EXCESS OF LOSS REINSURANCE AGREEMENT
This Agreement is made and entered into by and between TRANSNATIONAL INSURANCE
COMPANY (hereinafter referred to as the "Company"), and PXRE REINSURANCE COMPANY
(hereinafter referred to as the "Reinsurer").
WITNESSETH: That in consideration of the mutual covenants hereinafter contained
and upon the terms and conditions hereinafter set forth, the parties hereto
agree as follows:
ARTICLE I - COVERAGE AND EFFECTIVE DATE
This Agreement shall be effective as of 12:01 a.m., EST, January 1, 1998.
The Reinsurer shall indemnify the Company in respect to losses, loss expenses
and underwriting expenses, as further defined in Article II, that may accrue to
the Company under all policies, contracts, binders or agreements of insurance or
reinsurance, whether written or oral (hereinafter referred to as "policies")
written or renewed by the Company at any time prior to the cancellation of this
Agreement, as provided in Article III. Such coverage shall include the positive
or negative development of loss reserves, loss expense reserves and underwriting
liabilities established by the Company as of the effective date of this
Agreement.
All reinsurance for which the Reinsurer will be obligated by virtue of this
Agreement will be subject to the same terms, conditions, interpretations,
waivers, modifications and alterations as the respective policies of the Company
to which this reinsurance applies.
ARTICLE II - RETENTION AND LIMIT
No claim will be made by the Company to the Reinsurer unless the Company has
first incurred a "Combined Ratio", as defined in this Article II, exceeding 105%
during any calendar year covered by this Agreement. The Reinsurer will indemnify
the Company for the amount of losses, loss expenses and underwriting expenses in
excess of the Company's retention. The indemnification provided by this
Agreement shall have no limit. While the coverage under this Agreement shall
apply on a calendar year basis, the Company shall measure the applicability of
the coverage provided under this Agreement at the conclusion of each calendar
quarter, as further provided in Article V.
The Combined Ratio as provided in the previous paragraph, shall consist of the
sum of the "Loss and Loss Expense Ratio" and the "Underwriting Expense Ratio".
The two individual ratios which comprise the Combined Ratio shall be computed
using information from the quarterly or
annual statements prepared by the Company and filed with the National
Association of Insurance Commissioners and the Insurance Department of the State
of Connecticut, as follows:
Loss and Loss Expense Ratio:
The sum of:
Net losses incurred (page 4, line 2, or line 2D
)
Net loss expenses incurred (page 4, line 3)
Divided by:
Net premiums earned (page 4, line 1 or page 4, line
1D, )
Underwriting Expense Ratio:
The sum of:
Other underwriting expenses (page 4, line 4)
Aggregate write-ins for underwriting deductions (page 4,
line 5)
Divided by:
Net premiums written (page 9, column 4, line 31 or
page 4, line 1D, parenthetical amount )
ARTICLE III - TERM AND CANCELLATION
This Agreement will apply to all losses, loss expenses and underwriting expenses
incurred by the Company as defined in Article I, and will remain in full force
and effect until canceled as hereinafter provided.
This Agreement can be canceled as of any December 31 by either party giving 30
(thirty) days prior notice to the other party. In the event this Agreement is
canceled in accordance with the above procedure, the Reinsurer will continue to
be liable for all losses, loss adjustment expenses and underwriting expenses
incurred under policies covered by this Agreement through the effective date of
cancellation. However, amounts incurred for losses, loss expenses or
underwriting expenses occurring subsequent to the cancellation date, including
the positive or negative development of loss reserves, loss expense reserves and
underwriting liabilities established by the Company as of the cancellation date
of this Agreement will not be covered by this Agreement.
ARTICLE IV - RATE AND PREMIUM
The Company will cede to the Reinsurer a premium of one percent (1.0%) of its
net earned premium on all policies covered by this Agreement. Net earned premium
shall be defined as all direct premium written by the Company, whether voluntary
or involuntary and net of premiums returned as the result of cancellations and
endorsements, plus all reinsurance assumed by the Company, adjusted for the
change in unearned premiums associated with such direct or assumed
- 2 -
premiums written for the period covered by this Agreement. Net earned premium
shall also be reduced by certain reinsurance ceded on earned premium as provided
in Article VI, below.
ARTICLE V - REPORTS AND REMITTANCES
Within twenty-five (25) days following the close of each calendar quarter, the
Company will furnish the Reinsurer with a report of reinsurance premium due to
the Reinsurer for that period. Such report shall be in a form and shall contain
such data as required by the Reinsurer for completion of its NAIC annual
statement. The report will also provide the Reinsurer with a computation of the
Combined Ratio, as defined in Article II, above, for the calendar quarter and
calendar year-to-date. Any balance shown to be due to the Reinsurer will be
remitted within forty (40) days following the close of the calendar quarter. Any
balance shown as due to the Company will be settled as follows: (i) For the
first, second and third calendar quarters, any balance shown to be due to the
Company will be accrued on the books of both the Reinsurer and the Company but
the remittance of funds will be deferred until the fourth quarter, (ii) For the
fourth calendar quarter, any balance shown to be due to the Company, after
taking into account balances deferred from prior quarters, will be paid to the
Company by the Reinsurer within fifteen (15) days following receipt of the
fourth quarter report from the Company.
ARTICLE VI - OTHER REINSURANCE
The Company is permitted to purchase other treaty and/or facultative
reinsurance. The premium for any such reinsurance that inures to the benefit of
this Agreement shall be deducted from the net earned premium which constitutes
the subject premium under this Agreement.
Further, where the Company is required by statute to purchase reinsurance that
inures to the benefit of this Agreement, the entire premium subject to such
mandatory reinsurance shall be deducted from the net earned premium which
constitutes the subject premium under this Agreement.
ARTICLE VII - WAIVER OF EXCLUSIONS
It is intended that the Reinsurer shall "follow the fortunes" of the Company
with respect to the policies covered by this Agreement and, accordingly, there
shall be no exclusions with respect to the indemnity provided by this Agreement
including, but not limited to: judgments in excess of policy limits, punitive
damages and pre and post judgment interest.
- 3 -
ARTICLE VIII - ERRORS AND OMISSIONS
The Company will not be prejudiced in any way by any omission, through clerical
error, accident or oversight, to cede to the Reinsurer any reinsurance under the
terms of this Agreement. Errors and omissions inadvertently made will not
invalidate the liability of the Reinsurer. Any such error or omission will be
corrected immediately upon discovery.
ARTICLE IX - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company, or to its liquidator, receiver, conservator or
statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator or statutory successor of the Company has failed to pay
all or a portion of any claim. It is agreed, however, that the liquidator,
receiver, conservator or statutory successor of the Company shall give written
notice to the Reinsurer, of the pendency of a claim against the Company
indicating the policy insured which claim would involve a possible liability on
the part of the Reinsurer within a 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 expense
thus incurred by the Reinsurer shall be chargeable, subject to the approval of
the court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may accrue to
the Company solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the insolvent Company.
ARTICLE X - AMENDMENTS
This Agreement may be altered or amended in any of its terms and conditions by
mutual consent of the Company and the Reinsurer either by an addendum hereto or
by an exchange of letters; such addendum or letters will then constitute a part
of this Agreement.
- 4 -
IN WITNESS WHEREOF, the parties hereto have caused this Reinsurance Agreement to
be executed in duplicate by their duly authorized representatives.
TRANSNATIONAL INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
PXRE REINSURANCE COMPANY
By:
-------------------------------
Name:
Title:
- 5 -
