Exhibit 10.24
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
PLACEMENT SLIP
TOWER INSURANCE COMPANY OF NEW YORK
2004 QUOTA SHARE REINSURANCE AGREEMENT
COMPANY Tower Insurance Company of New York.
REINSURERS Hannover Reinsurance (Ireland) Limited and E+S
Reinsurance (Ireland) Limited
BUSINESS COVERED This Agreement shall indemnify the Company in respect
of the net excess liability as herein provided and
specified which may accrue to the Company as a result
of Ultimate Net Loss and Loss Adjustment Expenses
subject to this Agreement, under policies written by
the Company and classified as Property or Liability,
following the Company's original policies, including:
Fire and Allied Lines, Commercial Multiple Peril,
Homeowners Multiple Peril and Liability, Workers'
Compensation, Inland Marine and Automobile Liability
and Physical Damage, all subject to the terms,
conditions and exclusions of this Agreement.
FOLLOW THE FORTUNES The Reinsurers' liability shall attach simultaneously
with that of the Company and shall be subject in all
respects to the same risks, terms, conditions,
interpretations, waivers and to the same
modifications, alterations, and cancellations as the
respective policies issued by the Company, the true
intent of this Agreement being that the Reinsurers
shall, in every case to which this Agreement applies,
follow the fortunes of the Company, subject in all
cases to the limits, exclusions, terms and conditions
set forth in this Agreement.
TERRITORY In respect of primary business written by the
Company, this Agreement shall apply to policies
issued in New York, New Jersey, Pennsylvania and
Connecticut. To the extent that the Company becomes
authorized to transact insurance in any jurisdiction
in addition to those set forth above, the Company may
request that the Reinsurers amend this Agreement to
include policies issued in such jurisdictions. With
respect to policies issued in New Jersey,
Pennsylvania and Connecticut, the maximum overall New
Written Premium that may be ceded by the Company to
this Agreement shall be 10% of Net Written Premium in
the aggregate for these states (the "Premium Cap").
To the extent that the Company's overall Net Written
Premium for these states collectively exceeds the
Premium Cap in any such jurisdiction, the Cession
Percentage for these states shall be reduced by
dividing 10% (ten percent) of Net Written Premium by
the actual percentage of Net Written Premium and
multiplying that result by the Cession Percentage
elected in the Coverage section.
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
TERM A. This Agreement shall take effect 12:01 a.m.,
Eastern Standard Time, January 1, 2004 and shall
apply to all losses occurring on or after 12:01
a.m., Eastern Standard Time, January 1, 2004 in
respect of all new and renewal Business written
on and after 12:01 a.m., Eastern Standard Time,
January 1, 2004 up to 12:01 a.m., Eastern
Standard Time, January 1, 2005.
At 12:01 a.m., Eastern Standard Time, January 1,
2005, the Reinsurers shall be liable for the in
force Business Covered until the earlier of the
expiration or the anniversary date of the
Company's policies, but not to exceed 12 (twelve)
months plus odd time. In the event that any
policy is required by statute or regulation or
order to be continued in force, the Reinsurers
will continue to remain liable with respect to
each such policy until the Company may legally
cancel, non-renew or otherwise eliminate
liability under the policy.
B. The Company and the Reinsurers may agree to
terminate this Agreement or some portion of the
Business Covered on a cut-off basis. Upon such
termination, the Reinsurers shall incur no
liability for losses occurring subsequent to the
effective date of termination and the Reinsurers
shall return to the Company their respective
unearned premium reserve less previously paid
Ceding Commissions on such unearned premium
reserve.
2
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
C. Notwithstanding the above, this Agreement is
subject to each Reinsurer reaching an agreement
with State National Insurance Company and
Virginia Surety Company, Inc., effective on or
around January 1, 2004, for the same capacity for
Small Market, Middle Market and Large Lines
combined business segments at economic terms
outlined in previous correspondence.
If agreement is not reached by January 31, 2004,
the Company may rescind this Agreement back to
inception and all amounts paid shall be returned
to each respective party and the funds withheld
in the Funds Withheld Account/Profit Sharing
Account shall be released by the Reinsurers.
COVERAGE BASIS Quota Share covering losses occurring, claims made
and losses discovered attaching to policies issued on
Business Covered incepting or renewing during the
Term.
EXCLUSIONS A. Nuclear Incident, in accordance with the
following clauses attached hereto:
1. Nuclear Incident Exclusion Clause - Physical
Damage - Reinsurance - U.S.A. - ▇▇▇ ▇▇▇▇;
2. Nuclear Incident Exclusion Clause - Liability
- Reinsurance - U.S.A. - ▇▇▇ ▇▇▇▇;
B. War Risks, in accordance with the War Risks
Exclusion Clause attached hereto;
C. Insolvency, in accordance with the Insolvency
Funds Exclusion Clause attached hereto;
D. Liability assumed by the Company as a member of
any pool, association or syndicate, in accordance
with the Pools, Associations and Syndicates
Exclusion Clause attached hereto;
3
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
E. Earthquake, when written as such;
F. Liability arising out of ownership, maintenance
or use of any aircraft or flight operations;
G. Professional Liability, when written as such,
however not to exclude when written as part of a
package policy or when written in conjunction
with other policies issued by the Company;
H. Insolvency and Financial Guarantee.
I. Any acquisitions of companies or books of
business outside of the normal course of business
("agent rollovers") without the prior written
consent of the Reinsurers hereon.
J. Asbestos liabilities of any nature
K. Pollution liabilities of any nature
L. Assumed reinsurance with the exception of
inter-affiliate reinsurance
M. Ex gratia payments in excess of $3,000 (three
thousand dollars)
COVERAGE The Reinsurers shall indemnify the Company for the
Cession Percentage of the net retained liability of
all Ultimate Net Loss and Loss Adjustment Expenses
billed by Towers Claim Service for the Term of this
Agreement, subject to the Retention, Per Risk - Per
Loss Occurrence Limits and the Aggregate Limit
hereon. The Reinsurers shall only be obligated to
indemnify the Company for underlying policies where
the Reinsurers have been paid respective premiums for
such underlying policies by the Company.
4
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
The Cession Percentage shall be 60% (sixty percent)
for the new and renewal Business Covered written
during the period January 1, 2004 through December
31, 2004, both days inclusive. However, the Cession
Percentage may be reduced to a minimum cession
percentage of 25% (twenty five percent) for each
quarter starting with the calendar quarter beginning
July 1, 2004 and only if the Company has increased
its December 31, 2003 Statutory Surplus Level by more
than 20% (twenty percent) on or before June 30, 2004.
The Company must advise the Reinsurers, with 30 days
advance written notice, of its election to reduce the
Cession Percentage for the forthcoming quarter
NET RETAINED LINES This Agreement applies only to that portion of
Business Covered which the Company retains net for
its own account, and in calculating the amount of any
Ultimate Net Loss and Loss Adjustment Expenses
hereunder and also in computing the amounts in
Coverage, Retention, Per Risk-Per Loss Occurrence
Limits and Aggregate Limit section to which this
Agreement applies, only Ultimate Net Loss and Loss
Adjustment Expenses in respect of that portion of
Business Covered which the Company retains net for
its own account shall be included. The Company
warrants that it will have a maximum net retained
line in accordance with the Per Risk-Per Loss
Occurrence section below for any one risk.
The amount of the Reinsurers' liability hereunder in
respect of any Ultimate Net Loss and Loss Adjustment
Expenses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer, whether specific or general, any amounts
which may have become due from such reinsurer,
whether such inability arises from the insolvency of
such reinsurer or otherwise.
RETENTION The Company shall retain net and unreinsured the
result of 100% (one hundred percent) minus the
Coverage Cession Percentage of all Ultimate Net Loss
in respect of the first 95.0% (ninety five point zero
percent) of Ultimate Net Loss Ratio and 100% (one
hundred percent) of Ultimate Net Loss in excess of
the first 95.0% (ninety five point zero percent) of
Ultimate Net Loss Ratio.
5
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
PER RISK-PER LOSS
OCCURRENCE LIMITS In no event shall the Reinsurers' limit of liability
exceed their pro rata share of $1,000,000 (one
million dollars) per risk, per Loss Occurrence in
respect of property business and $1,000,000 (one
million dollars) per Loss Occurrence for liability
business. In addition, in no event shall the
Reinsurers' aggregate limit of liability exceed 10%
(ten percent) of Reinsurance Premium earned per Loss
Occurrence in respect of ceded property catastrophe
Ultimate Net Loss plus associated Loss Adjustment
Expense. Furthermore, in no event shall the
Reinsurers' aggregate limit of liability exceed 10%
(ten percent) of Reinsurance Premium in respect of
the combined amounts of property and casualty
Ultimate Net Loss plus associated Loss Adjustment
Expense emanating from Terrorist Acts, whether one or
multiple Terrorist Acts.
AGGREGATE LIMIT The Reinsurers' maximum overall aggregate Ultimate
Net Loss and Loss Adjustment Expense liability under
this Agreement shall be 95.0% (ninety five point zero
percent) of ultimate Reinsurance Premium earned by
the Reinsurers.
REINSURANCE PREMIUM The Company shall pay to the Reinsurers the Cession
Percentage of the Net Written Premium as collected
for the Term of this Agreement (the "Reinsurance
Premium"). The Company shall retain any and all
Reinsurance Premium on a funds withheld basis. A
notional Funds Withheld Account/Profit Sharing
Account shall be calculated by the Company and
maintained until there is a complete and final
release of all the Reinsurers' past, present and
future obligations and liabilities to the Company of
any nature whatsoever arising under or related to
this Agreement. The Company shall credit Net Written
Premium to the Funds Withheld Account/Profit Sharing
Account on a monthly basis, and settlements shall be
made in accordance with Accounts, Remittances and
Settlements sections.
6
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
The Company shall have the option, subject to the
Reinsurers' consent, to terminate this Agreement on a
cut-off basis. If the Company elects, and the
Reinsurers consent, to terminate this Agreement on a
cut-off basis, in accordance with Term ---- section,
then the Reinsurers shall return to the Company the
respective unearned premium less previously paid
Reinsurers' Margin and Ceding Commissions on such
unearned premium.
The maximum overall Net Written Premium for this
Agreement shall be $200,000,000 (two hundred million
dollars). The maximum overall ceded Net Written
Premium shall be $120,000,000 (one hundred twenty
million dollars) (the "Aggregate Premium Cap"). To
the extent that the Company's overall ceded Net
Written Premium exceeds the Aggregate Premium Cap,
the Cession Percentage shall be reduced by dividing
$200,000,000 (two hundred million dollars) by the
actual Net Written Premium and multiplying that
result by the Cession Percentage elected in the
Coverage section.
REINSURERS' MARGIN Reinsurers' Margin shall equal 8.0% (eight point zero
percent) of ultimate Reinsurance Premium. The Company
shall pay the Reinsurers the full amount of the
Reinsurers' Margin due each month on the date when
the time Reinsurance Premium is reported each month.
The Company shall effect payment of the Reinsurers'
Margin due each month by direct wire transfer to the
Intermediary to pay the Reinsurers.
CEDING COMMISSION The Reinsurers shall allow the Company a provisional
Ceding Commission equal to 39.1% (thirty nine point
one percent) of the Reinsurance Premium hereon. The
provisional Ceding Commission shall be debited or
credited, as applicable, to the Funds Withheld
Account/Profit Sharing Account as Reinsurance
Premiums are settled monthly and adjusted as the
Ultimate Net Loss Ratio is re-determined quarterly.
The first adjustment of Actual Ceding Commission for
purposes of crediting the interest due and owing to
the Funds Withheld Account/Profit Sharing Account
shall be calculated no later than [February 29, 2005]
for the quarter ended December 31, 2004. Thereafter
Actual Ceding Commission shall be recalculated each
quarter and based upon the Ultimate Net Loss Ratio
re-determined each quarter, in accordance with the
following table:
7
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
Ceding Commission Rate Ultimate Net Loss Ratio
---------------------- -----------------------
Maximum 48.1% 47.0% or Lower
.9 for 1
Provisional 39.1% 57.0%
.9 for 1
Minimum 29.2% 68.0% or Higher
If the Ultimate Net Loss Ratio exceeds 47.0% (forty
seven point zero percent), the Ceding Commission
shall be reduced .9% (point nine percent) and any
portion thereof for each 1% (one percent) and any
portion thereof that the Ultimate Net Loss Ratio
exceeds 47.0% (forty seven point zero percent), down
to a Ceding Commission of 39.1% (thirty nine point
one percent) at a 57.0% (fifty seven point zero
percent) Ultimate Net Loss Ratio. If the Ultimate Net
Loss Ratio exceeds 57.0% (fifty seven point zero
percent), the Ceding Commission shall be reduced .9%
(point nine percent) and any portion thereof for each
1% (one percent) and any portion thereof that the
Ultimate Net Loss Ratio exceeds 57.0% (fifty seven
point zero percent), subject to a minimum Ceding
Commission of 29.2% (twenty nine point two percent)
at a 68.0% (sixty eight point zero percent) or higher
Ultimate Net Loss Ratio. Adjustments to actual Ceding
Commission shall be paid at the respective quarterly
Ultimate Net Loss settlement by means of a credit or
debit to the Funds Withheld Account/Profit Sharing
Account.
Beginning with the calendar quarter ending March 31,
2005, any adjustment of Ceding Commission shall
result in a special interest credit calculation from
the time of adjustment back to December 31, 2004 at
the annual Interest Credit rate of 2.5% (two point
five percent). Such special interest credit shall be
credited/debited to the Funds Withheld Account/Profit
Sharing Account at the time of calculation.
8
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
The Reinsurers shall remain liable for payment of
Ceding Commission whether or not the Funds Withheld
Account/Profit Sharing Account becomes depleted.
REPORTS Within 45 (forty five) days following the end of each
month, the Company shall report to the Reinsurers the
amount of:
1. Net Written Premium and ceded Net Written Premium
by line of business;
2. Net Earned Premium and ceded Net Earned Premium
by line of business;
3. Ceding Commissions paid and unpaid;
4. Ceded Ultimate Net Loss and Loss Adjustment
Expenses paid by line of business;
5. Ceded Ultimate Net Loss and Loss Adjustment
Expenses outstanding by line of business;
6. Salvage recovered and ceded Salvage recovered by
line of business;
7. Premium amounts calculated in accordance with
Reinsurance Premium and Reinsurers' Margin
sections, including applicable Reinsurers'
Margin;
8. The balance of the Funds Withheld Account/Profit
Sharing Account as of that month end and activity
in the Funds Withheld Account/Profit Sharing
Account during the month.
Reports shall continue until final settlement of all
Ultimate Net Loss hereunder, or upon Commutation.
9
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
In the event the Company fails to furnish the
Reinsurers with materially accurate and complete
reports, pursuant to the above terms within 45 days
after the end of the month, the Company shall have an
additional 75 days in which to furnish such reports
to the Reinsurers (the "Cure Period"). Such Cure
Period shall commence on the mailing date of the
written notification. Upon failure by the Company to
provide such reports to the Reinsurers by the end of
the Cure Period, the Company shall be liable to pay
late interest penalty on any payments/credits to the
Funds Withheld Account/Profit Sharing Account at 100
(one hundred) basis points from the date
contractually due until time of payment/credit to the
Funds Withheld Account/Profit Sharing Account.
REMITTANCES The Company shall credit or debit the Funds Withheld
Account/Profit Sharing Account by the amount of the
balance of the monthly account. Such monthly account
shall equal the Cession Percentage of Net Written
Premiums collected for new and renewal business for
the month, less Reinsurers' Margin due for the month,
less applicable Ceding Commission due for the month,
less all reinsurance premiums due from the Company in
respect of the inuring reinsurances less the Cession
Percentage of Ultimate Net Loss and Loss Adjustment
Expenses paid for the month less the Cession
Percentage of Salvage Recovered for the month. Such
remittances shall be settled by the debtor party to
the creditor party within 60 (sixty) days in arrears
from the month end, except that amounts owed by the
Reinsurers to the Company in excess of the Funds
Withheld Account/Profit Sharing Account shall be paid
the later of 60 (sixty) days in arrears from the
month end or 15 (fifteen) days following the
Reinsurers' receipt of the monthly report.
LOSS PAYMENTS Notwithstanding the above, the Company shall advise
the Reinsurers promptly of all Ultimate Net Losses,
which, in the opinion of the Company, may result in a
claim hereunder and of all subsequent developments
thereto which, in the opinion of the Company, may
materially affect the position of the Reinsurers.
Inadvertent omission or oversight in dispatching such
advises shall in no way affect the liability of the
Reinsurers. However, the Company shall notify the
Reinsurers of such omission or oversight promptly
upon its discovery. All Ultimate Net Loss settlements
made by the Company on Business Covered, with the
exception of ex gratia payments, whether under policy
terms and conditions or by way of compromise, shall
be in the sole discretion of the Company and shall be
unconditionally binding on the Reinsurers. Upon
satisfactory proof of loss, the Reinsurers shall pay
or allow, as applicable, their proportional share of
each such settlement in accordance with this
Agreement. All Ultimate Net Loss and Loss Adjustment
Expense amounts due to the Company from the
Reinsurers under this Agreement shall first be paid
by way of offset against the Funds Withheld
Account/Profit Sharing Account consistent with the
Remittances Section and such offset shall constitute
payment under this Agreement. Only upon the
exhaustion of the Funds Withheld Account/Profit
Sharing Account shall the Company be entitled to
receive cash payment from the Reinsurers.
10
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
FUNDS WITHHELD ACCOUNT/
PROFIT SHARING ACCOUNT For purposes of this Agreement, the Reinsurers shall
allow the Company to establish and maintain a
cumulative Funds Withheld Account/Profit Sharing
Account comprised of the following:
A. The Funds Withheld Account/Profit Sharing Account
at December 31, 2003 shall be equal to $0 (zero
dollars);
N. The Funds Withheld Account/Profit Sharing Account
at each subsequent month end shall be comprised
of the following cumulative amounts:
1. The Funds Withheld Account/Profit Sharing
Account at the end of the prior month; plus
2. Reinsurance Premium paid by the Company; less
3. Ceding Commission when paid by the
Reinsurers, excluding the Return Ceding
Commission as per the Trust Account Clause;
plus
11
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
4. Special interest credit adjustments on ceding
commission adjustments; less
5. Reinsurers' Margin; less
6. Ceded Ultimate Net Losses and Loss Adjustment
Expenses paid by the Reinsurers for the
respective month; plus
7. Interest Credit.
The Company shall determine and report the balance
and activity of the Funds Withheld Account/Profit
Sharing Account monthly within 45 (forty five) days
of the month end.
INTEREST CREDIT The Funds Withheld Account/Profit Sharing Account
shall be credited monthly, as of the end of the
respective month, by the Company with an Interest
Credit rate of .206% (point two zero six percent)
multiplied by the average monthly balance of the
Funds Withheld Account/Profit Sharing Account for
each respective month resulting in an effective
annual rate of 2.50% (two point five zero percent)
for the Funds Withheld Account/Profit Sharing
Account. In calculating the average monthly balance,
all amounts due to either party shall be deemed
settled, effective as of the actual date when such
items were due pursuant to the terms of this
Agreement.
Interest Credit shall continue even in the event of
the Company's insolvency.
12
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
TRUST ACCOUNT
Confidential &
Proprietary
Pegasus Feature The Company shall establish a segregated Trust
Account for the benefit of the Reinsurers to secure
100% of its obligations and liabilities to the
Reinsurers for the Funds Withheld Account/Profit
Sharing Account. The Company agrees to establish such
Trust Account by executing the Trust Agreement
attached hereto as Exhibit A and incorporated herein
by reference. The Trust Agreement, including the
nature of the assets to be deposited in such Trust
Account, shall be compliant at all times with the
provisions of Section 114 of the New York Insurance
Regulations. The Company shall deposit Reinsurance
Premium less provisional Ceding Commission, plus
downward adjustments of the provisional ceding
commission, less Reinsurers' Margin, all as
contractually due hereunder. The Reinsurer shall
direct the Trustee to withdraw additional Ceding
Commission adjustments and ceded paid portion of
Ultimate Net Loss amounts from the Trust Account and
remit such sums to the Company when such are
contractually due. The Company shall invest such
amounts to both (i) achieve a minimum effective
annual yield of 2.5% (two point five percent) per
annum and (ii) enable investments to be admitted
assets for statutory reporting on the Company's
financial statements. The Company shall appoint
Hyperion Capital Management Inc. ("Hyperion") as its
investment manager and shall direct Hyperion on the
investment of such amounts.
If the market value of the assets in the Trust
Account at any calendar quarter end is less than the
Funds Withheld Account/Profit Sharing Account balance
at such calendar quarter end, the Company shall
deposit assets that are compliant with Section 114 of
the New York Insurance Regulations to achieve the
required Funds Withheld Account/Profit Sharing
Account balance at such quarter end. If the market
value of assets in the Trust Account at any calendar
quarter end exceeds the balance of the Funds Withheld
Account/Profit Sharing Account at such calendar
quarter end, such excess assets shall remain in the
Trust Account to pay Ultimate Net Loss and Loss
Adjustment Expenses or Profit Sharing under this
Agreement.
Within 60 (sixty) days of each calendar quarter end,
beginning with the quarter ending December 31, 2004,
if the Company fails to maintain the Trust Account
equal to the Funds Withheld Account/Profit Sharing
Account required level, then the cumulative amount of
the shortfall shall be deemed "Return Ceding
Commission" due the Reinsurers. Such actual amount
shall be paid in cash by the Company to the
Reinsurers within 60 (sixty) days of the respective
calendar quarter end to reduce the Ceding Commission
that otherwise would have been due at the respective
Ultimate Net Loss Ratio as per the Ceding Commission
table. The Company shall calculate the cumulative
shortfall, if any, and re-determine the Return Ceding
Commission due, within 60 (sixty) days of each
subsequent calendar quarter end until all liability
under this Agreement is finalized. The Company shall
pay to the Reinsurers any additional Return Ceding
Commission due in excess of any previously paid
Return Ceding Commission and the Reinsurers shall pay
to the Company any reduction of Return Ceding
Commission due over the previously paid Return Ceding
Commission within 60 (sixty) days of the calendar
quarter end.
13
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
Upon the occurrence of a Triggering Event, the
Reinsurers shall have the sole option of drawing any
and all assets from the segregated Trust Account. If
this option is exercised, the terms of this Agreement
will be changed to a funds transferred basis. The
Reinsurers will continue to calculate the Profit
Share Account and will credit the average monthly
balance of the Profit Share Account with the lesser
of the equivalent of the 2.5% annual interest rate or
the 2 year annual t-▇▇▇▇ rate plus 25 basis points.
Except for the fact that this Agreement shall be
transacted on a funds transferred basis if the
Reinsurers exercises their option (as described
above), all settlements between the parties will
continue to be governed by the terms set forth in
this Agreement (including, but not limited to, the
settlement dates of the items to be credited or
debited).
A "Triggering Event" is any of the following:
1. A.M. Best Rating of the Company falls below B++;
or
2. a reduction of more than 20% (twenty percent) of
the Company's statutory surplus from the
Company's Statutory Surplus Level at December 31,
2003; or
3. Insolvency, Rehabilitation, or Regulatory
Supervision of the Company; or
14
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
4. Company ceases underwriting new property and
casualty business;
5. Company fails to maintain the Trust Account at
the minimum balance required by this Agreement
for a period of seventy-five (75) days;
6. Company sells 50% or more of its assets or
reinsures 50% or more of its Net Written Premium
or net liabilities, both net of this Agreement,
(each as stated in its statutory annual statement
as of the preceding December 31st) to an
unaffiliated third party; or
7. An insurance regulatory authority or governmental
entity in any United States jurisdiction revokes,
suspends or forces the Company to withdraw its
certificate of authority in such jurisdiction.
COMMUTATION The Company shall have the option, only with the
consent of the Reinsurers, effective at any calendar
quarter end on or after the calendar quarter of
termination of this Agreement, to commute all ceded
Ultimate Net Loss outstanding hereunder. The date
that the Company and the Reinsurers mutually elect to
commute shall be deemed the commutation date.
Upon Commutation, the Reinsurers shall pay 100% (one
hundred percent) of the residual Funds Withheld
Account/Profit Sharing Account to the Company. Upon
payment of the Funds Withheld Account/Profit Sharing
Account by release of the Trust Account, the
Reinsurers shall be released from all past, current
and future liability under this Agreement.
In addition to the above, the Reinsurers shall have
the option of drawing assets from the segregated
Trust Account for the purposes of collecting amounts
due them under any and all other reinsurance
agreements for which Tower Insurance Company of New
York has failed to pay within 30 (thirty) days of
their respective due dates. In the event of
commutation, the segregated Trust Account must retain
an amount that is equal to the Company's potential
aggregate liability under all reinsurance agreements
that the Company has entered into with the Reinsurers
in the event amounts must be drawn upon to satisfy
Towers Obligations under the other reinsurance
agreements.
15
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
SPECIAL TERMINATION
CLAUSE Either party may terminate this Agreement on a cutoff
basis upon the happening of any one of the following
circumstances at any time by the giving of 60 (sixty)
days prior written notice to the other party:
1. The Company's A.M. Best rating drops below a
"B+"; or
2. The Reinsurers A.M. Best ratings drops below
an "A-"; or
3. a reduction of more than 20% (twenty percent)
of the Company's statutory surplus from the
Company's Statutory Surplus Level at December
31, 2003; or
4. There is a change in the office of President
and CEO of the Company; or
5. Insolvency, Rehabilitation, or Regulatory
Supervision of the Company; or
6. Company ceases underwriting new property and
casualty business;
7. Company fails to maintain the Trust Account
at the minimum balance required by this
Agreement for a period of seventy-five (75)
days;
8. Company sells 50% or more of its assets or
reinsures 50% or more of its Net Written
Premium or net liabilities, both net of this
Agreement, (each as stated in its statutory
annual statement as of the preceding December
31st) to an unaffiliated third party; or
16
9. An insurance regulatory authority or
governmental entity in any United States
jurisdiction revokes, suspends or forces the
Company to withdraw its certificate of
authority in such jurisdiction.
Upon election of Special Termination, the Reinsurers
shall return to the Company the respective unearned
premium less previously paid Reinsurers' Margin and
Ceding Commissions on such unearned premium and the
Reinsurers shall incur no liability for losses
occurring subsequent to the effective date of
termination.
GENERAL CLAUSES ATTACHED - Currency
- Errors and Omissions
- Access to Records
- Arbitration
- Offset
- Confidentiality
- Definitions
- Taxes and FET
- Excess of Policy Limits
- Excess of Contractual Obligations
- Insolvency
- Service of Suit
- Reserves
INTERMEDIARY CLAUSE
ATTACHED Pegasus Advisors - Towers ▇▇▇▇▇▇ Reinsurance
17
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
PEGASUS ADVISORS - TOWERS ▇▇▇▇▇▇ REINSURANCE
By:
--------------------------------------------------
Title:
-----------------------------------------------
Accepted on behalf of Tower Insurance Company of New York, in confirmation of
the terms, conditions and Reinsurers hereon.
By: /s/
-------------------------------------------------
Title: President & CEO
----------------------------------------------
Accepted on behalf of Hannover Reinsurance (Ireland) Limited for an 80% (eighty
percent) share of a 33.334% (thirty three point three three four percent)
participation of the terms and conditions herein.
By: /s/
-------------------------------------------------
Title: Associate Director
----------------------------------------------
Accepted on behalf of E+S Reinsurance (Ireland) Limited for a 20% (twenty
percent) share of a 33.334% (thirty three point three three four percent)
participation of the terms and conditions herein.
By: /s/
-------------------------------------------------
Title: Associate Director
----------------------------------------------
18
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
GENERAL CLAUSES
---------------
DEFINITIONS
-----------
A. "Declaratory Judgment Expenses" as used in this Agreement shall mean legal
expenses paid by the Company in the investigation, analysis, evaluation or
litigation of a coverage action between the Company and any other party to
determine if there is coverage under a policy or policies issued by the
Company for a specific claim or specific claims reinsured under this
Agreement or which would be reinsured under this Agreement had the
Company not been successful in the coverage action.
Recoveries from any form of insurance or reinsurance that protects the
Company against claims which are the subject matter of this clause will
inure to the benefit of the Reinsurers and shall be deducted to arrive at
the amount of the Company's Ultimate Net Loss.
B. "Loss Adjustment Expenses" as used in this Agreement shall mean all costs and
expenses allocable to a specific claim that are incurred by the Company in
the investigation, appraisal, adjustment, settlement, litigation, defense or
appeal of a specific claim, including 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 pro rata Declaratory Judgment Expenses.
Loss Adjustment Expenses shall include in-house adjusters, defense
attorneys, and other claims personnel of Tower Insurance Company of New
York/Tower Risk Management who ▇▇▇▇ the Company for their services on an
hourly basis.
C. "Loss Occurrence" shall have the following meanings:
1. As respects property losses, "Loss Occurrence" shall mean shall mean
the sum of all individual losses directly occasioned by any one
disaster, accident or loss or series of disasters, accidents or
losses arising out of one event which occurs within the area of one
state of the United States or province of Canada and states or
provinces contiguous thereto and to one another. However, the
duration and extent of any one "Loss Occurrence" shall be limited to
all individual losses sustained by the Company occurring during any
period of 168 (one hundred sixty eight) consecutive hours arising
out of and directly occasioned by the same event except that the
term "Loss Occurrence" shall be further defined as follows:
a. As regards windstorm, hail, tornado, hurricane, cyclone,
including ensuing collapse and water damage, all
individual losses sustained by the Company occurring
during any period of 72 (seventy two) consecutive hours
arising out of and directly occasioned by the same
event. However, the event need not be limited to one
state or province or states or provinces contiguous
thereto.
19
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
b. As regards riot, riot attending a strike, civil commotion,
vandalism and malicious mischief, all individual losses
sustained by the Company occurring during any period of
72 (seventy two) consecutive hours within the area of
one municipality or county and the municipalities or
counties contiguous thereto arising out of and directly
occasioned by the same event. The maximum duration of 72
(seventy two) consecutive hours may be extended in
respect of individual losses which occur beyond such 72
(seventy two) consecutive hours during the continued
occupation of an assured's premises by strikers,
provided such occupation commenced during the aforesaid
period.
c. As regards earthquake (the epicenter of which need not
necessarily be within the territorial confines referred
to in the opening paragraph of this clause) and fire
following directly occasioned by the earthquake, only
those individual fire losses which commence during the
period of 168 (one hundred sixty eight) consecutive
hours may be included in the Company's "Loss
Occurrence".
d. As regards "Freeze", only individual losses directly
occasioned by collapse, breakage of glass and water
damage (caused by bursting of frozen pipes and tanks)
may be included in the Company's "Loss Occurrence".
For all "Loss Occurrences" the Company may choose the date and time when any
such period of consecutive hours commences provided that it is not earlier
than the date and time of the occurrence of the first recorded individual
loss sustained by the Company arising out of that disaster, accident or loss
and provided that only one such period of 168 (one hundred sixty eight)
consecutive hours shall apply with respect to one event except for those
"Loss Occurrences" referred to in sub-paragraphs 1 and 2 of this Clause
where only one such period of 72 (seventy two) consecutive hours shall apply
with respect to one event.
No individual losses occasioned by an event that would be covered by 72
(seventy two) hours clauses may be included in any "Loss Occurrence" claimed
under the 168 (one hundred sixty eight) hours provision.
2. As respects casualty losses, "Loss Occurrence" shall mean any one accident,
disaster, casualty or happening, or series of accidents, disasters,
casualties or happenings arising out of or following on one event,
regardless of the number of interests insured or the number of policies
responding.
Except where specifically provided otherwise in this Agreement, each Loss
Occurrence shall be deemed to take place as of the earliest date of loss as
determined by any original policy responding to the Loss Occurrence.
3. As respects liability losses (bodily injury and property damage) other than
Automobile and Products, and at the option of the Company, "Loss Occurrence"
shall mean the sum of all damages sustained by each insured during a period
of twelve consecutive months arising out of a continuous or repeated
injurious exposure to substantially the same general conditions. For
purposes of this definition, the date of loss shall be deemed to be the
inception or renewal date of the original policy of insurance to which
payment is charged.
20
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
As respects occupational disease and cumulative trauma:
A. In case the Company shall, within one original policy year,
sustain several losses arising out of such and occupational
or other disease or cumulative trauma of a specific kind or
class, suffered by several employees of one original
insured, all such losses shall be deemed to arise out of
one 'occurrence' and the date of the occurrence for
reinsurance purposes shall be deemed to be the inception,
anniversary or renewal date of the Company's original
policy.
B. With respect to an occupational disease or other disease
suffered by more than one employee of one or more
employers, such occupational disease or other disease
shall be covered under this Agreement if resulting from a
sudden and accidental event not exceeding 48 (forty eight)
hours in duration. For purposes of this Agreement, a 48
(forty eight) hour event will be deemed as one Loss
Occurrence. All such losses subsequently arising out of
such event and not otherwise classified except as
occupational disease or other disease shall be considered
as one Loss Occurrence or may be combined with losses
classified as other than occupational disease or other
disease which arise out of the same event, and the
combination of such losses shall be considered as one Loss
Occurrence within the meaning hereof.
D. "Net Earned Premium" shall mean the Net Written Premium of the Company's
Business Covered less the unearned premium reserve at the respective date of
calculation.
E. "Net Written Premium" shall mean gross premium of the Company's Business
Covered less cancellations and returns and less premium paid for specific
excess of loss reinsurance above $1,000,000 (one million dollars), and
facultative reinsurances, if any.
F. "Terrorist Acts" shall mean any act, or preparation in respect of action, or
threat of action designed to influence the government de jure or de facto of
any nation or any political division thereof, or in pursuit of political,
religious, ideological, or similar purposes to intimidate the public or a
section of the public of any nation by any person or group(s) of persons
whether acting alone or on behalf of or in connection with any
organization(s) or government(s) de jure or de facto, and which:
(i) involves violence against one or more persons; or
(ii) involves damage to property; or
(iii) endangers life other than that of the person committing the
action; or
(iv) creates a risk to health or safety of the public or a section
of the public; or
(v) is designed to interfere with or to disrupt an electronic
system.
21
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
Loss, damage, cost or expense arising out of or in connection with any
action in controlling, preventing, suppressing, retaliating against, or
responding to any act of terrorism shall be considered part of terrorism
Ultimate Net Loss.
G. "Ultimate Net Loss" shall mean, subject to all limitations in this Agreement
including the Per Risk - Per Loss Occurrence Limits, actual loss or losses
arising out of Business Covered hereunder sustained by the Company in
respect of losses occurring during the Term, including 100% (one hundred
percent) of Extra Contractual Obligations and 100% (one hundred percent) of
Excess Policy Limits, subject to the limitations in Excess Policy Limits and
Extra Contractual Obligations clauses below, after making deductions for all
recoveries and salvages and inuring specific and facultative reinsurance,
whether collectible or not. The Reinsurers shall not be liable for more than
$1,000,000 (one million dollars) additional subject Ultimate Net Loss for
any one risk, one Loss Occurrence in respect of Excess of Policy
Limits/Extra Contractual Obligations liability and $5,000,000 (five million
dollars) in the aggregate for all Excess of Policy Limits/Extra Contractual
Obligations liability.
H. "Ultimate Net Loss Ratio" shall mean the ratio of aggregate Ultimate Net
Losses incurred plus aggregate Loss Adjustment Expense divided by Net Earned
Premium as of the date of calculation.
CURRENCY
--------
A. Whenever the word "dollars" or the "$" appears in this Agreement, they shall
be construed to mean United States Dollars and all transactions under this
Agreement shall be in United States Dollars.
B. Amounts paid or received by the Company in any other currency shall be
converted to United States Dollars at the rate of exchange at the date such
transaction is entered on the books of the Company.
TAXES AND FEDERAL EXCISE TAX
----------------------------
A. Taxes - In consideration of the terms under which this Agreement is issued,
the Company undertakes not to claim any deduction of the Premium hereon when
making Canadian tax returns or when making tax returns other than Income or
Profits Tax returns, to any State or Territory of the United States of
America or to the District of Columbia.
B. Federal Excise Tax - (Applicable to those reinsurers, excepting Underwriters
at Lloyd's London and other reinsurers exempt from Federal Excise Tax, who
are domiciled outside the United States of America.)
The Reinsurers have agreed to allow for the purpose of paying the Federal
Excise Tax the applicable percentage of the Premium payable hereon (as
imposed under Section 4371 of the Internal Revenue Code) to the extent such
Premium is subject to the Federal Excise Tax.
22
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
In the event of any return of Premium becoming due hereunder, the Reinsurers
shall deduct the applicable percentage from the return Premium payable
hereon and the Company or its agent should take steps to recover the tax
from the United States Government.
RESERVES
--------
(This Clause only applies to reinsurers domiciled outside the United States
and/or unauthorized in any state, territory or district of the United States
having jurisdiction over the Company.)
A. If a jurisdiction of the United States shall not permit the Company, in the
statements required to be filed with its regulatory authority(ies), to
receive full credit as admitted reinsurance for any Reinsurer's share of
obligations, the Company shall forward to such Reinsurer a statement of the
Reinsurer's share of such obligations. Upon receipt of such statement, the
Reinsurer shall promptly apply for and provide the Company with a "clean",
unconditional and irrevocable Letter of Credit in the amount specified in
the statement submitted, with terms and bank acceptable to the regulatory
authority(ies) having jurisdiction over the Company.
B. "Obligations" as used in this Clause, shall mean the sum of losses paid and
Loss Adjustment Expenses paid by the Company but not yet recovered from the
Reinsurers, plus reserves for reported losses, Loss Adjustment Expenses,
losses incurred but not reported and premiums unearned, if any.
C. The Reinsurers hereby agree that the Letter of Credit shall provide for
automatic extension of the Letter of Credit without amendment for one year
from the date of expiration of said Letter or any future expiration date
unless 30 (thirty) days prior to any expiration the issuing bank shall notify
the Company by registered mail that the issuing bank elects not to consider
the Letter of Credit renewed for any additional period. An issuing bank, not
a "qualified bank" as defined by Regulation 133 promulgated by the Insurance
Department of the State of New York, shall provide 60 (sixty) days notice to
the Company prior to any expiration.
D. Notwithstanding any other provision of this Agreement, the Company or any
successor by operation of law of the Company including, without limitation,
any liquidator, rehabilitator, receiver or conservator of the Company may
draw upon such credit, without diminution because of the insolvency of any
party hereto, at any time and undertakes to use and apply such credit for
one or more of the following purposes only:
1. to pay the Reinsurers' share or to reimburse the Company for the
Reinsurers' share of any obligations, as stipulated in the statement
submitted by the Company to the Reinsurers, which is due to the
Company and not otherwise paid by the Reinsurers;
2. in the event the Company has received effective notice of
non-renewal of the Letter of Credit and the Reinsurers' liability
remains unliquidated and undischarged 30 (thirty) days prior to the
expiry date of the Letter of Credit to withdraw the balance of the
Letter of Credit and place such sums in an interest bearing trust
account to secure the continuing liabilities of the Reinsurers under
this Agreement until a renewal Letter of Credit acceptable to the
regulatory authority(ies) having jurisdiction over the Company, or a
substitute in lieu thereof acceptable to the regulatory
authority(ies) having jurisdiction over the Company, has been
received by the Company. The Company shall provide to the Reinsurers
payment of any interest thereon accruing from such account.
23
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
3. to make refund of any sum which is in excess of the actual amount
required for Sections 1 and 2 of this paragraph.
E. At annual intervals or more frequently as determined by the Company, but
never more frequently than quarterly, the Company shall prepare a specific
statement, for the sole purpose of amending the Letter of Credit, of the
Reinsurers' share of any obligations. If the statement shows that the
Reinsurers' share of obligations exceeds the balance of credit as of the
statement date, the Reinsurers shall, within 30 (thirty) days after receipt
of notice of such excess, secure delivery to the Company of an amendment of
the Letter of Credit increasing the amount of credit by the amount of such
difference. If the statement shows, however, that the Reinsurers' share of
obligations is less than the balance of credit as of the statement date, the
Company shall, within 30 (thirty) days after receipt of written request from
the Reinsurers, release such excess credit by agreeing to secure an
amendment to the Letter of Credit reducing the amount of credit available by
the amount of such excess credit.
F. The bank shall have no responsibility whatsoever in connection with the
propriety of withdrawals made by the Company or the disposition of funds
withdrawn, except to assure that withdrawals are made only upon the order of
properly authorized representatives of the Company. The Company shall incur
no obligation to the bank in acting upon the credit, other than as appears
in the express terms thereof.
EXCESS OF POLICY LIMITS
-----------------------
This Agreement shall protect the Company, subject to one additional Per Risk per
claim and Aggregate Limit, for 100% (one hundred percent) of loss in excess of
the limit of its original policies of insurance or Reinsurance Agreements, such
loss in excess of the limit having been incurred because of failure by the
Company or Tower Risk Management to settle within the policies of insurance or
Reinsurance Agreement limit or by reason of alleged or actual negligence or bad
faith in rejecting an offer of settlement or in the preparation of the defense
or in the trial of any action against its insured or reinsured or in the
preparation or prosecution of an appeal consequent upon such action.
However, this Clause shall not apply where the loss has been incurred due to a
fraud by a member of the board of directors or a corporate officer of the
Company or Tower Risk Management acting individually or collectively or in
collusion with any individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any claim covered
hereunder.
24
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
For the purpose of this Clause, the word "loss" shall mean any amounts for which
the Company would have been contractually liable to pay had it not been for the
limit of the original Reinsurance Agreement.
EXTRA CONTRACTUAL OBLIGATIONS
-----------------------------
This Agreement shall protect the Company for 100% (one hundred percent) of any
Extra Contractual Obligations, subject to one additional Per Risk per claim and
Aggregate Limit. The term "Extra Contractual Obligations" is defined as those
liabilities not covered under any other provision of the Company's original
policies of insurance or Reinsurance Agreements and which arise from the
handling of any claim on Business Covered hereunder, such liabilities arising
because of, but not limited to, the following: failure by the Company or Tower
Risk Management to settle within the policies of insurance or Reinsurance
Agreement limit, or by reason of alleged or actual negligence or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original loss
event. However, this Clause shall not apply where the loss has been incurred due
to fraud by a member of the board of directors or a corporate officer of the
Company or Tower Risk Management acting individually or collectively or in
collusion with any individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any claim covered
hereunder.
OFFSET
------
The Company and the Reinsurers shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Agreement or any
other agreement between the Company and the Reinsurers. The party asserting the
right of offset may exercise such right any time whether the balances due are on
account of Reinsurance Premiums, Ceding Commissions, Ultimate Net Losses or
otherwise. However, in the event of insolvency of any party hereto, offset shall
only be allowed to the extent permitted by the provisions of New York Insurance
Law Section 7427.
ERRORS AND OMISSIONS
--------------------
Inadvertent delays, errors or omissions made by the Company in connection with
this Agreement shall not relieve the Reinsurers from any liability which would
have attached had such delay, error or omission not occurred, provided always
that such delay, error or omission shall be rectified as soon as possible after
discovery by the Company's home office.
ACCESS TO RECORDS
-----------------
The Company shall place at the disposal of the Reinsurers at all reasonable
times, and the Reinsurers shall have the right to inspect through their
designated representatives, during the Term of this Agreement and thereafter,
all books, records and papers of the Company in connection with any reinsurance
hereunder, or the subject matter hereof.
25
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
INSOLVENCY
----------
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company, or to its liquidator, receiver,
conservator, or statutory successor on the basis of the liability of the
Company without diminution because of the insolvency of the Company or
because the liquidator, receiver, conservator or statutory successor of the
Company has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator, or statutory successor
of the Company shall give written notice to the Reinsurers of the pendency
of a claim against the Company indicating the policy insured which claim
would involve a possible liability on the part of the Reinsurers with a
reasonable time after such claims is filed in the conservation or
liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurers may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated,
any defense or defenses that they may deem available to the Company or its
liquidator, receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurers shall be chargeable, subject to the approval of
the court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may
accrue to the Company solely as a result of the defense undertaken by the
Reinsurers.
B. Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the insolvent Company.
CONFIDENTIALITY
---------------
The parties acknowledge there may be portions of this Agreement, the Reinsurance
Agreement submission or the marketing package that may contain confidential,
proprietary information of the Company. The Reinsurers shall maintain the
confidentiality of such information concerning the Company and its business and
shall not disclose it to any third person without prior approval; provided,
however, that the Reinsurers may be required and are permitted under this
Agreement to disclose such information in answers to interrogatories, subpoenas
or other legal/arbitration processes as well as to the Company's Intermediaries,
to the Reinsurers' retrocessionaires and affiliated companies, its applicable
intermediaries, or in response to requests by governmental and regulatory
agencies. In addition, the Reinsurers may disclose such information to their
accountants and to their outside legal counsel as may be necessary.
ARBITRATION
-----------
A. Any dispute or other matter in question between the Company and the
Reinsurers arising out of, or relating to, the formation, interpretation,
performance or breach of this Agreement, whether such dispute arises before
or after termination of this Agreement, shall be settled by arbitration.
Arbitration shall be initiated by the delivery of a written notice of demand
for arbitration by one party to the other within a reasonable time after the
dispute has arisen.
26
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
B. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party, provided, however, that
nothing herein shall impair the rights of such reinsurers to assert several,
rather than joint, defenses or claims, nor be construed as changing the
liability of the reinsurers under the terms of this Agreement from several
to joint.
C. Each party shall appoint an individual as arbitrator and the two so
appointed shall then appoint a third arbitrator. If either party refuses or
neglects to appoint an arbitrator within 60 (sixty) days, the other party
may appoint the second arbitrator. If the two arbitrators do not agree on a
third arbitrator within 60 (sixty) days of their appointment, each of the
arbitrators shall nominate 3 (three) individuals. Each arbitrator shall then
decline two of the nominations presented by the other arbitrator. The third
arbitrator shall then be chosen form the remaining two nominations by
drawing lots. The arbitrators shall be active or former officers of
insurance or reinsurance companies or Lloyd's Underwriters; the arbitrators
shall not have a personal or financial interest in the result of the
arbitration.
D. The arbitration hearings shall be held in New York, New York or such
other place as may be mutually agreed. Each party shall submit its case to
the arbitrators within 60 (sixty) days of the selection of the third
arbitrator or within such longer period as may be agreed by the arbitrators.
The arbitrators shall not be obliged to follow judicial formalities or the
rules of evidence except to the extent required by governing law, that is,
the state law of the situs of the arbitration as herein agreed; they shall
make their decisions according to the practice of the reinsurance business.
The decision rendered by a majority of the arbitrators shall be final and
binding on both parties. Such decision shall be a condition precedent to any
right of legal action arising out of the arbitrated dispute which either
party may have against the other. Judgment upon the award rendered may be
entered in any court having jurisdiction thereof.
E. Each party shall pay the fee and expenses of its own arbitrator and one-half
of the fee and expenses of the third arbitrator. All other expenses of the
arbitration shall be equally divided between the parties.
F. Except as provided above, arbitration shall be based, insofar as applicable,
upon the procedures of the American Arbitration Association.
SERVICE OF SUIT
---------------
(This Clause only applies to reinsurers domiciled outside the United States
and/or unauthorized in any state, territory or district of the United States
having jurisdiction over the Company.)
A. It is agreed that in the event of the failure of the Reinsurers hereon to pay
any amount claimed to be due hereunder, the Reinsurers hereon, at the
request of the Company, shall submit to the jurisdiction of a court of
competent jurisdiction within the United States. Nothing in this Clause
constitutes or should be understood to constitute a waiver of the
Reinsurers' right to commence an action in any court of competent
jurisdiction in the United States, to remove an action to a United States
District Court, or to seek a transfer of a case to another court as
permitted by the laws of the United States or of any state in the United
States. It is further agreed that service of process in such suit may be
made upon ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, and that in any suit instituted, the Reinsurers shall abide by the
final decision of such court or of any Appellate Court in the event of an
appeal.
27
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
B. The above-named are authorized and directed to accept service of process on
behalf of the Reinsurers in any such suit and/or upon the request of the
Company to give a written undertaking to the Company that they shall enter a
general appearance upon the Reinsurers' behalf in the event such a suit
shall be instituted.
C. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefore, the Reinsurers hereon hereby
designate the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be
served any lawful process in any action, suit or proceeding instituted by or
on behalf of the Company or any beneficiary hereunder arising out of this
Agreement of reinsurance, and hereby designates the above-named as the
person to whom the said officer is authorized to mail such process or a true
copy thereof.
INTERMEDIARY
Tower Risk Management Corporation and Pegasus Advisors - Towers ▇▇▇▇▇▇
Reinsurance are hereby recognized as the Intermediaries negotiating this
Agreement for all business hereunder and through whom all communications
relating hereto (including but not limited to notices, statements and reports)
shall be transmitted to both parties. It is understood, as regards remittances
due either party hereunder, that payment by the Company to the Intermediaries,
shall constitute payment to the Reinsurers but payment by the Reinsurers to the
Intermediaries shall only constitute payment to the Company to the extend such
payments are actually received by the Company.
28
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
NUCLEAR INCIDENT EXCLUSION CLAUSE
---------------------------------
PHYSICAL DAMAGE - REINSURANCE - USA
-----------------------------------
NMA 1119
--------
1. This Contract does not cover any loss or liability accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph (1) of
this Clause, this Contract does not cover any loss or liability accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property
on the site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear
material", and for reprocessing, salvaging, chemically
separating, storing or disposing of "spent" nuclear fuel or
waste materials, or
IV. Installations other than those listed in paragraph (2) III
above using substantial quantities of radioactive isotopes or
other products of nuclear fission.
3. Without in any way restricting the operations of paragraphs (1) and
(2) hereof, this Contract does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate
(a) where the Reassured does not have knowledge of such
nuclear reactor power plant or nuclear installation, or
(b) where said insurance contains a provision excluding
coverage for damage to property caused by or resulting
from radioactive contamination, however caused. However
on and after 1st January 1960, this sub-paragraph (b)
shall only apply provided the said radioactive
contamination exclusion provision has been approved by
the Governmental Authority having jurisdiction thereof.
4. Without in any way restricting the operations of paragraphs (1), (2)
and (3) hereof, this Contract does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly, and
whether as Insurer or Reinsurer, when such radioactive contamination is a named
hazard specifically insured against.
29
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
5. It is understood and agreed that this Clause shall not extend to
risks using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given it
in the Atomic Energy Act of 1954 or by any law amendatory thereof.
7. The Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site
NOTE: - Without in any way restricting the operation of paragraph (1) hereof,
it is understood and agreed that
(a) all policies issued by the Reassured on or before
31st December 1957 shall be free from the application
of the other provisions of this Clause until expiry
date or 31st December 1960 whichever first occurs
whereupon all the provisions of this Clause shall
apply.
(b) with respect to any risk located in Canada policies
issued by the Reassured on or before 31st December
1958 shall be free from the application of the other
provisions of this Clause until expiry date or 31st
December 1960 whichever first occurs whereupon all
the provisions of this Clause shall apply.
30
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
NUCLEAR INCIDENT EXCLUSION CLAUSE
---------------------------------
LIABILITY - REINSURANCE - U.S.A.
--------------------------------
NMA 1590
--------
1. This Agreement does not cover any loss or liability accruing to the
Cedent as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or
as a direct or indirect reinsurer of any such member, subscriber or
association.
2. Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this
Agreement all the original policies of the Cedent (new, renewal and
replacement) of the classes specified in Clause II of this paragraph
(2) from the time specified in Clause III of this paragraph (2) shall
be deemed to include the following provision (specified as the Limited
Exclusion Provision):
Limited Exclusion Provision*
I. It is agreed that the policy does not apply under any
liability coverage, to (injury, sickness, disease, death or
destruction (bodily injury or property damage with respect to
which an insured under the policy is also an insured under a
nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy but for
its termination upon exhaustion of its limits of liability.
II. Family Automobile Policies (liability only), Special
Automobile Policies (private passenger automobiles, liability
only), Farmers Comprehensive Personal Liability Policies
(liability only), Comprehensive Personal Liability Policies
(liability only) or policies of a similar nature; and the
liability portion of combination forms related to the four
classes of policies stated above, such as the Comprehensive
Dwelling Policy and the applicable types of Homeowners
Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement,
being policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the
Limited Exclusion Provision set out above; provided
this paragraph (2) shall not be applicable to Family
Automobile Policies, Special Automobile Policies or
policies or combination policies of a similar nature,
issued by the Cedent on New York risks, until 90 days
following approval of the Limited Exclusion Provision
by the Governmental Authority having jurisdiction
thereof.
3. Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of
paragraph (1) of this Clause, it is understood and agreed that for all
purposes of this Agreement the original liability policies of the
Cedent (new, renewal and replacement) affording the following
coverages:
31
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad),
Protective Liability, Manufacturers and Contractors Liability, Product
Liability, Professional and Malpractice Liability, Storekeepers
Liability, Garage Liability, Automobile Liability (including
Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the
time specified in Clause V of this paragraph (3), the following
provision (specified as the Broad Exclusion Provision):
I. Under any Liability Coverage, to
(injury, sickness, disease, death or destruction
(bodily injury or property damage
(a) with respect to which an insured under the policy is
also an insured under a nuclear energy liability
policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy
but for its termination upon exhaustion of its limit
of liability; or
(b) resulting from the hazardous properties of nuclear
material and with respect to which (1) any person or
organization is required to maintain financial
protection pursuant to the Atomic Energy Act of 1954,
or any law amendatory thereof, or (2) the insured is,
or had this policy not been issued would be, entitled
to indemnity from the United States of America, or
any agency thereof, under any agreement entered into
by the United States of America, or any agency
thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any
Supplementary Payments Provision relating to
(immediate medical or surgical relief,
(first aid, to expenses incurred with respect to
(bodily injury, sickness, disease or death
(bodily injury
resulting from the hazardous properties of nuclear material
and arising out of the operation of a nuclear facility by any
person or organization.
III. Under any Liability Coverage, to
(injury, sickness, disease, death or destruction
(bodily injury or property damage
resulting from the hazardous properties of nuclear material if
32
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
(a) the nuclear material (1) is at any nuclear facility
owned by, or operated by or on behalf of, an insured
or (2) has been discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or
waste at any time possessed, handled, used,
processed, stored, transported or disposed or by or
on behalf of an insured; or
(c) (the injury, sickness, disease, death or destruction
(the bodily injury or property damage
arises out of the furnishing by an insured of
services, materials, parts or equipment in connection
with the planning, construction, maintenance,
operation or use of any nuclear facility, but if such
facility is located within the United States of
America, its territories, or possessions or Canada,
this exclusion (c) applies only to
(injury to or destruction of property at such nuclear
facility (property damage to such nuclear facility
and any property thereat.
IV. As used in this endorsement:
"hazardous properties" include radioactive, toxic or explosive
properties; "nuclear material" means source material, special
nuclear material or by-product material; "source material",
"special nuclear material" and "by-product material" have the
meanings given to them in the Atomic Energy Act of 1954 or in
any law amendatory thereof; "spent fuel" means any fuel
element or fuel component, solid or liquid, which has been
used or exposed to radiation in a nuclear reactor; "waste"
means any waste material (1) containing by-product material
and (2) resulting from the operation by any person or
organization of any nuclear facility included within the
definition of nuclear facility under paragraph (a) or (b)
thereof; "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1)
separating the isotopes of uranium or plutonium, (2)
processing or utilizing spent fuel, or (3) handling,
processing or packaging waste,
(c) any equipment or device used for the processing,
fabricating or alloying of special nuclear material
if at any time the total amount of such material in
the custody of the Insured at the premises where such
equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium
233 or any combination thereof, or more than 250
grams of uranium 235,
(d) any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of
waste,
and includes the site on which any of the foregoing
is located, all operations conducted on such site and
all premises used for such operations; "nuclear
reactor" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain
reaction or to contain a ▇▇▇▇▇▇▇▇ ▇▇▇▇ of fissionable
material;
(with respect to injury to or destruction of
property, the word "injury" or "destruction"
("property damage" includes all forms of radioactive
contamination of property (includes all forms of
radioactive contamination of property.
33
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether
new, renewal or replacement, being policies which become
effective on or after 1st May, 1960, provided this paragraph
(3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Cedent
on New York risks, or
(ii) Statutory liability insurance required under Chapter
90, General Laws of Massachusetts, until 90 days
following approval of the Board Exclusion Provision
by the Governmental Authority having jurisdiction
thereof.
4. Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above
are not applicable to original liability policies of the Cedent in
Canada and that with respect of such policies this Clause shall be
deemed to include the Nuclear Energy Liability Exclusion Provisions
adopted by the Canadian Underwriters' Association or the Independent
Insurance Conference of Canada.
----------------------
*Note The words printed in italics in the Limited Exclusion Provision and
in the Broad Exclusion Provision shall apply only in relation to
original liability policies which include a Limited Exclusion
Provision or a Broad Exclusion Provision containing those words.
34
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
WAR RISK EXCLUSION CLAUSE (REINSURANCE)
---------------------------------------
As regards interests which at time of loss or damage are on shore, no
liability shall attach hereto in respect of any loss or damage which is
occasioned by war, invasion, hostilities, acts of foreign enemies, civil war,
rebellion, insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority.
This War Exclusion Clause shall not, however, apply to interest which
at time of loss or damage are within the territorial limits of the United States
of America (comprising the fifty States of the Union and the District of
Columbia, its territories and possessions, including the Panama Canal Zone and
the Commonwealth of Puerto Rico and including Bridges between the United States
of America and Mexico provided they are under United States ownership), Canada,
St. Pierre and Miquelon, provided such interests are insured under original
policies, endorsements or binders containing a standard war or hostilities or
warlike operations exclusion clause.
Nevertheless, this clause shall not be construed to apply to loss or
damage occasioned by riots, strikes, civil commotion, vandalism, malicious
damage, including acts committed by agents of any government, party or faction
engaged in war, hostilities or other warlike operation, provided such agents are
acting secretly and not in connection with any operations of military or naval
armed forces in the country where the interests insured are situated.
35
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
INSOLVENCY FUND EXCLUSION CLAUSE
--------------------------------
This Agreement excludes all liability of the Ceding Company arising by contract,
operation of law or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency Fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed, which provides for
any assessment of or payment or assumption by the Ceding Company of part or all
of any claim, debt, charge, fee or other obligation of an insurer or its
successors or assigns which has been declared by any competent authority to be
insolvent or which is otherwise deemed unable to meet any claim, debt, charge,
fee or other obligation in whole or in part.
36
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE
---------------------------------------------------
Section A:
Excluding:
(a) All business derived directly or indirectly from any Pool,
Association, or Syndicate which maintains its own reinsurance
facilities.
(b) Any Pool or Scheme (whether voluntary or mandatory) formed
after March 1, 1968 for the purpose of insurance property
whether on a country-wide basis or in respect of designated
areas. This exclusion shall not apply to so-called Automobile
Insurance Plans or other Pools formed to provide coverage for
Automobile Physical Damage.
Section B:
It is agreed that business written by the Company for the same perils, which is
known at the time to be insured by, or in excess of underlying amounts placed in
the following Pools, Associations or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:
Industrial Risk Insurers,
Associated Factory Mutuals Improved Risk Mutuals
Any Pool, Association or Syndicate formed for the purpose of writing
Oil, Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs,
United States Aircraft Insurance Group,
Canadian Aircraft Insurance Group,
Associated Aviation Underwriters,
American Aviation Underwriters
Section B does not apply:
(a) Where the Total Insured Value over all interests of the risk
in question is less than $250,000,000.
(b) To interests traditionally underwritten as Inland Marine or
stock and/or contents written on a blanket basis.
(c) To Contingent Business Interruption, except when the Company
is aware that the key location is known at the time to be
insured in any Pool, Association, or Syndicate named above
other than as provided for under Section B(a).
(d) To risks as follows:
Offices, Hotels, Apartments, Hospitals, Educational
Establishments, Public Utilities, (other than railroad
schedules) and builder's risks on the classes of risks
specified in this subsection (d) only. Where this clause
attaches to Catastrophe Excesses, the following Section C is
added:
37
TICNY Q.S.
SMALL BUSINESS
-------------------------------------------------------------------------------
Section C:
Nevertheless the Reinsurer specifically agrees that liability accruing to the
Company from its participation in:
(1) The following so-called "Coastal Pools":
Alabama Insurance Underwriting Association
Florida Windstorm Underwriting Association
Louisiana Insurance Underwriting Association
Mississippi Windstorm Underwriting Association
North Carolina Insurance Underwriting Association
South Carolina Windstorm and Hail Underwriting Association
Texas Catastrophe Property Insurance Association
AND
(2) All "Fair Plan" and "Rural Risk Plan" business for all perils
otherwise protected hereunder shall not be excluded, except,
however, that this reinsurance does not include any increase
in such liability resulting from:
(i) The inability of any other participant in such
"Coastal Pool" and/or "Fair Plan" and/or "Rural Risk
Plan" to meet its liability.
(ii) Any claim against such "Coastal Pool" and/or "Fair
Plan" and/or "Rural Risk Plan" or any participant
therein, including the Company, whether by way of
subrogation or otherwise, brought by or on behalf of
any insolvency fund (as defined in the Insolvency
Fund Exclusion Clause incorporated in this Contract).
38
