PORTFOLIO TRANSFER AND QUOTA SHARE REINSURANCE AGREEMENT BY AND BETWEEN MAIDEN INSURANCE COMPANY, LTD. AND MOTORS INSURANCE CORPORATION
PORTFOLIO
TRANSFER AND
QUOTA
SHARE REINSURANCE AGREEMENT
BY
AND BETWEEN
MAIDEN
INSURANCE COMPANY, LTD.
AND
MOTORS
INSURANCE CORPORATION
TABLE
OF CONTENTS
|
Article
1 DEFINITIONS
|
1
|
|
|
Section
1.1
|
Defined
Terms.
|
1
|
|
Article
2 BASIS OF REINSURANCE AND BUSINESS REINSURED
|
7
|
|
|
Section
2.1
|
Existing
and Fronted Business.
|
7
|
|
Section
2.2
|
Transfer
of Existing Loss Reserves.
|
7
|
|
Article
3 PAYMENTS, OFFSET, AND SECURITY
|
8
|
|
|
Section
3.1
|
Premium.
|
8
|
|
Section
3.2
|
Offset
Rights.
|
11
|
|
Section
3.3
|
Premiums
for Reinsurance Contracts and Inuring Reinsurance
|
11
|
|
Section
3.4
|
Reports
and Remittances.
|
11
|
|
Section
3.5
|
Funding
of Pre-Existing Trusts and Adjustment to Funds Withheld
Amount.
|
13
|
|
Section
3.6
|
Credit
for Reinsurance and Security Facility.
|
14
|
|
Section
3.7
|
Collection
of Premiums.
|
15
|
|
Article
4 CLAIMS AND CLAIMS UNDERWRITING AND OTHER ADMINISTRATION
|
16
|
|
|
Article
5 REGULATORY MATTERS
|
19
|
|
|
Article
6 DUTY OF COOPERATION & INDEMNITY; INURING REINSURANCE
|
19
|
|
|
Section
6.1
|
Cooperation.
|
19
|
|
Section
6.2
|
Indemnity
|
19
|
|
Section
6.3
|
Inuring
Reinsurance
|
19
|
|
Article
7 RESOLUTION OF DISPUTES
|
19
|
|
|
Article
8 INSOLVENCY
|
20
|
|
|
Article
9 REGULATORY APPROVALS
|
20
|
|
|
Article
10 DURATION
|
20
|
|
|
Article
11 FOLLOW THE FORTUNES
|
21
|
|
|
Article
12 SURVIVAL; INDEMNIFICATION
|
21
|
|
|
Section
12.1
|
Survival.
|
21
|
|
Section
12.2
|
Indemnification.
|
21
|
|
Section
12.3
|
Limitations.
|
22
|
|
Section
12.4
|
Remedies
Exclusive.
|
23
|
|
Article
13 MISCELLANEOUS
|
23
|
|
|
Section
13.1
|
Notices.
|
23
|
|
Section
13.2
|
Assignment;
Parties in Interest.
|
25
|
i
|
Section
13.3
|
Waivers
and Amendments; Preservation of Remedies.
|
25
|
|
Section
13.4
|
Governing
Law; Venue.
|
25
|
|
Section
13.5
|
Counterparts.
|
25
|
|
Section
13.6
|
Entire
Agreement; Merger.
|
26
|
|
Section
13.7
|
Exhibits
and Schedules.
|
26
|
|
Section
13.8
|
Headings.
|
26
|
|
Section
13.9
|
Severability.
|
26
|
|
Section
13.10
|
Expenses.
|
26
|
|
Section
13.11
|
Currency.
|
26
|
|
Section
13.12
|
Representations
and Warranties.
|
26
|
ii
PORTFOLIO
TRANSFER AND
QUOTA
SHARE REINSURANCE AGREEMENT
THIS
PORTFOLIO TRANSFER AND QUOTA SHARE REINSURANCE AGREEMENT
(this
“Agreement”) is entered into as of October 31, 2008, by and between Motors
Insurance Corporation, a Michigan domiciled insurance company (the “Company”),
and Maiden Insurance Company, Ltd., an insurance company organized under the
laws of Bermuda (the “Reinsurer”) (collectively, the “Parties”).
WHEREAS,
this
Agreement is being entered into in connection with (a) that certain Securities
Purchase Agreement (the “LLC SPA”) dated of even date herewith, between GMACI
Holdings LLC and Maiden Holdings North America, Ltd., a Delaware
corporation (the
“Buyer”) pursuant to which, among other things, the Buyer is acquiring all of
the outstanding ownership interests of GMAC Re LLC, a Delaware limited liability
company (“GMAC Re”); and
(b) that
certain Fronting Agreement of even date herewith (as amended, the “Fronting
Agreement”) among the Company, Integon Specialty Insurance Company (“Integon”),
Integon Preferred Insurance Company, MIC Property & Casualty Insurance
Corporation, Integon National Insurance Company (collectively, the “Fronting
Companies”) and the Buyer pursuant to which the Fronting Companies have agreed
to a temporary fronting arrangement with the Buyer;
WHEREAS,
as more
particularly set forth herein, in connection with the Fronting Agreement and
the
LLC SPA, the Company and the Reinsurer wish to enter into a quota share
reinsurance agreement pursuant to which, among other things, the Reinsurer
will
reinsure (i) all of the Existing Contracts (as defined below) written by the
Company pursuant, in part, to a loss portfolio transfer, and (ii) all of the
Fronted Contracts (as
defined below) as more particularly set forth in this Agreement.
NOW,
THEREFORE,
in
consideration of the mutual and several promises and undertakings herein
contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE
1
DEFINITIONS
Section
1.1 Defined
Terms.
The
following terms shall have the respective meanings specified below throughout
this Agreement.
“Actual
Loss Reserve Figures” has the meaning set forth in Section 2.2(b).
“Actual
UPR Transfer Amount” has the meaning set forth in Section
3.1(a)(iii).
“Administration
Agreement” means that certain Administration Agreement of even date herewith
among the Fronting Companies, GMAC Re, the Reinsurer and Maiden.
“Agreement”
has the meaning set forth in the first paragraph.
“Affiliate”
(and, with a correlative meaning, “Affiliated”) means, with respect to any
Person, any other Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such first Person. As used in this definition, “control” (including, with
correlative meanings, “controlled by” and “under common control with”) shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities
or
partnership or other ownership interests, by contract, as trustee or executor,
or otherwise). For purposes of this Agreement, (i) GMAC Re shall be considered
an affiliate of the Company for all periods prior to the Effective Time, and
an
affiliate of the Reinsurer for all periods on or after the Effective Time,
and
(ii) Integon shall be considered an affiliate of the Company for all periods
prior to the closing of the transactions contemplated under the Integon SPA
(as
defined in the Fronting Agreement) and an affiliate of the Reinsurer for all
periods on or after the closing of the transactions contemplated under the
Integon SPA.
“Alternative
Accountants” has the meaning set forth in Section 3.1(a)(iv).
“Applicable
Law” has the meaning set forth in the LLC SPA.
“Buyer”
has the meaning set forth in the recitals.
“Ceding
Commission” means an amount equal to the Unearned Acquisition Costs and the
Unearned Existing Inuring Reinsurance Costs with respect to Existing Policies
and the Fronting Acquisition Costs and Fronting Inuring Reinsurance Costs with
respect to Fronted Policies, in each case subject to any applicable commission
or brokerage adjustments pursuant to the underlying terms and conditions of
any
Reinsurance Contract, which adjustments shall be accounted for and settled
as
between the Parties as part of the monthly reporting pursuant to Section 3.4.
“Claim”
and “Claims” means any and all claims, requests, demands or notices made by or
on behalf of policyholders, reinsureds, beneficiaries or third party claimants
for the payment of Losses and any other amounts due or alleged to be due under
or in connection with the Reinsured Contracts.
“Closing
Date” has the meaning set forth in the LLC SPA.
“Company”
has the meaning set forth in the first paragraph.
“Effective
Time” means 12:01 a.m. Eastern Time on the Closing Date.
“Existing
Contracts” means (i) all reinsurance contracts, treaties, slips, covers or other
agreements of reinsurance, including all supplements, riders and endorsements
issued or written in connection therewith and extensions thereto, whether or
not
in-force, constituting Reinsurance Business, in each case that were entered
into
prior to the Closing Date and placed by either GMAC Re or GMAC Re Corp. in
the
name of the Company, but not including any reinsurance relating to the HomeSite
program, and (ii) all reinsurance agreements, whether or not in-force, as of
the
date hereof between the Company and any of the other Fronting Companies but
only
to the extent such reinsurance agreements involve cessions of the SRS Business
and Tri-State Business.
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2
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“FMV”
means, with respect to any asset or security held in a Pre-Existing Trust
Account or the QSA Trust the fair market value of such asset or security
determined as set forth in Schedule D.
“Fronted
Contracts” means all reinsurance contracts, treaties, slips, covers or other
agreements of reinsurance, including all supplements, riders and endorsements
issued or written in connection therewith and extensions thereto constituting
Reinsurance Business, in each case that are entered into on or after the Closing
Date
“Fronting
Agreement” has the meaning set forth in the recitals.
“Fronting
Authority” means the authority conferred upon the Buyer, GMAC Re and the
Reinsurer under the Fronting Agreement and Administration Agreement to write
Fronted Contracts.
“Fronting
Companies” has the meaning set forth in the recitals.
“Fronting
Period” has the meaning set forth in the Fronting Agreement.
“Funds
Withheld Amount” shall mean as of any date an amount equal to the aggregate sum
of cash and the FMV of the assets and securities maintained in the Pre-Existing
Trust Accounts as of such date.
“GMAC
Re”
has the meaning set forth in the recitals.
“Governmental
Entity” has the meaning set forth in the LLC SPA.
“IBNR”
has the meaning set forth in the definition for the term Loss
Reserves.
“Initial
UPR Transfer Amount” has the meaning set forth in Section
3.1(a)(ii).
“Integon”
has the meaning set forth in the recitals.
“Inuring
Reinsurance” means all reinsurance agreements, treaties and contracts listed in
Schedule B, including any renewals or extensions thereof, to the extent such
reinsurance agreements, treaties and contracts provide reinsurance coverage
for
the Existing Contracts or Fronted Contracts.
“LLC
SPA”
has the meaning set forth in the recitals.
“Loss
Reserve Transfer Adjustment” has the meaning set forth in Section
2.2(d).
“Loss
Reserve True Up Report” has the meaning set forth in Section
2.2(b).
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3
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“Loss
Reserves” shall mean as of any date the amount recorded on the books of the
Company, without taking into account the reinsurance retroceded to the Reinsurer
hereunder, on account of its actual or potential obligations for unpaid Losses
as of such date, including, without limitation, amounts for incurred but not
reported Losses (“IBNR”), calculated consistent with the established actuarial
practices applied by the Company in respect of the Existing Contracts as of
June
30, 2008, but in all cases consistent with the reserve requirements, statutory
accounting rules and actuarial principles applicable to the Company under
Applicable Law as of the date at issue, but excluding any documented estimate
in
excess of the actuarial estimate, referred to as risk load, included in IBNR
as
of such date.
“Losses”
shall mean, regardless of whether incurred prior to or after the Effective
Time,
liabilities and obligations to make payments to policyholders, reinsureds and
beneficiaries and/or other third party claimants under the Existing Contracts
and Fronted Contracts (including, without limitation, liabilities or assessments
arising from the Company’s participation, if any, in any voluntary or
involuntary pools, guaranty funds, or other types of government-sponsored or
government-organized insurance funds) and all loss adjustment expenses and
defense costs, including, without limitation, (i) all expenses reinsured or
incurred by or on behalf of the Company related to the investigation, appraisal,
adjustment, litigation, defense or appeal of claims under or covered by the
Existing Contracts, Fronted Contracts and/or coverage actions under or covered
by the Existing Contracts or Fronted Contracts, (ii) all liabilities for
consequential, exemplary, punitive or similar extra contractual damages, or
for
statutory or regulatory fines or penalties, or for any loss in excess of the
limits arising under or covered by any Existing Contract or Fronted Contract,
and (iii) court costs accrued prior to final judgment, prejudgment interest
or
delayed damages and interest accrued after final judgment. Notwithstanding
the
foregoing, “Losses” shall not include any liabilities or obligations incurred by
or on behalf of the Company as a result of any fraudulent and/or criminal act
by
the Company or any of its Affiliates or any of their respective officers,
directors, employees or agents. Losses shall be net of all Inuring Reinsurance,
whether collectible or not, unless such non-collectibility is due to any
negligent, erroneous, fraudulent or criminal act or omission to the extent
attributable to the Reinsurer or any of its Affiliates or any of their
respective officers, directors, employees or agents acting in such respective
capacities in which case the Reinsurer’s obligations hereunder shall be expanded
to include payment for the portion of any such Losses that are not covered
by
Inuring Reinsurance that shall be non-collectible due to such an act or
omission; provided that the Company shall have used commercially reasonable
efforts, at its expense, to pursue collection of such Inuring Reinsurance and
the failure to collect such Inuring Reinsurance shall have been primarily the
result of such negligent, erroneous, fraudulent or criminal act or omission
.
“Material
Adverse Effect” means (a) with respect to the Company, any change, effect, event
or occurrence resulting in a material adverse effect on (i) the business,
financial condition or results of operations of the Company, taken as a whole,
or (ii) the ability of the Company to consummate the transactions contemplated
hereby on a timely basis and perform its obligations hereunder; and (b) with
respect to the Reinsurer, any change, effect, event or occurrence resulting
in a
material adverse effect on (i) the business, financial condition or results
of
operations of the Reinsurer, taken as a whole or (ii) the ability of the
Reinsurer to consummate the transactions contemplated hereby on a timely basis
and perform its obligations hereunder.
“Parties”
has the meaning set forth in the first paragraph.
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4
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“Person”
shall mean any individual, corporation, partnership, firm, joint venture,
association, joint-stock company, limited liability company, trust, estate,
unincorporated organization, Government Entity or other entity.
“Pre-Existing
Trust Accounts” means the trust accounts described on Schedule C as well as any
new trust accounts established on or after the Effective Time for purposes
of
securing the obligations of the Company under any Fronted Contracts.
“Pre-Existing
Trust Agreement” means with respect to any Pre-Existing Trust Account the trust
or other agreement pursuant to which such Pre-Existing Trust Account was
established.
“Pre-Existing
Trust Asset FMV” has the meaning set forth in Section 2.2(a)(i).
“Premium(s)”
means all gross written premium(s), considerations, deposits, premium
adjustments, fees and similar amounts related to the Existing Contracts and
Fronted Contracts, less cancellation and return premiums.
“QSA
Trust” means the trust established pursuant to the Trust Agreement.
“QSA
Trustee” means JPMorgan Chase N.A.
“Reinsurance
Business” has the meaning set forth in the Fronting Agreement.
“Reinsurance
Contracts” means the Existing Contracts and the Fronted Contracts.
“Reinsurer”
has the meaning set forth in the first paragraph.
“Secured
Obligations” means an amount, as of any specified date, equal to (i) the Loss
Reserves attributable to the Reinsurance Contracts, (ii) the portion of Premiums
payable hereunder to the Reinsurer representing the unexpired portion of the
Reinsurance Contracts, whether collected or not, calculated using the daily
pro
rata method, ; and (iii) any other obligations or amounts that are unpaid or
payable by the Reinsurer pursuant to the terms of this Agreement, including
without limitation, the Reinsurer’s obligation to remit any Premiums collected
on behalf of the Company pursuant to Section 3.7.
“Security
Facility” has the meaning set forth in Section 3.6(b).
“SRS
Business” has the meaning set forth in
the
Fronting Agreement.
“Taxes”
(or “Tax” as the context may require) means all United States federal, state,
county, local, foreign and other taxes (including, without limitation, income
taxes, payroll and employee withholding taxes, unemployment insurance, social
security taxes, premium taxes, excise taxes, sales taxes, use taxes, gross
receipts taxes, franchise taxes, ad valorem taxes, severance taxes, capital
property taxes and import duties), and includes interest, additions to tax
and
penalties with respect thereto, whether disputed or not.
“Transaction
Documents” has the meaning set forth in the LLC SPA.
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5
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“Tri-State
Business” has the meaning set forth in the Fronting Agreement.
“Trust
Agreement” means the Trust Agreement of even date herewith among the Company,
the Reinsurer and the QSA Trustee in the form attached as Exhibit A hereto,
which Trust Agreement the Reinsurer agrees to amend at such times as requested
by the Company and in such manner as to permit the Company to take full reserve
credit on its statutory financial statements for the reinsurance ceded to
Reinsurer under this Agreement, and to comply with Regulation 114 under the
New
York Insurance Law, and where more stringent, to Applicable Laws relating to
the
Company’s ability to take such full reserve credit.
“Uncollected
Premium Schedule” has the meaning set forth in Section 3.1(a)(ii).
“Uncollected
Premium” means the uncollected Premium as of the Closing Date reflected on the
final Uncollected Premium Schedule determined pursuant to Section
3.1(a)(iv).
“Unearned
Acquisition Costs” means an amount equal to the actual out-of-pocket expenses
incurred by the Company for amounts paid or payable by, or on behalf of (other
than amounts paid by the Reinsurer or one of its Affiliates using funds of
the
Reinsurer or its Affiliates), the Company to persons who are not Affiliates
of
the Company to acquire that portion of the Existing Contracts associated with
the Unearned Premium Reserve, including all commissions and brokerage payments
and any adjustments thereto.
“Unearned
In-Force Inuring Reinsurance Costs” means an amount equal to the unearned
portion (calculated using the daily pro rata method) of
any
premium or premium deposit paid or payable by the Company for Inuring
Reinsurance attributable to the Existing Contracts that shall not have been
paid
by the Reinsurer or one of its Affiliates.
“Unearned
Premium Reserves” means the gross liability as of the Effective Time for the
amount of Premium corresponding to the unexpired portion of all Existing
Contracts, whether or not such Premium has been collected, less the
corresponding Unearned Acquisition Costs and Unearned In-Force Inuring
Reinsurance Costs, whether or not paid as of the Effective Time, in each case
calculated using the daily pro rata method in a manner consistent with the
Company’s quarterly financial statements dated as of June 30, 2008, prepared in
accordance with statutory accounting practices and subject to any applicable
Premium, commission or brokerage adjustments prior to or after the Effective
Time pursuant to the underlying terms and conditions of any Reinsurance
Contract, which adjustments shall be accounted for and settled as between the
Parties as part of the monthly reporting pursuant to Section 3.4.
“UPR
True
Up Report” has the meaning set forth in Section 3.1(a)(iii).
“UPR
Adjustment” has the meaning set forth in Section 3.1(a)(v).
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6
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Article
2
BASIS
OF REINSURANCE AND BUSINESS REINSURED
Section
2.1 Existing
and Fronted Business.
From
and
after the Effective Time, the Company hereby cedes, and the Reinsurer hereby
assumes, one hundred percent (100%) of all Losses for which the Company is
otherwise liable in respect of the Reinsurance Contracts. For
the
avoidance of doubt, Losses reinsured hereunder and any payments of Claims by
the
Reinsurer shall be net of Inuring Reinsurance, whether collectible or not,
unless such non-collectibility is due to any negligent, erroneous, fraudulent
or
criminal act or omission to the extent attributable to the Reinsurer or any
of
its Affiliates or any of their respective officers, directors, employees or
agents acting in such capacity, in which case the Reinsurer’s obligations
hereunder shall be expanded to include payment for the portion of any such
Losses that are not covered by Inuring Reinsurance that shall be non-collectible
due to such an act or omission; provided that the Company shall have used
commercially reasonable efforts, at its expense, to pursue collection of such
Inuring Reinsurance and the failure to collect such Inuring Reinsurance shall
have been primarily the result of such negligent, erroneous, fraudulent or
criminal act or omission .
Section
2.2 Transfer
of Existing Loss Reserves.
(a) On
the
Closing Date, the Company shall convey one hundred percent (100%) of the Loss
Reserves for the Existing Contracts to the Reinsurer as follows:
(i) cash
and
securities in an amount equal to the estimate (set forth as item 2 in
Schedule A, estimated as of the date set forth as item 1 of
Schedule A) of the aggregate sum of cash and the FMV of the assets and
securities held in Pre-Existing Trust Accounts (the “Pre-Existing Trust Asset
FMV”), which cash and securities shall be retained by the Company on a funds
withheld basis (the initial Funds Withheld Amount as of the Closing Date) as
security for the Secured Obligations; and
(ii) cash
in
an amount, if any, by which the estimate of Loss Reserves for the Existing
Business (set forth as item 3 in Schedule A, estimated as of the date set
forth as item 1 of Schedule A) exceeds the initial Funds Withheld Amount
referred to in Section 2.2(a)(i), which amount (the initial “Loss Reserve
Transfer Amount,” set forth as item 4 in Schedule A) shall be conveyed by
the Company to the Reinsurer on the Closing Date by depositing the same by
wire
transfer of immediately available funds into the QSA Trust.
(b) Within
thirty (30) days following the Closing Date, the Reinsurer shall perform a
calculation of the actual Funds Withheld Amount (by calculating the actual
Pre-Existing Trust Asset FMV), and the actual Loss Reserves, all as of the
Closing Date, and, on the basis of those calculations, shall calculate an
adjusted Loss Reserve Transfer Amount (all such figures, collectively, the
“Actual Loss Reserve Figures”), and, if different from the corresponding figures
set forth in Schedule A, the Reinsurer shall send to the Company its
computation of the Actual Loss Reserve Figures together with its work papers
used to compute the same (the “Loss Reserve True Up Report”). Such actual Loss
Reserves shall be calculated utilizing the established actuarial practices
as
followed by the Company as of June 30, 2008 in respect of the Existing
Contracts, as well as the reserve requirements, statutory accounting rules
and
actuarial principles applicable to the Company as of the Effective Time. Failure
of the Reinsurer to deliver the Loss Reserve True Up Report within the time
period specified herein shall be deemed acceptance by the Reinsurer of the
amounts set forth in Schedule A as the Actual Loss Reserve
Figures.
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7
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(c) Within
ten (10) days following the Company’s receipt of the Loss Reserve True-Up
Report, the Parties shall confer in good faith with regard to any disputed
calculations and an appropriate adjustment shall be made to the Actual Loss
Reserve Figures as agreed upon by the Parties. If
the
Parties are unable to agree on an appropriate adjustment within twenty (20)
days
of the Loss Reserve True Up Report, the same procedures described in Section
3.1(iv) for the determination and payment of the final “Actual UPR Transfer
Amount” shall apply, mutatis
mutandis,
to the
determination of the Actual Loss Reserve Figures.
(d) Following
final determination of the Actual Loss Reserve Figures: (i) the difference
between the initial Loss Reserve Transfer Amount and the actual Loss Reserve
Transfer Amount (the “Loss Reserve Transfer Adjustment”) shall, if positive, be
paid to the Company from the QSA Trust and, if negative, deposited by the
Company into the QSA Trust; and (ii) the initial Funds Withheld Amount as
of the Closing Date shall be adjusted to the actual Funds Withheld Amount as
of
the Closing Date .
(e) From
and
after the Effective Time, the Reinsurer shall maintain as a liability on its
statutory financial statements adequate reserves for all liabilities ceded
under
this Agreement. The Reinsurer shall provide the Company with its periodic
reports filed with its insurance regulators and a copy of its audited financial
statements along with the audit report thereon within fifteen (15) days of
the
Reinsurer’s filing of such statements and reports with the insurance regulator
of its jurisdiction of domicile.
ARTICLE
3
PAYMENTS,
OFFSET, AND SECURITY
Section
3.1 Premium.
(a) Unearned
Premium Reserves and Premiums.
(i) As
full
premium for the Existing Contracts ceded under this Agreement, the Company
shall
transfer to the Reinsurer one hundred percent (100%) of the Unearned Premium
Reserves held by the Company relating to such ceded business and one hundred
percent of all Premiums collected on account of the Existing Contracts on or
after the Closing Date (which Premiums, if any, shall be deposited into the
QSA
Trust) but only to the extent such Premiums were not reflected in the Unearned
Premium Reserves transferred to the Reinsurer pursuant to this Section 3.1.
Any
Premiums collected on Existing Contracts on or after the Closing Date that
were
reflected in the Unearned Premium Reserves shall be retained by the Company
in
accordance with Section 3.7.
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8
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(ii) On
the
Closing Date, the Company shall deposit by wire transfer of immediately
available funds into the QSA Trust an amount (the “Initial UPR Transfer Amount”)
equal to the amount identified in as Item 5 of Schedule A, representing an
estimate of the Unearned Premium Reserves for the Existing Contracts as of
the
Closing Date.
On the
Closing Date, the Company shall deliver to Reinsurer a schedule of Premiums
that
shall not have been collected from the applicable ceding company and with
respect to which an amount shall be included in the Unearned Premium Reserve
transferred as of the Closing Date (the “Uncollected Premium
Schedule”).
(iii) Within
thirty (30) days following the Closing Date, the Reinsurer shall recalculate
the
amounts specified in Section 3.1(a)(ii) considering the post-Closing Date
information available to the Parties (such calculations resulting in the
calculation of the “Actual UPR Transfer Amount”) and, if different from the
Initial UPR Transfer Amount, the Reinsurer shall send to the Company its
computation of the Actual UPR Transfer Amount together with its work papers
used
to compute the same and, if different from the Uncollected Premium Schedule
delivered as of the Closing Date, an updated Uncollected Premium Schedule (the
“UPR True Up Report”). Failure of the Reinsurer to deliver the UPR True Up
Report within the time period specified herein shall be deemed acceptance by
the
Reinsurer of the Initial UPR Transfer Amount as the Actual UPR Transfer Amount
and the initial Uncollected Premium Schedule as the final Uncollected Premium
Schedule.
(iv) Within
ten (10) days following the Company’s receipt of the UPR True Up Report, the
Parties shall confer in good faith with regard to the Actual UPR Transfer Amount
and, if necessary, an appropriate adjustment shall be made to the amounts due
or
payable pursuant to this Section 3.1(a) as agreed upon by the Parties and to
the
Uncollected Premium Schedule. If the Parties are unable to agree on the Actual
UPR Transfer Amount or Uncollected Premium Schedule within twenty (20) days
of
the Company’s receipt of the UPR True Up Report, “Alternative Accountants,”
whose decision on the matter shall be binding on the Parties, shall be
designated by agreement between the Company and the Reinsurer. If the Parties
fail to agree on the selection of the Alternative Accountants, the Alternative
Accountants shall be selected by mutual agreement of each of the Company’s and
the Reinsurer’s outside independent auditors. The Alternative Accountants shall
conduct such analysis as they deem appropriate, during a period not to exceed
thirty (30) days after they are selected, to determine the amounts which they
conclude should have been reflected in the UPR True Up Report or the Uncollected
Premium that should have been reflected in the Uncollected Premium Schedule
and
shall issue their decision (which shall be rendered in writing and shall specify
the reasons for the decision) within fifteen (15) days after the conclusion
of
their analysis. The Alternative Accountants’ decision shall include a
determination of the Actual UPR Transfer Amount, the amounts which they have
determined should be used for the UPR True Up Report and a determination of
the
UPR Adjustment (as that term is defined in Section 3.1(a)(v)) due to the
Reinsurer or the Company, as the case may be, and a determination of the final
Uncollected Premium Schedule. Each Party shall make available to the other
Party
and the Alternative Accountants such work papers as may be reasonably necessary
to calculate the Actual UPR Transfer Amount and UPR Adjustment and determine
the
final Uncollected Premium Schedule under this Section 3.1(a)(iv). No Party
shall
have any ex parte
discussions or communications, directly or indirectly, with the Alternative
Accountants regarding the subject matter of a dispute arising under this Section
3.1(a)(iv), unless the Party seeking such discussions or communications first
obtains the other Party’s written consent to such ex parte contact with the
Alternative Accountants. For the avoidance of doubt, in the event of any dispute
with respect to the UPR True Up Report or the Uncollected Premium Schedule,
such
dispute shall be governed by this Section 3.1(a)(iv) and the procedures set
forth herein, and not by the provisions of Article 7.
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(v) On
the
fifth (5th)
business day following the deemed acceptance of, the mutual written agreement
of
the Company and the Reinsurer to, or the determination by the Alternative
Accountants of, the final Actual UPR Transfer Amount, if the premium required
under Section 3.1(a)(i) using such final Actual UPR Transfer Amount exceeds
the
Initial UPR Transfer Amount, the Company shall deposit funds into the QSA equal
to the difference, and if the premium so calculated is less than the Initial
UPR
Transfer Amount, the Company shall be paid such difference with funds from
the
QSA Trust (the amount so transferred being herein called the “UPR
Adjustment”).
(b) The
Company’s Fronted Business; Fronted Contract Premiums and Ceding
Commissions.
Subject
to Section 3.5, as premium for the Fronted Contracts ceded under this Agreement
(the “Fronted Premiums”), the Company shall promptly deposit by wire transfer of
immediately available funds into the QSA Trust one hundred percent (100%) of
the
collected Premiums attributable to the Fronted Contracts, net of a ceding
commission in an amount equal to the actual out-of-pocket expenses incurred
by
the Company for amounts paid or payable by, or on behalf of, the Company to
persons who are not Affiliates of the Company to acquire the Fronted Contracts,
including all commissions and brokerage payments and any adjustments thereto
(the “Fronting Acquisition Costs”), and net of any premium or premium deposit
paid or payable by the Company for Inuring Reinsurance that shall not have
been
paid by the Reinsurer or one of its Affiliates (the “Fronted Inuring Reinsurance
Costs”). If, during any quarter, the aggregate FMV of the cash and assets
retained in the Security Facility equals or exceeds the aggregate amount of
the
Secured Obligations as calculated as of the end of the prior quarter with
adjustments to reflect Claims incurred, Losses paid, reserve adjustments,
business written and other matters affecting the amount of the Secured
Obligations, then the Company shall transfer directly to the Reinsurer any
Fronted Premiums that are collected by the Company during such calendar quarter.
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Section
3.2 Offset
Rights.
Each
Party hereto, and each of its respective Affiliates at the time an offset is
asserted, shall have, and may exercise at any time and from time to time, the
right to offset any balance or balances due to the other Party or any of its
Affiliates at the time an offset is asserted, whether arising under this
Agreement, any of the Transaction Documents, or any other reinsurance agreement
heretofore or hereafter entered into by and between them, and regardless of
whether on account of Premiums, Ceding Commissions, or Losses related to or
arising under the Existing Contracts or Fronted Contracts or any other amount
related to or arising under any of the Transaction Documents or otherwise;
provided,
however,
that in
the event of the insolvency of a Party hereto or any of its Affiliates, offsets
shall only be allowed in accordance with the provisions of Applicable Law.
Section
3.3 Premiums
for Reinsurance Contracts and Inuring Reinsurance
(a) The
Reinsurer is authorized to collect Premiums for the Existing Contracts and
Fronted Contracts from reinsureds of the Company and shall promptly deposit
such
Premiums into the QSA Trust, net of the applicable Ceding Commission, provided
that if,
during
any quarter, the aggregate amount of cash and assets retained in the Security
Facility equals or exceeds the aggregate amount of the Secured Obligations
as
calculated as of the end of the prior quarter with adjustments to reflect Claims
incurred, Losses paid, reserve adjustments, business written and other matters
affecting the amount of the Secured Obligations, then the Reinsurer may retain
any net Premiums collected during such calendar quarter for its own
benefit. To
the
extent any Premiums are collected directly by the Company, the Company shall
so
advise the Reinsurer and, depending on whether the aggregate
amount of cash and assets retained in the Security Facility equals or exceeds
the aggregate amount of the Reinsurer’s Secured Obligations, shall promptly
deposit
them into the QSA Trust or remit them to the Reinsurer as the case may be,
net
of the applicable Ceding Commission which shall be retained by the Company.
The
Reinsurer and the Company agree to maintain accounting and operational records
and books in adequate detail so as to identify the specific Existing Contracts,
Fronted Contracts and reinsureds of the Company with respect to all collected
Premiums.
(b) The
Reinsurer shall: (i) timely pay any return premium coming due under the
Existing Contracts or Fronted Contracts payable on or after the Closing Date;
or
(ii) promptly reimburse the Company for any of the foregoing amounts that
are instead paid by the Company.
Section
3.4 Reports
and Remittances.
(a) Except
as
to the Security Facility which shall be settled quarterly, the Parties shall
conduct monthly settlements based upon monthly bordereaux to be provided by
or
on behalf of the Reinsurer evidencing the amount due or to be due in a form,
and
containing such detail, as is agreed to by the Parties. Such settlements shall
take into account and fully settle any profit commission, return commission,
loss corridor payment, or other similar premium or commission adjustments
payable to or by the Company pursuant to the terms of any Reinsurance Contract,
which adjustments, whether positive or negative, shall be credited to or charged
against the Reinsurer, as the case may be. Each Party shall pay or credit in
cash or its equivalent to the other all net amounts for which it may be liable
under the terms and conditions of this Agreement within thirty (30) days after
receipt of each monthly bordereau.
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(b) The
Company and the Reinsurer shall furnish each other with such records, reports
and information with respect to the Losses, Claims, Inuring Reinsurance,
Unearned Premium Reserve, the Security Facility, or the reinsurance contemplated
hereby as may be reasonably required by the other Party to comply with any
internal reporting requirements or reporting requirements of any Governmental
Authority or to prepare and complete such Party’s quarterly and annual financial
statements that are, in the case of reports to be provided by the Reinsurer,
consistent with records, reports or information currently provided by GMAC
Re to
the Company, subject to any changes to Applicable Law. In addition, the
Reinsurer shall provide the Company with (i) monthly reports
within thirty (30) days following the end of each month and in such form as
agreed by the Parties, (A) identifying all Claims in excess of Ten Million
Dollars ($10,000,000) or involving consequential, exemplary, punitive or similar
extra contractual damages, or any loss in excess of the limits arising under
or
covered by any Existing Contract or Fronted Contract, and (B) identifying all
adjustments to Premiums or applicable Ceding Commissions, including any
adjustments to ceding companies, third-party commissions or brokerage payments
pursuant to the underlying terms of the Reinsurance Contracts, which
adjustments, once settled through the settlement process provided for under
the
applicable Reinsurance Contract or paid to or collected from, the applicable
third-party or broker through a disbursement from or deposit to the applicable
Pre-Existing Trust Account, shall automatically increase or decrease the Funds
Withheld Amount by amounts equivalent to the settlements, as the case may be,
which monthly reports under this subsection (i) shall be consistent with reports
currently provided by GMAC Re to the Company (ii) quarterly reports within
thirty (30) days following the end of each quarter setting forth the Funds
Withheld Amount and adjustments thereto during such quarter and the FMV of
the
assets held in the QSA Trust as of the end of such quarter, and (iii) such
additional information as may be reasonably requested by the Company with
respect to any such reports, which requested additional information shall be
consistent with additional information requests currently made by the Company
of
GMAC Re, subject to any changes in Applicable Law.
(c) If
the
Company or the Reinsurer receives notice of, or otherwise becomes aware of,
any
inquiry, investigation, proceeding, from or at the direction of a Governmental
Entity, or is served or threatened with a demand for litigation, arbitration,
mediation or any other similar proceeding relating to the Reinsurance Contracts,
the Company or the Reinsurer, as applicable, shall promptly notify the other
party thereof, whereupon the parties shall cooperate in good faith and use
their
respective commercially reasonable efforts to resolve such matter in a mutually
satisfactory manner in light of all the relevant business, regulatory and legal
facts and circumstances.
(d) Each
Party shall have the right, through authorized representatives and upon
reasonable advance notice during normal business hours, to periodically audit
and inspect all books, records, and papers of the other Party solely in
connection with the Reinsurance Contracts, the Inuring Reinsurance and any
reinsurance hereunder or claims in connection therewith. Each Party shall treat
the other Party’s books, records, and papers in confidence. A Party shall be
permitted to conduct such audits no more frequently than semi-annually unless
the Reinsurer’s A.M. Best rating at any time falls below A-, in which case the
Company shall be permitted to audit the Reinsurer on a quarterly basis. In
addition, if the Reinsurer’s A.M. Best rating falls below A-, the Company may
place, at its expense, one or more employees or other authorized representatives
on-site at the Reinsurer’s office facilities, including the office facilities of
GMAC Re, for the purpose of monitoring the Reinsurer’s performance under this
Agreement. The Reinsurer shall provide such employee(s) or representative(s)
with reasonable office accommodations and access to the Reinsurer’s officers,
employees, books, records, and reports related to the Reinsurance Business
to
enable meaningful and proper oversight and monitoring of the Reinsurer’s
performance and duties hereunder.
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Section
3.5 Funding
of Pre-Existing Trusts and Adjustment to Funds Withheld
Amount.
(a) In
the
event the Company is required to fund any Pre-Existing Trust Account established
on or after the Effective Time, the Company shall deposit by wire transfer
of
immediately available funds into such Pre-Existing Trust Account one hundred
percent (100%) of the collected Premiums attributable to the Fronted Contract(s)
secured thereunder (or such lesser amount as may be required pursuant to the
terms of the Fronted Contract(s)), net of the applicable Ceding Commission.
In
the event collected Premiums are insufficient to timely satisfy the collateral
obligations under any Fronted Contract, the Company shall withdraw funds from
the QSA Trust equal to the shortfall and deposit such funds into the
Pre-Existing Trust Account, provided that if any such withdrawal would cause
the
QSA Trust to be underfunded pursuant to the terms of the Trust Agreement, then
the Reinsurer shall deposit its own funds into the Pre-Existing Trust Account
to
cover such shortfall. All funds deposited into a Pre-Existing Trust Account
shall increase the Funds Withheld Amount by an equivalent amount.
(b) To
the
extent the Company is required to add additional funds to a Pre-Existing Trust
Account under the terms thereof or under the terms of any of the Reinsurance
Contracts, the Company shall withdraw such funds from the QSA Trust and deposit
such funds into the Pre-Existing Trust Account, and the Funds Withheld Amount
shall be increased by an equivalent amount.
(c) Without
limiting the authority granted to the Reinsurer pursuant to Article 4(b), to
the
extent the Company is entitled to withdraw, and does withdraw, funds from a
Pre-Existing Trust Account under the terms of the applicable Pre-Existing Trust
Agreement, such amount shall be payable by the Company to the applicable ceding
company under a Reinsurance Contract to pay Claims or the Company shall (i)
pay
any such amount directly to the Reinsurer only if and to the extent the Company
is satisfied that, in the absence of such deposit, the QSA Trust will remain
fully funded as provided in Section 3.6(b), after accounting for such
withdrawal
from the Pre-Existing Trust Account, or (ii) in all other cases, deposit such
equivalent amount into the QSA Trust.
(d) Notwithstanding
anything to the contrary in this Agreement, the assets in the Pre-Existing
Trust
Accounts will be used as collateral only in respect of the Company’s obligations
under the Reinsurance Contracts to which those accounts are
related.
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(e) Subject
to the last sentence of Section 3.6(b) and to any monthly adjustments to the
Funds Withheld Amount as reflected by the reports delivered to the Company
pursuant to Section 3.4(b), the Funds Withheld Amount shall automatically be
adjusted to reflect (i) actual deposits by the Company of funds provided by
the Reinsurer into the Pre-Existing Trust Accounts; and (ii) actual
withdrawals from the Pre-Existing Trust Accounts.
(f) In
the
event the Company shall be entitled to withdraw any amount held in a
Pre-Existing Trust Account for its own benefit, promptly following receiving
notice of such withdrawal right, it shall, whether or not requested to do so
by
the Reinsurer, immediately cause such amount to be withdrawn and, subject in
all
cases to Section 3.5(c), upon receipt thereof deliver the amount of such
withdrawal to the Reinsurer.
Section
3.6 Credit
for Reinsurance and Security Facility.
(a) The
Reinsurer agrees that so long as this Agreement shall be in force, it will
have
capital and surplus of not less than the amount necessary to comply with the
Applicable Laws of its domiciliary jurisdiction. The Reinsurer agrees to
maintain reserves consistent with the Applicable Laws of any jurisdiction having
regulatory authority over Reinsurer.
(b)
(i) To
assure
that the Company can take full reserve credit on its statutory financial
statements for the reinsurance ceded to the Reinsurer under this Agreement,
the
Reinsurer’s liabilities under this Agreement shall be fully secured by assets
maintained in a “Security Facility.”
(ii) Such
Security Facility shall consist of (i) the Funds Withheld Amount, as such
amount is adjusted each calendar quarter to an amount equal to the FMV of the
cash and assets held in the Pre-Existing Trust Accounts as of the end of such
calendar quarter, and (ii) the QSA Trust, which the Reinsurer shall fund in
accordance with Section 3.6(d). The Company shall have the option, at its sole
discretion, to deposit, at any time, the Funds Withheld Amount in the QSA Trust.
(c) Subject
to the applicable Pre-Existing Trust Agreements, the Company shall have the
unfettered and unconditional right to reimburse itself, in whole or in part,
for
any amounts owed to the Company by the Reinsurer under this Agreement, and
otherwise unpaid, out of the Funds Withheld Amount, assets held in the
Pre-Existing Trust Account, or by withdrawal from the QSA Trust.
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(d) No
later
than thirty (30) days following the end of each calendar quarter other than
the
fourth quarter of each year, the Reinsurer shall deliver a report to the Company
setting forth the Reinsurer’s calculation of the Secured Obligations as of the
end of such quarter for the sole purpose of evaluating the adequacy of funds
in
the QSA Trust. The Parties shall confer in good faith with regard to any
disputes regarding the calculation or amount of Secured Obligations. If the
Parties are unable to agree on an appropriate adjustment to the calculations
of
the Secured Obligations within twenty (20) days of the Company’s receipt of such
calculation, the same procedures described in Section 3.1(iv) for the
determination and payment of the final “Actual UPR Transfer Amount” shall apply,
mutatis
mutandis,
to the
calculation of Secured Obligations for the calendar quarter at issue. If the
final calculation shows that the amount of Secured Obligations exceeds one
hundred percent (100%) of the sum of the Funds Withheld Amount and the FMV
of
assets held in the QSA Trust, in each case as of the end of the quarter at
issue, the Reinsurer shall, within ten (10) days after the final calculation
is
agreed to, secure delivery to the Company or the QSA Trustee of an increase
in
cash and eligible securities held in the QSA Trust in an amount equal to such
shortfall for deposit to the QSA Trust. If, however, the final calculation
shows
that such sum as of the report date exceeds one hundred two (102%) of the
Secured Obligations, the Company shall instruct, within ten (10) days after
receipt of written request from the Reinsurer, the QSA Trustee to release such
excess funds from the QSA Trust to the Reinsurer. In the event the Reinsurer’s
A.M. Best rating at any time falls below A-, then the Parties shall calculate
the Reinsurer’s Secured Obligations, and make any corresponding adjustments to
the Reinsurer’s collateral obligations, as set forth herein, on a monthly basis
rather than a quarterly basis. For purposes of calculating the Secured
Obligations with respect to the fourth quarter of each year, the Reinsurer
shall
deliver a report to the Company no later than sixty (60) days prior to year-end
setting forth the Reinsurer’s calculation of the estimated Secured Obligations
as of the end of such year. Any disputes between the Parties regarding such
calculation shall be resolved in accordance with the procedures outlined in
this
Section 3.6(d). If pursuant to the calculation described in the preceding
sentence, the Reinsurer shall be obligated to deliver additional cash or
eligible securities for deposit to the QSA Trust, the Reinsurer shall deliver
such cash or eligible securities no later than ten (10) days prior to the
year-end at issue to ensure the Company is able to receive full reserve credit
on its statutory financial statements for the reinsurance ceded to the Reinsurer
under this Agreement.
(e) The
investment income on all the funds held in the QSA Trust will be credited to
the
Reinsurer, and the Reinsurer shall be entitled, subject to the terms of the
Trust Agreement, to withdraw such income on a periodic basis. The Company hereby
authorizes the Reinsurer to direct the investment of the funds held under the
Trust Agreement consistent with the terms and conditions thereof. For the
avoidance of doubt, the Company and Reinsurer agree that the investment income
earned on funds held in the Pre-Existing Trust Accounts shall be deemed
investment income of the Reinsurer on the Funds Withheld Amount.
(f) The
Reinsurer’s obligations under this Section 3.6 shall remain in effect until the
termination, cancellation or expiration of the Reinsurer’s obligations under
this Agreement.
(g) Following
the Effective Time, the Reinsurer shall bear all costs and expenses necessary
for the establishment and maintenance of the QSA Trust and the Pre-Existing
Trust Accounts and shall reimburse the Company to the extent such costs are
paid
by the Company.
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Section
3.7 Collection
of Premiums.
Following
the Closing Date and as part of its obligations to administer the Reinsurance
Contracts pursuant to Article 4, the Reinsurer or its designated Affiliate
shall
use commercially reasonable efforts to collect any uncollected Premium listed
on
the final Uncollectible Premium Schedule with respect to which an Unearned
Premium Reserve shall have been transferred as of the Closing Date. All such
Premiums collected by the Reinsurer or such Affiliate shall be deposited
directly into an account (or accounts) designated by, and issued in the name
of,
the Company, provided that the aggregate Premiums that the Reinsurer shall
be
required to deposit into the Company’s account(s) hereunder shall not exceed the
final Unearned Premium Reserve calculated pursuant to Section 3.1. In the event
any Premium listed on the Uncollected Premium Schedule shall not have been
collected within ninety (90) of the later of the Closing Date or the date such
Premium shall be due and payable, following thirty (30) days written notice
to
the Reinsurer, the Company may take over the collection of all uncollected
Premiums reflected in the Unearned Premium Reserve and to pursue any actions
deemed appropriate by the Company to collect such Premiums or preserve and
protect all of the Company’s rights, title and interests therein, including,
without limitation, commencing arbitration, litigation or any taking any other
legal action, unless the Reinsurer shall elect to pay to the Company the amount
of such uncollected Premium. Any premiums collected by the Reinsurer or its
designated Affiliate pursuant to this Section 3.7 shall be the sole and
exclusive property of the Company and, notwithstanding Section 3.2, shall not
be
subject to setoff in any form by the Reinsurer or any of its Affiliates. In
addition to any other reports provided pursuant to Section 3.4, the Reinsurer
shall provide the Company with a monthly report setting forth, for each
Reinsurance Contract, the collected and uncollected portion of the Unearned
Premium Reserve attributable to such Reinsurance Contract as of the end of
each
month.
ARTICLE
4
CLAIMS
AND CLAIMS UNDERWRITING AND OTHER ADMINISTRATION
(a) On
and
after the Effective Time, the Company will provide
prompt notice to the Reinsurer or its designee of all Claims (but only to the
extent such Claims are not otherwise known or reported to the Reinsurer or
any
of its Affiliates by GMAC Re), and the Reinsurer or its designee will
have
the obligation to investigate and defend, as applicable, at its own expense,
any
Claim affecting this Agreement.
At the
request
of the Reinsurer or such designee, the Company will jointly associate with
the
Reinsurer, at the expense of the Reinsurer, in the defense or control of any
Claim, suit or proceeding involving
this reinsurance, and the Company shall cooperate with
the
Reinsurer or such designee in
every
respect to procure
the most favorable disposition of such claim, suit or proceeding.
In
addition, the
Company shall have the right, at its sole option and expense,
to
monitor and consult with the Reinsurer regarding the defense or administration
of any Claim, suit or proceeding involving
the Reinsurance Contracts that exceeds or involves more than Ten Million Dollars
($10,000,000.00).
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(b) The
Company grants to the Reinsurer, or one or more of the Reinsurer’s Affiliates
designated by the Reinsurer, as of the Effective Time authority in all
matters
relating
to the administration of the Reinsurance Contracts and any Claims thereunder,
including the authority (i) to direct trustees of Pre-Existing Trust Accounts
or
the QSA Trustee to disburse amounts to pay Claims from the Pre-Existing Trust
Accounts or the QSA Trust or to disburse funds on behalf of the Company to
the
Reinsurer but only the extent expressly permitted pursuant to the terms and
conditions of the Pre-Existing Trust Agreements or the QSA Trust Agreement,
as
applicable, (ii) to communicate directly with all other reinsurers of those
contracts and to collect on behalf of the Company reinsurance recoverables
thereunder that relate solely to the Reinsurance Contracts, and (iii) subject
to
the Fronting Agreement, to handle the placement, production, underwriting,
service and management of the Reinsurance Contracts, including without
limitation the authority to (A) solicit, accept and receive submissions for
Fronted Contracts or renewals of Insurance Contracts; (B) to secure, at its
own
expense, reasonable underwriting information through reporting agencies or
other
appropriate sources relating to each submission; (C) to issue, renew and
countersign reinsurance contracts and endorsements relating to Reinsurance
Contracts; (D) to collect and receipt for the premiums on Reinsurance Contracts;
(v) to adjust and settle claims under the Reinsurance Contracts; (E) set and
establish loss reserves for the Reinsurance Contracts; and (F) any and all
other
acts or duties that would otherwise be performed by the Company necessary and
appropriate to the Reinsurance Contracts, to the extent such authority may
be
granted pursuant to Applicable Law and the Reinsurer, or
one or
more of the Reinsurer’s Affiliates designated by the Reinsurer, shall perform
all such functions as outlined herein.
In
exercising such authorities, the Reinsurer or any such Affiliate may delegate
the performance of any duty described above to a third party; provided that
no
such delegation shall relieve the Reinsurer of its obligations hereunder.
Subject to the forgoing limitation, effective as of the Effective Time, the
Company hereby appoints the Reinsurer as its attorney-in-fact with respect
to
the rights, duties and privileges and obligations of the Company in and to
the
Reinsurance Contracts, with full power and authority to act in the name, place
and stead of the Company with respect to such contracts, including without
limitation, the power to service such contracts, to adjust, defend, settle
and
to pay all Claims, to recover salvage and subrogation for any losses incurred
and to take such other and further actions as may be necessary or desirable
to
effect the transactions contemplated by this Agreement, provided, that the
Reinsurer covenants to exercise such authority in a professional manner and
to
use the same level of care as is used in administering the Reinsurer’s other
reinsurance business. As part of the foregoing, the Company grants full
authority to the Reinsurer to adjust, settle or compromise all Losses hereunder,
and all such adjustments, settlements and compromises shall be binding on the
Company. The Company agrees to cooperate fully with the Reinsurer in the
transfer of such administration, and the Reinsurer agrees to be responsible
for
such administration. To
the
extent any Claim is satisfied, in whole or in part, by withdrawals from the
Pre-Existing Trust Accounts, such withdrawal shall be deemed to have discharged,
to that extent, the reinsurance recoverable under this Agreement corresponding
to the satisfaction of such Claim.
(c) The
Company agrees that so long as (i) the Reinsurer is solvent, and (ii) the
Reinsurer or its designee shall not be in material breach of its obligations
to
service and administer the Reinsurance Contracts or the Claims under this
Agreement, the Company will not take action to prevent or limit the Reinsurer
or
its designee from servicing or administering the Reinsurance Contracts or the
Claims as contemplated by this Agreement.
If the
Reinsurer (i) becomes insolvent, makes an assignment for the benefit of its
creditors, or becomes the subject of any voluntary or involuntary supervision,
conservation, rehabilitation, liquidation or other similar proceeding, the
Reinsurer’s authority under this Article 4 shall be automatically revoked and
the Company shall handle, or retain a third-party administrator to handle,
the
administration and runoff of the Reinsurance Business and all reasonable costs
and expenses incurred by or on behalf of the Company in taking back and
administering the runoff of the Reinsurance Business shall constitute loss
adjustment expenses fully reinsured under this Agreement. In all other
circumstances, if the Reinsurer fails to cure a material breach of its servicing
or other obligations hereunder within thirty (30) days following the Company's
written notice to Reinsurer of such breach, which notice shall in reasonable
detail describe the nature of such breach or, if such breach shall not be
reasonably susceptible to cure within such thirty (30) day period such
additional reasonable time not exceeding an additional thirty (30) days as
shall
be necessary to cure such breach, the Company shall have the right to exercise
its remedy options set forth in the last sentence of this paragraph. The
remedies available to the Company, without prejudice to any other remedies
otherwise available, shall include: (1) the Company shall have the option,
at
its sole discretion, (i) to revoke the Reinsurer’s authority hereunder and
handle the administration and runoff of the Reinsurance Business directly or
through its designee, or (2) to provide the Reinsurer with a list of three
third-party administrators acceptable to the Company, and the Reinsurer shall,
within thirty (30) days, contract (at the Reinsurer's expense) with one of
such
listed third-party administrator to perform all of the Reinsurer's
claim-handling duties and all duties under this Article 4, with the terms of
such contract subject to the agreement of the Company, which agreement shall
not
be unreasonably withheld; or (3) should the Reinsurer fail to comply with the
foregoing clause (2), the Company shall have the option, at its sole discretion,
to revoke all or a portion of the Reinsurer's authority pursuant to this Article
4, and to contract with one of the listed third-party administrators. In all
cases, the reasonable expenses incurred by the Company pursuant to this Section
4(c) shall be deemed to constitute loss adjustment expenses fully reinsured
under this Agreement.
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(d) The
Reinsurer shall maintain sufficient resources and adequate staffing levels
of
personnel with appropriate experience to administer the Reinsurance Business
in
a professional manner and shall administer the Reinsurance Business in
accordance with all Applicable Laws. In addition, the Reinsurer shall
substantially retain the existing claims infrastructure and maintain the current
claims practices in place as of the Effective Time, provided that the Reinsurer
shall be permitted to make reasonable adjustments to the infrastructure and
business practices in the ordinary course of business so long as such
adjustments do not cause a material diminution in the quality or scope of
services provided hereunder.
(e) So
long
as no obligation not ceded by the Company hereunder or not covered under the
Inuring Reinsurance shall be created or increased and the ceding company or
trustee party thereto shall have provided any required consent or agreement,
the
Reinsurer shall be authorized in the name of the Company to (i) modify the
terms
of any Reinsurance Contract and any related Pre-Existing Trust Agreement so
as
to terminate the associated Pre-Existing Trust Account, (ii) novate any such
Reinsurance Contract with a reinsurer other than the Company or (iii) novate
or
modify the terms and provisions of such Pre-Existing Trust Agreement, including
modifications to permit the substitution of Eligible Trust Assets (as defined
in
each Pre-Existing Trust Agreement) at least equivalent to assets held in the
Pre-Existing Trust Accounts without specific consent of the beneficiaries of
such Pre-Existing Trust Accounts.
(f) The
Company hereby appoints the Reinsurer or any of its Affiliates, as the Reinsurer
shall designate, as the Investment Manager as defined in and under each
Pre-Existing Trust Agreement and agrees as of the Effective Time to notify
each
trustee of the Pre-Existing Trust Accounts of such appointment.
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ARTICLE
5
REGULATORY
MATTERS
At
all
times during the term of this Agreement, the Company and the Reinsurer shall
hold and maintain all licenses and authorizations required under Applicable
Law
and otherwise take all actions that may be necessary to perform its obligations
hereunder.
ARTICLE
6
DUTY
OF COOPERATION & INDEMNITY; INURING REINSURANCE
Section
6.1 Cooperation.
Each
Party hereto shall cooperate fully with the other in all reasonable respects
in
order to accomplish the objectives of this Agreement.
Section
6.2 Indemnity
This
Agreement is an agreement for indemnity reinsurance solely between the Company
and the Reinsurer and shall not create any legal relationship whatsoever between
the Reinsurer and any Person other than the Company.
Section
6.3 Inuring
Reinsurance
The
Company shall maintain in force, and will not materially modify, all Inuring
Reinsurance listed in Schedule B to the extent such Insuring Reinsurance was
in-force as of the Closing Date so as to continue to provide reinsurance
coverage for the Reinsurance Contracts covered thereunder through scheduled
date
of expiration or termination of such Inuring Reinsurance. All allocations of
reinsurance premiums and reinsurance recoverables under the Company’s
catastrophe per occurrence and aggregate excess covers as they relate to the
Reinsurance Business and Integon’s rights and obligations with respect thereto
shall be resolved in accordance with the allocation guidelines attached hereto
as Schedule E. The Reinsurer shall have no obligation to incur out-of-pocket
costs to collect any amount due under the Inuring Reinsurance with respect
to
Existing Contracts. Enforcement of any obligation of a reinsurer under the
Inuring Reinsurance as to Existing Contracts shall be the responsibility of
the
Company.
ARTICLE
7
RESOLUTION
OF DISPUTES
Any
disputes, controversies or claims arising out of or relating to this Agreement,
including, without limitation, in respect of the validity, formation, or breach
hereof, shall be settled pursuant to the procedures provided in Section 10.8
of
the LLC SPA.
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ARTICLE
8
INSOLVENCY
In
the
event of the insolvency of the Company, this reinsurance shall be payable
directly to the Company or its liquidator, receiver, conservator or statutory
successor on the basis of the amount of the claims allowed in the insolvency
proceeding without diminution because of the insolvency of the Company or
because the liquidator, receiver, conservator or statutory successor of the
Company has failed or is unable to pay all or a portion of a claim, except
where
(a) this Agreement specifically provides another payee of such reinsurance
in
the event of the Company’s insolvency, provided that this exception shall only
apply to the extent that the reinsurance proceeds due such payee are actually
paid by the Reinsurer, or (b) the Reinsurer, with the consent of the direct
insured or insureds, has assumed such policy obligations of the Company as
direct obligations of the Reinsurer to the payees under such policies and in
full and complete substitution for the obligations of the Company to such
payees. It is agreed, however, that the liquidator, receiver, conservator or
statutory successor shall give written notice to the Reinsurer of the pendency
of a claim against the Company indicating the Reinsurance Contract reinsured
which involves a possible liability on the part of the Reinsurer within
reasonable time after such claim is filed in the conservation or liquidation
proceeding or in the receivership and that, during the pendency of such claim,
the Reinsurer 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 it may deem available to the Company or its liquidator, receiver,
conservator or statutory successor. The expenses thus incurred by the Reinsurer
shall be chargeable, subject to the Court’s approval, against the Company as
part of the expense of the conservation or liquidation to the extent of a pro
rata share of the benefit that may accrue to the Company solely as a result
of
the defense undertaken by the Reinsurer.
ARTICLE
9
REGULATORY
APPROVALS
The
Company and the Reinsurer shall obtain all necessary consents and approvals
of
regulatory bodies and other parties which may be required under Applicable
Law
as a result of the transactions contemplated by this Agreement. The Parties
agree that where formal approval is required by any insurance regulatory agency,
this Agreement shall not be effective as to any and all Reinsurance Contracts
to
be reinsured hereunder in such jurisdiction until such approval is
obtained.
ARTICLE
10
DURATION
This
Agreement shall not be subject to termination by any Party except (i) by written
agreement between Reinsurer and the Company on the date indicated by such
agreement, after receipt of any required approval from Government Entities,
or
(ii) upon the termination or expiration of the Fronting Authority, the
expiration of all liability on all Reinsurance Contracts, and the complete
performance by Reinsurer and the Company of all obligations and duties arising
under this Agreement.
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ARTICLE
11
FOLLOW
THE FORTUNES
The
Reinsurer’s liability shall attach simultaneously with that of the Company and
shall be subject in all respects to the same risks, original terms and
conditions, interpretations, waivers, and to the same cancellation of the
Reinsurance Contracts as the Company is subject to, the true intent of this
Agreement being that the Reinsurer shall, in every case to which this Agreement
applies, follow the fortunes and follow the settlements of the
Company.
ARTICLE
12
SURVIVAL;
INDEMNIFICATION
Section
12.1 Survival.
(a) All
representations and warranties made by the Company and the Reinsurer in Article
13 of this Agreement and in any certificate or schedule delivered or executed
in
connection herewith, shall survive for a period of eighteen (18) months (the
“Survival
Period”)
after
the date hereof, whereupon they shall expire, and all claims for breach of
said
representations and warranties will be deemed waived unless the non-breaching
party notifies the breaching party in writing and with reasonably specificity
of
the matters constituting the breach prior to the expiration of the Survival
Period.
(b) All
covenants, undertakings and agreements contained in this Agreement or any
document, certificate, schedule or instrument delivered or executed in
connection herewith to be performed or complied with after the date hereof
shall
survive for one (1) year after the date on which such post-Closing covenant
or
agreement was required to have been performed.
Section
12.2 Indemnification.
(a) Subject
to the provisions of this Agreement, the Reinsurer agrees to indemnify and
hold
the Company and its Affiliates, predecessors, successors and assigns (and their
respective officers, directors, employees and agents) harmless from and against
and in respect of all Damages resulting from or relating to:
(i) A
breach
by the Reinsurer of any surviving representation or warranty made by the
Reinsurer in this Agreement;
(ii) A
breach
by the Reinsurer of any covenant or agreement of the Reinsurer in this Agreement
and to be performed after the date hereof;
(iii)
Any
Damages suffered by the Company or any of its Affiliates attributable to any
act
or omission attributable to the Reinsurer or any of its Affiliates, or
any of their respective delegees, in exercising any of the rights, duties
and obligations set forth in Article 4, unless such exercise was at the
written direction or with the written consent of the Company or resulted or
arose from an act or omission of the Company or one of its Affiliates;
and
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(iv) Any
obligation of the Company under the Trust Agreement to indemnify the QSA Trustee
unless the matter giving rise to such indemnification obligation arose or
resulted from any act or omission attributable to the Company or any
of its Affiliates, or any of their respective delegees.
(b) Subject
to the provisions of this Agreement, the Company agrees to indemnify and hold
the Reinsurer and its Affiliates, predecessors, successors and assigns (and
their respective officers, directors, employees and agents) harmless from and
against and in respect of all Damages, resulting from or relating
to:
(i) A
breach
by the Company of any surviving representation or warranty made by the Company
in this Agreement;
(ii) A
breach
by the Company or any of its Affiliates of any covenant or agreement of the
Company or any such Affiliate in this Agreement and to be performed
post-Closing; and
(iii) Any
Damages suffered by the Reinsurer or any of its Affiliates that shall arise
or
result from the exercise of any right, duty or obligation set forth in
Article 4 that shall have been at the written direction or with the written
consent of the Company or that resulted or arose from an act or omission of
the
Company or one of its Affiliates.
Section
12.3 Limitations.
(a) There
shall be no minimum threshold or cap limiting the amount of any claim for
indemnification brought hereunder. The parties acknowledge and agree that any
event, transaction, circumstance, or liability, whether contingent or accrued,
for which adequate reserves by the indemnified party have been established
as of
the Closing Date (but excluding Loss Reserves and unearned premium reserves),
shall not be used at any time as the basis of any claim for indemnification
under this Article 12. In addition, in connection with an alleged breach of
the
indemnifying party’s representations, warranties and covenants under this
Agreement, the indemnified party’s Damages shall be net of all reserves
established by the indemnified party as of the Closing Date (but excluding
Loss
Reserves and unearned premium reserves) in connection with the particular item
or contingency in dispute.
(b) The
obligation of either party to indemnify the other party under this Article
12
above shall expire, with respect to any representation, warranty, covenant
or
agreement of the such party, on the date on which the survival of such
representation, warranty, covenant or agreement shall expire in accordance
with
Section 12.1 above, except with respect to any written claims for
indemnification which the indemnified party has delivered to the indemnifying
party prior to such date.
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(c) Promptly
after receipt by an indemnified party under this Article 12 hereof of notice
of
any claim or the commencement of any Action, the indemnified party shall, if
a
claim in respect thereof is to be made against the indemnifying party under
this
Article 12 hereof, notify the indemnifying party in writing of the claim or
the
commencement of that Action stating in reasonable detail the nature and basis
of
such claim and a good faith estimate of the amount thereof, provided that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to the indemnified party unless and only to the extent such
failure materially and adversely prejudices the ability of the indemnifying
party to defend against or mitigate damages arising out of such claim. If any
claim shall be brought against an indemnified party, it shall notify the
indemnifying party thereof and the indemnifying party shall be entitled to
participate therein, and to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party, and to settle and compromise any such
claim or Action; provided, however, that the indemnifying party shall not agree
or consent to the application of any equitable relief upon the indemnified
party
without its written consent. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or Action,
the indemnifying party shall not be liable for other expenses subsequently
incurred by the indemnified party in connection with the defense thereof;
provided, however, that if the indemnifying party elects not to assume such
defense, the indemnified party may retain counsel satisfactory to it and to
defend, compromise or settle such claim on behalf of and for the account and
risk of the indemnifying party, and the indemnifying party shall pay all
reasonable fees and expenses of such counsel for the indemnified party promptly
as statements therefor are received; and, provided, further, that the
indemnified party shall not consent to entry of any judgment or enter into
any
settlement or compromise without the written consent of the indemnifying party
which consent shall not be unreasonably withheld. The parties agree to render
to
each other such assistance as may reasonably be requested in order to insure
the
proper and adequate defense of any such claim or proceeding. The indemnified
party shall also have the right to select its own counsel, at its own expense,
to represent the indemnified party and to participate in the defense of such
claim, as applicable.
Section
12.4 Remedies
Exclusive.
The
remedies provided in this Article 12 shall be the exclusive remedies of the
parties hereto from and after the Closing in connection with any breach of
a
representation or warranty, or non-performance, partial or total, of any
covenant or agreement contained herein. The provisions of this Article 12 shall
apply to claims for indemnification asserted as between the parties hereto
as
well as to third-party claims.
ARTICLE
13
MISCELLANEOUS
Section
13.1 Notices.
All
notices, requests, demands and other communications hereunder shall be given
in
writing and shall be: (a) personally delivered; (b) sent by telecopier,
facsimile transmission or other electronic means of transmitting written
documents; or (c) sent to the Parties at their respective addresses indicated
herein by registered or certified U.S. mail, return receipt requested and
postage prepaid, or by private overnight mail courier service. The respective
addresses to be used for all such notices, demands or requests are as
follows:
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| (a) |
If
to Reinsurer, to:
|
Maiden
Insurance Company, Ltd.
▇▇
▇▇▇-▇▇-▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇ ▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇:
▇▇▇ ▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
(with
a
copy to)
▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Dodge LLP
▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Facsimile:
▇▇▇-▇▇▇-▇▇▇▇
or
to
such other person or address as Reinsurer shall furnish to the Company in
writing.
|
(b)
|
If
to the Company, to:
|
GMACI
Holdings, LLC
▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
M/C:
▇▇▇-▇▇▇-▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇-▇▇▇▇
Attn:
▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
Facsimile
No.: (248-263-7393)
E
Mail:
▇▇▇▇.▇.▇▇▇▇@▇▇▇▇▇▇.▇▇▇
with
copies to:
General
Counsel
GMACI
Holdings, LLC
▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
M/C:
▇▇▇-▇▇▇-▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇-▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile
No.: (248-263-4051)
E
mail:
▇▇▇▇▇▇.▇.▇▇▇▇▇@▇▇.▇▇▇
or
to
such other person or address as the Company shall furnish to Reinsurer in
writing.
If
personally delivered, such communication shall be deemed delivered upon actual
receipt; if electronically transmitted pursuant to this paragraph, such
communication shall be deemed delivered the next business day after transmission
(and sender shall bear the burden of proof of delivery); if sent by overnight
courier pursuant to this paragraph, such communication shall be deemed delivered
upon receipt; and if sent by U.S. mail pursuant to this paragraph, such
communication shall be deemed delivered as of the date of delivery indicated
on
the receipt issued by the relevant postal service, or, if the addressee fails
or
refuses to accept delivery, as of the date of such failure or refusal. Any
Party
to this Agreement may change its address for the purposes of this Agreement
by
giving notice thereof in accordance with this Section.
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Section
13.2 Assignment;
Parties in Interest.
(a) Assignment.
Except
as expressly provided herein, the rights and obligations of a Party hereunder
may not be assigned, transferred or encumbered without the prior written consent
of the other Party.
(b) Parties
in Interest.
This
Agreement shall be binding upon, inure to the benefit of, and be enforceable
by
the Parties and their respective successors and permitted assigns. Except as
provided in Section 3.2, nothing contained herein shall be deemed to confer
upon
any other Person any right or remedy under or by reason of this Agreement.
Section
13.3 Waivers
and Amendments; Preservation of Remedies.
This
Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, only by a written instrument signed by each of
the
Parties or, in the case of a waiver, by the Party waiving compliance. No delay
on the part of any Party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any
Party
of any right, power, remedy or privilege, nor any single or partial exercise
of
any such right, power, remedy or privilege, preclude any further exercise
thereof or the exercise of any other such right, remedy, power or privilege.
The
rights and remedies herein provided are cumulative and are not exclusive of
any
rights or remedies that any Party may otherwise have under Applicable Law or
in
equity.
Section
13.4 Governing
Law; Venue.
This
Agreement shall be construed and interpreted according to the internal laws
of
the State of New York excluding any choice of law rules that may direct the
application of the laws of another jurisdiction. Subject to the provisions
of
Article 7, the Parties hereby stipulate that any action or other legal
proceeding arising under or in connection with this Agreement may be commenced
and prosecuted in its entirety in the federal or state courts sitting in New
York, New York, each Party hereby submitting to the personal jurisdiction
thereof, and the Parties agree not to raise the objection that such courts
are
not a convenient forum. Process and pleadings mailed to a party at the address
provided in Section 13.1 shall be deemed properly served and accepted for all
purposes.
Section
13.5 Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
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Section
13.6 Entire
Agreement; Merger.
This
Agreement, the Transaction Documents, and any exhibits, schedules and appendices
attached hereto and thereto together constitute the final written integrated
expression of all of the agreements among the Parties with respect to the
subject matter hereof and is a complete and exclusive statement of those terms,
and supersede all prior or contemporaneous, written or oral, memoranda,
arrangements, contracts and understandings between the Parties relating to
the
subject matter hereof. Any representations, promises, warranties or statements
made by any Party which differ in any way from the terms of this Agreement
or
any applicable provisions contained in the Transaction Documents shall be given
no force or effect. The Parties specifically represent, each to the other,
that
there are no additional or supplemental agreements or contracts between or
among
them related in any way to the matters herein contained unless specifically
included or referred to in this Agreement or any applicable provisions contained
in the Transaction Documents. No addition to or modification of any provision
of
this Agreement or any applicable provisions of the Transaction Documents shall
be binding upon either Party unless embodied in a dated written instrument
signed by both Parties.
Section
13.7 Exhibits
and Schedules.
All
exhibits, schedules and appendices are hereby incorporated by reference into
this Agreement as if they were set forth at length in the text of this
Agreement.
Section
13.8 Headings.
The
headings in this Agreement are inserted for convenience only and shall not
constitute a part hereof.
Section
13.9 Severability.
If
any
part of this Agreement is contrary to, prohibited by, or deemed invalid under
Applicable Law or regulations, that provision shall not apply and shall be
omitted to the extent so contrary, prohibited, or invalid; but the remainder
of
this Agreement shall not be invalidated and shall be given full force and effect
insofar as possible.
Section
13.10 Expenses.
Regardless
of whether or not the transactions contemplated in this Agreement are
consummated, each of the Parties shall bear their own expenses and the expenses
of its counsel and other agents in connection with the transactions contemplated
hereby.
Section
13.11 Currency.
The
currency of this Agreement and all transactions under this Agreement shall
be in
United States Dollars.
Section
13.12 Representations
and Warranties.
(a) Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Reinsurer as of the date hereof
as
follows:
(i) Attached
hereto as Schedule B is a list of the Inuring Reinsurance. All of such
reinsurance agreements are in full force and effect and neither the Company
nor,
to the knowledge of the Company, the reinsurer that is a party thereto is in
default thereunder.
(ii) The
Company is validly existing and in good standing under the laws of the State
of
Michigan. The Company is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such authorization, qualification or good
standing would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company. The Company has the
necessary corporate power and authority to carry on the businesses in which
it
is currently engaged and to own and use the properties currently owned and
used
by it in the conduct of its respective businesses.
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26
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(iii) The
Company has the necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by the Company of its obligations hereunder and the consummation
of the transactions contemplated hereby have been duly and validly authorized
by
all necessary corporate action on the part of the Company. No other corporate
action or proceeding on the part of the Company is necessary to authorize this
Agreement or other documents and instruments to be executed and delivered by
the
Company to consummate the transactions contemplated hereby. This Agreement
and
instruments to be executed and delivered by the Company to consummate the
transaction contemplated hereby will constitute valid and binding agreements
of
the Company, enforceable against it in accordance with their respective terms,
subject to the effect of receivership, conservatorship and subject to the effect
of bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to or affecting the enforcement of creditors’
rights generally and subject to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity).
(iv) The
execution and the delivery of this Agreement and the consummation of the
transactions contemplated hereby will not directly or indirectly (with or
without notice, lapse of time or both) (a) violate any injunction, judgment,
order, decree, ruling or other restriction of any Governmental Entity to which
the Company is subject, (b) violate any provision of the certificate of
incorporation or other charter document of the Company or (c) conflict with,
result in a breach of, constitute a default under, or result in the acceleration
of, create in any party the right to accelerate, terminate, modify or cancel,
or
require any notice or consent under any agreement, contract, lease, license,
instrument, or other arrangement to which the Company is a party or by which
it
is bound, except where any such violation, conflict, breach, default,
acceleration, termination, modification, cancellation or failure to give notice
or obtain consent would not reasonably be expected to have, individually or
in
the aggregate, a Material Adverse Effect on the Company.
(v) In
connection with the transactions contemplated hereby, no registrations, filings,
applications, notices, consents, approvals, orders, qualifications or waivers
are required to be made, filed, given or obtained by the Company, to or from
any
Governmental Entity, except for those that the failure to make, file, give
or
obtain would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
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27
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(vi) Attached
hereto as Schedule C is a true and correct listing of the assets held in the
Pre-Existing Trust Accounts as of the date hereof.
(vii) As
of
June 30, 2008, the documented estimate in excess of the actuarial estimate,
referred to as risk load, included in the Company’s IBNR totaled
$51,289,000.
(b) Representations
and Warranties of the Reinsurer.
The
Reinsurer hereby represents and warrants to the Company as of the date hereof
as
follows:
(i) The
Reinsurer has provided to the Company a true and correct copy of a confirmation
from A.M. Best that the Reinsurer’s A- rating with stable outlook will not be
adversely affected by the transactions contemplated by this Agreement and the
Transaction Documents. Such confirmation has not been withdrawn or
modified.
(ii) The
Reinsurer is validly existing and in good standing under the laws of Bermuda.
The Reinsurer is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is required, except
where the lack of such authorization, qualification or good standing would
not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Reinsurer. The Reinsurer has the necessary corporate
power
and authority to carry on the businesses in which it is currently engaged and
to
own and use the properties currently owned and used by it in the conduct of
its
respective businesses.
(iii) The
Reinsurer has the necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by the Reinsurer of its obligations hereunder and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of the Reinsurer.
No
other corporate action or proceeding on the part of the Reinsurer is necessary
to authorize this Agreement or other documents and instruments to be executed
and delivered by the Reinsurer to consummate the transactions contemplated
hereby. This Agreement and instruments to be executed and delivered by the
Reinsurer to consummate the transactions contemplated hereby will constitute
valid and binding agreements of the Reinsurer, enforceable against it in
accordance with their respective terms, subject to the effect of receivership,
conservatorship and subject to the effect of bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to or affecting the enforcement of creditors’ rights generally and subject to
general principles of equity (regardless of whether enforcement is sought in
a
proceeding at law or in equity).
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(iv) The
execution and the delivery of this Agreement and the consummation of the
transactions contemplated hereby will not directly or indirectly (with or
without notice, lapse of time or both) (a) violate any injunction, judgment,
order, decree, ruling or other restriction of any Governmental Entity to which
the Reinsurer is subject, (b) violate any provision of the certificate of
incorporation or other charter document of the Reinsurer or (c) conflict with,
result in a breach of, constitute a default under, or result in the acceleration
of, create in any party the right to accelerate, terminate, modify or cancel,
or
require any notice or consent under any agreement, contract, lease, license,
instrument, or other arrangement to which the Reinsurer is a party or by which
it is bound, except where any such violation, conflict, breach, default,
acceleration, termination, modification, cancellation or failure to give notice
or obtain consent would not reasonably be expected to have, individually or
in
the aggregate, a Material Adverse Effect on the Reinsurer.
(v) In
connection with the transactions contemplated hereby, no registrations, filings,
applications, notices, consents, approvals, orders, qualifications or waivers
are required to be made, filed, given or obtained by the Reinsurer, to or from
any Governmental Entity, except for those that the failure to make, file, give
or obtain would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Reinsurer.
-
29
-
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by
their duly authorized representatives as of the day and year first written
above
to be effective as of the Effective Time.
|
MAIDEN
INSURANCE COMPANY, LTD.
|
||
|
By
|
||
|
Title
|
||
|
MOTORS
INSURANCE CORPORATION
|
||
|
By
|
||
|
Title
|
||
EXHIBIT
A
TRUST
AGREEMENT
[SEE
ATTACHED]
SCHEDULE
A
Initial
Loss Reserve Transfer Amount
and
Initial
UPR Transfer Amount
|
Item
1
|
(Date
of estimation): September 30, 2008
|
|
Item
2
|
(estimated
Pre-Existing Trust Asset FMV, which shall be the initial Funds Withheld
Amount as of the Closing Date): $544,734,425
|
|
Item
3
|
(estimated
Loss Reserves): $764,753,557
|
|
Item
4
|
(the
Initial Loss Reserve Transfer Amount): $220,019,132
|
|
Item
5
|
(the
Initial UPR Transfer Amount):
$182,622,517
|
SCHEDULE
B
Inuring
Reinsurance
[SEE
ATTACHED]
SCHEDULE
C
Pre-Existing
Trust Accounts and Assets
[SEE
ATTACHED]
-
2
-
SCHEDULE
D
Determination
of FMV
The
following procedures shall be adhered to in determining FMV for purposes of
this
Agreement:
(i) if
a US
Government Bond or non-Asset Backed US Agency Bond traded on a securities
exchange, the value shall be deemed to be the closing price of the security
on
such exchange on the business day prior to the date of
determination;
(ii) if
a US
Agency Asset Backed Bond traded on a securities exchange, the value shall be
deemed to be the closing pool specific price of the security on such exchange
on
the last business day prior to the date of determination;
(iii) if
other
than a US Government Bond, non-Asset Backed US Agency Bond or US Agency Asset
Backed Bond traded on a securities exchange or the NASDAQ Stock Market, the
value shall be deemed to be the average of the closing prices of the securities
on such exchange or market over the [30-day] period ending three days prior
to
the closing of the date of determination;
(iv) if
actively traded over-the-counter, the value shall be deemed to be the average
of
the closing bid prices over the [30-day] period ending three days prior to
the
closing of determination; or
(v) if
there
is no public market, the value shall be the fair market value thereof, as
determined in good faith by the Reinsurer;
provided
that, if the Company shall object to any determination of the FMV of an asset
by
the Reinsurer, the Company may notify the Reinsurer in writing of its reasonable
basis for such objection within ten (10) days of receipt by the Company of
written notice of such determination. In the event of such a written objection,
the Parties shall confer in good faith with regard to any disputed determination
of FMV and an appropriate adjustment shall be made to such FMV as agreed upon
by
the Parties. If the Parties are unable to agree on an appropriate adjustment
within twenty (20) days of such objection, the same procedures described in
Section 3.1(iv) for the determination and payment of the final “Actual UPR
Transfer Amount” shall apply, mutatis
mutandis,
to the
determination of such FMV, except that the Parties or their accountants shall
select an investment banker to determine such FMV.
SCHEDULE
E
Allocation
of Reinsurance Premium
4/1/2008
Catastrophe Per Occurrence and Aggregate Excess Covers
Premium
Allocation
Recommended
Premium Allocation for Percent Placed
|
Structure
|
Treatment of Assumed
|
Caps
|
CommLines
|
PersLines
|
MEEMIC
|
SRS
|
Assumed
|
Can Auto
|
Total
|
|||||||||||||||||||
|
85Mxs40M
PerOcc
|
Excluded |
40.90
|
%
|
13.75
|
%
|
17.68
|
%
|
27.42
|
%
|
0.00
|
%
|
0.25
|
%
|
100.00
|
%
|
|||||||||||||
|
25xs100M
Cat Aggreg XS
|
Excluded |
40M per occ
|
69.61
|
%
|
11.36
|
%
|
9.95
|
%
|
8.83
|
%
|
0.00
|
%
|
0.25
|
%
|
100.00
|
%
|
||||||||||||
|
75xs125M
Cat Aggreg XS
|
Ltd to 30M Contrib |
40M per occ
|
56.03
|
%
|
9.10
|
%
|
8.44
|
%
|
8.47
|
%
|
17.71
|
%
|
0.25
|
%
|
100.00
|
%
|
||||||||||||
|
Total
of All Layers
|
46.68
|
%
|
12.43
|
%
|
14.85
|
%
|
21.42
|
%
|
4.37
|
%
|
0.25
|
%
|
100.00
|
%
|
||||||||||||||
Associated
Allocated Premium for Percent Placed:
|
Structure
|
Treatment of Assumed
|
Caps
|
CommLines
|
PersLines
|
MEEMIC
|
SRS
|
Assumed
|
Can Auto
|
Total
|
|||||||||||||||||||
|
85Mxs40M
PerOcc
|
Excluded |
4,305,911
|
1,447,527
|
1,860,984
|
2,886,604
|
0
|
26,318
|
10,527,344
|
||||||||||||||||||||
|
25xs100M
Cat Aggreg XS
|
Excluded |
40M per occ
|
764,749
|
124,826
|
109,294
|
97,010
|
0
|
2,747
|
1,098,625
|
|||||||||||||||||||
|
75xs125M
Cat Aggreg XS
|
Ltd to 30M Contrib |
40M per occ
|
2,134,067
|
346,616
|
321,413
|
322,565
|
674,567
|
9,522
|
3,808,750
|
|||||||||||||||||||
|
Total
of All Layers
|
7,204,727
|
1,918,969
|
2,291,691
|
3,306,178
|
674,567
|
38,587
|
15,434,719
|
|||||||||||||||||||||
The
distributions broken out into the detailed layers are:
Final
Selected Distributions by Contract
|
100% of
|
97.75% of
|
18.5% of
|
33.5% of
|
51.25% of
|
63.75% of
|
53.00% of
|
|||||||||||||||||||
|
60M xs 40M
|
25M xs
|
10M xs
|
15M xs
|
25M xs
|
25M xs
|
25M xs
|
|||||||||||||||||||
|
Business Unit/Contract
|
Occ
|
100M Occ
|
100M Agg
|
110M Agg
|
125M Agg
|
150M Agg
|
175M Agg
|
Total
|
|||||||||||||||||
|
CAN PPA
|
0.25
|
%
|
0.25
|
%
|
0.25
|
%
|
0.25
|
%
|
0.25
|
%
|
0.25
|
%
|
0.25
|
%
|
0.25
|
%
|
|||||||||
|
Commercial
|
41.83
|
%
|
35.41
|
%
|
69.71
|
%
|
69.56
|
%
|
57.40
|
%
|
55.41
|
%
|
53.15
|
%
|
46.68
|
%
|
|||||||||
|
MEEMIC
|
17.61
|
%
|
18.09
|
%
|
10.04
|
%
|
9.90
|
%
|
8.18
|
%
|
8.55
|
%
|
8.99
|
%
|
14.85
|
%
|
|||||||||
|
Personal
|
13.63
|
%
|
14.47
|
%
|
11.49
|
%
|
11.30
|
%
|
8.94
|
%
|
9.14
|
%
|
9.49
|
%
|
12.43
|
%
|
|||||||||
|
SRS
|
26.68
|
%
|
31.78
|
%
|
8.51
|
%
|
8.99
|
%
|
7.74
|
%
|
8.83
|
%
|
9.92
|
%
|
21.42
|
%
|
|||||||||
|
Assumed
|
0.00
|
%
|
0.00
|
%
|
0.00
|
%
|
0.00
|
%
|
17.48
|
%
|
17.81
|
%
|
18.20
|
%
|
4.37
|
%
|
|||||||||
|
Total
|
100.00
|
%
|
100.00
|
%
|
100.00
|
%
|
100.00
|
%
|
100.00
|
%
|
100.00
|
%
|
100.00
|
%
|
100.00
|
%
|
|||||||||
Loss
Allocation
The
allocations above are for use in allocating losses. A reindexing process will
be
needed by contract to prevent negative net loss to any business
unit.
Reinstatement
Premium Allocation
Reinstatement
premium for the per occurrence layers should be consistent with the final result
of the loss allocation after reindexing for all events that have taken place
in
the year.
Premium
Adjustment
Premium
adjustments shall be allocated as per actual written premium following each
contract year. For example, the termination of the ▇▇▇▇▇▇ Re participation
reduced the percentage placements shown above. In the event of a loss, the
allocations will be revised to reflect this change.
-
2
-
Percent
of Layer Placed
These
allocations are specifically for the percent placed itemized below:
|
Percent
|
||||
|
Layer
|
Placed
|
|||
|
60Mxs40M
Per Occ
|
100.00
|
%
|
||
|
25Mxs100M
Per Occ
|
97.75
|
%
|
||
|
10xs100M
Aggreg XS
|
18.50
|
%
|
||
|
15xs110M
Aggreg XS
|
33.50
|
%
|
||
|
25xs125M
Aggreg XS
|
51.25
|
%
|
||
|
25xs150M
Aggreg XS
|
63.75
|
%
|
||
|
25xs175M
Aggreg XS
|
53.00
|
%
|
||
Important:
Should the placement percentages above change, the allocations may need to
be
recalibrated depending on the magnitude of change.
-
3
-