operations
in respect of the Relevant Operations).
Period of Reinsurance Effective 30 June 2001.
Agreement (Article I)
This Reinsurance Agreement will be commuted
from the Commutation Effective Date where
Commutation Effective Date means (a) the date
on which the Completion Financial Statements
have been agreed or otherwise determined (with
an unqualified (clean) audit opinion by KPMG
in accordance with the SPA) and the Purchase
Price has been determined and paid, in each
case in accordance with the SPA, such
commutation to take effect as at the date that
the Completion Financial Statements have been
so agreed or otherwise determined or (b) if
the Completion Financial Statements have not
been so agreed or otherwise determined and the
Purchase Price has not been determined and
paid, in each case in accordance with the SPA,
on or before 31 December 2003, on and as at
such date thereafter (such date not being
later than the Purchase Price Payment Date) as
the Principal Reinsured may determine in
writing or, if the Principal Reinsured does
not so determine before the Purchase Price
Payment Date, the Purchase Price Payment Date.
For the avoidance of doubt, the audit opinion
referred to above will not rely on the
existence of this Reinsurance Agreement, as
confirmed by KPMG as auditors.
Business Covered (Article 2) All policies forming part of the Operations as
defined in the SPA and written on or prior to
30 June 2001, net of all reinsurance
recoveries.
This Reinsurance Agreement applies only to
claims in respect of policies forming part of
the Operations written on or prior to 30 June
2001.
Reinsuring Clause (Article 4)
Reinsurer's Share 100 per cent
Amount of Deductible USD 1,041,319,000 (in the case of a payment
from the Reinsurer to the Reinsured) and USD
981,319,000 (in the cae of a payment from the
Reinsured to the Reinsurer).
Amount of Cover USD 1,300,000,000.
Reinsurance Premium (Article 8) Premium of USD 100,000, payable at the
Completion Date or such other time as agreed
by the parties.
Accounting and Settlement of
the Balances (Article 12)
Accounts/Settlements In respect of claims settlements, as at 31
December 2001 and the end of each subsequent
calendar quarter until the Commutation
Effective Date and to be rendered within 45
days of 31 December 2001 and the end of each
subsequent calendar quarter.
The Principal Reinsured will render the
calculations of the Reinsurer's Commutation
Payment and the Principal Reinsured's
Commutation Payment to the Reinsurer within 45
days of the Commutation Effective Date.
If the Principal Reinsured and the Reinsurer
agree, claims settlements may be made on
annual rather than quarterly basis on the
terms to be agreed. Either the Principal
Reinsured or the Reinsurer may terminate such
agreement, in which case the provisions of the
previous
two paragraphs shall apply to subsequent
periods beginning the next calendar quarter.
Settlement of Balances The claims settlements shall be settled within
30 days of the rendering of accounts. The
Commutation Payment is to be settled (i)
within 30 days of the rendering to the
Reinsurer of the relevant calculations or (ii)
if later, on the date on which the Seasoned
Net Reserves Payment has been made in
accordance with the SPA (but in any event the
Commutation Payment is to be settled at the
latest on the Purchase Price Payment Date)
and, in any case, in co-ordination with the
Treasury Department at the Head Office in
Winterthur.
Commutation (Article 17) The Commutation Payment shall be calculated in
accordance with the attached formula for
"Calculation of Commutation Payment".
Rates of Exchange (Article 18) For the purpose of calculating payments under
this Reinsurance Agreement, the foreign
exchange rates shall be fixed at 30 June 2001.
Drawn up in duplicate and signed
in Winterthur on 8/2/02 and in Winterthur on 8/2/02
for and on behalf of for and on behalf of
the PRINCIPAL REINSURED the REINSURER
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇
--------------------------- --------------------------
/s/ ▇▇▇▇▇ ▇▇ ▇▇▇▇ /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------- --------------------------
XL Winterthur International Re, Winterthur Swiss Insurance Company,
Winterthur, Switzerland Winterthur, Switzerland
Calculation of Commutation Payment
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Under this Reinsurance Agreement, a commutation payment as of the Commutation
Effective Date (the "Commutation Payment"), shall be made either from the
Reinsurer to the Principal Reinsured (the "Reinsurer's Commutation Payment") or
from the Principal Reinsured to the Reinsurer (the "Principal Reinsured's
Commutation Payment") as set out in the Settlement of Balances provisions above.
Either a Reinsurer's Commutation Payment or a Principal Reinsured's Commutation
Payment shall be payable, but a Reinsurer's Commutation Payment and a Principal
Reinsured's Commutation Payment shall never both be payable.
In order to determine whether a Reinsurer's Commutation Payment or a Principal
Reinsured's Commutation Payment is payable, the Reinsurer's Commutation Payment
and the Principal Reinsured's Commutation Payment shall both be calculated in
accordance with the formulae set out below.
If the calculation of the Reinsurer's Commutation Payment or the Principal
Reinsured's Commutation Payment produces a negative figure in either case, the
amount of the Reinsurer's Commutation Payment or the Principal Reinsured's
Commutation Payment, as the case may be shall be zero.
If the calculation of the reinsurer's Commutation Payment or the Principal
Reinsured's Commutation Payment produces a positive figure in either case, an
amount equal to this figure shall be paid to, if the calculation of the
Reinsurer's Commutation Payment produces a positive figure, the Principal
Reinsured, or, if the calculation of the Principal Reinsured's Commutation
Payment produces a positive figure, the Reinsurer.
In no circumstances shall a negative figure for either the Reinsurer's
Commutation Payment or the Principal Reinsured's Commutation Payment, as the
case may be, be set off against a positive figure for the other Commutation
Payment.
For the purposes of calculating the Reinsurer's Commutation Payment and the
Principal Reinsured's Commutation Payment, the following definitions shall apply
(in each case, per US GAAP):
a) Net unpaid losses and 1ae (including IBNR) plus net provisions for future
dividends to policyholders of the Operations at 30 June 2001 (per the
Unaudited Financial Statements), in respect of losses occurring on 30 June
2001 and prior.
b) Paid losses and lae and paid dividends to policyholders of the Operations
during the period between 1 July 2001 and the Commutation Effective Date, in
respect of losses occurring on 30 June 2001 and prior.
c) Net unpaid losses and 1ae provisions including IBNR and net provisions for
future dividends to policyholders of the Operations at the Commutation
Effective Date, in respect of losses occurring on 30 June 2001 and prior.
d) Adjustment to the run off profit or loss arising from the unwinding during
the period between 1 July 2001 and the Commutation Effective date of the
discount in the net unpaid losses and 1ae provisions including IBNR of the
Operations at 30 June 2001 (per the Unaudited Financial Statements), in
respect of losses occurring on 30 June 2001 and prior.
e) Net unearned premiums reserves less deferred acquisition costs of the
Operations at 30 June 2001, in respect of policies forming part of the
Operations written on or prior to 30 June 2001 (per the Unaudited Financial
Statements).
f) Net earned premiums less earned acquisition costs of the Operations during
the period between 1 July 2001 and the Commutation Effective Date, in
respect of policies forming part of the Operations written on or prior to 30
June 2001.
g) Net unearned premiums reserves less deferred acquisition costs of the
Operations at the Commutation Effective Date, in respect of policies forming
part of the Operations written on or prior to 30 June 2001.
h) Net receivables from insurance and reinsurance companies (including deposits
and estimates) of the Operations at 30 June 2001 (per the Unaudited
Financial Statements).
i) Payments during the period between 1 July 2001 and the Commutation Effective
Date, in respect of net receivables from insurance and reinsurance companies
(including deposits and estimates) of the Operations at 30 June 2001.
j) Net receivables from insurance and reinsurance companies (including deposits
and estimates) remaining at the Commutation Effective Date, in respect of
receivables from insurance and reinsurance companies (including deposits and
estimates) of the Operations at 30 June 2001.
Reinsurer's Commutation Payment = re-estimated liability - deductible =
a+b+c-d-e+f+g+h-i-j-USD 30,000,000, except if this amount is negative in which
case the Reinsurer's Commutation Payment shall be zero.
The deductible in the case of the Reinsurer's Commutation Payment =a+e-h+USD
30,000,000
Principal Reinsured's Commutation Payment = deductible - re-estimated liability
= a-b-c+d+e-f-g-h+i+j-USD 30,000,000, except if this amount is negative in which
case the Reinsured's Commutation Payment shall be zero.
The deductible in the case of the Principal Reinsured Commutation Payment =
a+e-h-USD 30,000,000
EXAMPLE
If: a=1000, b=200, c=900, d=10e, e=350, f=150, g=250, h=200, i=50, j-140
Reinsurer's Commutation Payment=(-1000+200+▇▇▇-▇▇-▇▇▇+150+250+200+50-140-30)=120
Principal Reinsured's Commutation Payment = (▇▇▇▇-▇▇▇-▇▇▇+10+▇▇▇-▇▇▇-▇▇▇-▇▇▇+50-
140-30)=-180
The calculation of the Principal Reinsured's Commutation Payment produces a
negative figure and would therefore be zero. The calculation of the Reinsurer's
Commutation Payment produces a positive figure and would be payable in
accordance with this Reinsurance Agreement.
