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Exhibit 10.9
MASTER FACULTATIVE REINSURANCE AGREEMENT
BETWEEN
ACA FINANCIAL GUARANTY CORPORATION
AND
GLOBAL MARKETS GUARANTY LTD.
In consideration of the mutual covenants and upon the terms and
conditions set forth in this Master Facultative Reinsurance Agreement, ACA
Financial Guaranty Corporation, a Maryland stock insurance corporation (the
"Reinsured") and Global Markets Guaranty Ltd., a Bermuda corporation (the
"Reinsurer"), hereby agree as follows:
ARTICLE I
BUSINESS REINSURED
The Reinsured shall cede as reinsurance to the Reinsurer and the
Reinsurer shall accept as reinsurance from the Reinsured the share of a risk
insured by the Reinsured, as specified and agreed to by the parties in a
reinsurance memorandum in substantially the same form of Exhibit A annexed to
this Agreement (the "Reinsurance Memorandum"). All Policies (defined below) that
are reinsured hereunder are sometimes collectively referred to as the "Business
Reinsured."
The Reinsured shall first offer to the Reinsurer each of the risks
of the Reinsured which incepts or renews after the effective date of this
Agreement, and the Reinsurer shall have the right, in its sole discretion, to
reject or accept any individual risk presented to the Reinsurer by the Reinsured
pursuant to a duly completed Reinsurance Memorandum. The Reinsurer shall not be
bound hereunder on any individual risk unless it first has given its approval by
providing the Reinsured with a copy of the Reinsurance Memorandum for that
particular risk signed by a duly authorized representative of the Reinsurer. The
Reinsurer shall either return the signed Reinsurance Memorandum or notify the
Reinsured of its decision not to assume a particular risk as soon as
practicable. In the event that the Reinsured has not received the signed
Reinsurance Memorandum or other notice of the decision of the Reinsurer as to an
individual risk within 15 days of the date of a Reinsurance Memorandum in
respect thereof, the Reinsured shall be free to offer such risk to third parties
on terms which are not less favorable to the Reinsured.
Once the Reinsurer has provided the Reinsured with such signed
Reinsurance Memorandum, the Reinsurer shall be bound to provide coverage under
this Agreement in accordance with the terms and conditions of the Reinsured's
underlying policy covering the risk (the "Policy" or "Policies"), unless the
terms and conditions of coverage with respect to the particular risk are
modified in the Reinsurance Memorandum pertaining to that risk. The Reinsurer's
liability shall attach as of the effective date of the Policy, unless the
Reinsurance Memorandum provides for a different date. Unless otherwise provided
by the Reinsurance Memorandum, the Reinsurer shall assume the designated portion
or amount of principal or other obligation insured under the Policy, any
interest or premium on such amount assumed and a pro rata share of Loss Expenses
(as defined in Article III hereof).
The share of the Reinsurer in the interests and liabilities of the
Policies covered by this
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Agreement shall be separate and apart from the shares of any other reinsurers
assuming such risks. The Reinsurer's obligation pursuant to this Agreement shall
not be joint with any such other reinsurer and in no event shall the Reinsurer
participate in the interests and liabilities of such other reinsurers.
ARTICLE II
TERM AND CANCELLATION
This Agreement shall be effective as of 12:00 a.m., Eastern
Standard Time, December 15, 1998, and shall be a continuous contract until
canceled. This Agreement shall not become effective if the public offering of
the stock of the Reinsurer does not close. Either the Reinsured or the Reinsurer
has the right to cancel this Agreement by giving at least ninety (90) days'
prior Notice (as defined below). This Agreement may be canceled by either party
effective immediately upon mutual consent. In the event of cancellation either
by 90 days' notice or mutual consent, the Reinsurer shall continue to be liable
for claims whenever made under all Policies ceded pursuant to this Agreement
until the natural expiration of such Policies, except to the extent that the
Reinsured and the Reinsurer agree to a withdrawal of the reinsured risks from
the Reinsurer and return or payment by the Reinsurer of an amount equal to the
Reinsurer's share of incurred Loss and Loss Expenses (i.e. Loss and Loss Expense
payments and reserves) (as defined in Article III hereof) and unearned premiums
(less the corresponding ceding commission).
Upon the occurrence of any of following events and in the time
periods set forth, the Reinsured shall have the right to terminate the
Reinsurer's participation in Policies covered by this Agreement by giving Notice
of termination to the Reinsurer:
(1) (a) The performance of the Agreement is prohibited or rendered
impossible by any applicable law or regulation, (b) the Reinsured fails
to receive all or substantially all financial credit for the
reinsurance in all applicable jurisdictions, or (c) the state insurance
regulator in the applicable jurisdiction directs the Reinsured to
cancel the Reinsurer's participation in this Agreement. The Reinsurer
shall have the time allowed by the state insurance regulator in the
applicable jurisdiction to comply with such applicable law or
regulation. Termination of the Reinsurer's participation in this
Agreement pursuant to this paragraph shall be effective upon the
Reinsurer's receipt of Notice of termination.
(2) In the event that the Reinsurer: (a) becomes insolvent, (b) fails to
maintain the minimum capital and surplus requirements required by the
laws of the Reinsurer's domicile, (c) is the subject of a voluntary or
involuntary filing of a petition in bankruptcy, (d) goes into
liquidation or rehabilitation, (e) has a receiver appointed, (f) allows
its surplus to policyholders to decline by twenty-five percent (25%) or
more during any twelve month period as reported in any financial
statement, or (g) fails, within a reasonable time following the
Reinsurer's receipt of a written request by the Reinsured, to receive
and maintain any required approval of the Maryland Commissioner of
Insurance. Termination pursuant to this paragraph shall be effective
upon the Reinsurer's receipt of Notice of termination.
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(3) The Reinsurer (i) is acquired or undergoes a change of control,
provided that the Reinsured gives Notice of its intention to terminate
within fifteen (15) days of its receipt of Notice of such occurrence
from the Reinsurer which the Reinsurer shall be required to provide
within a reasonable time or (ii) breaches any of its covenants set
forth herein. Termination pursuant to this paragraph shall be effective
sixty (60) days after the Reinsurer's receipt of the Notice of
termination, if cure is not previously effected. "Change of Control"
means the acquisition of beneficial ownership of 30% or more of the
issued and outstanding voting securities (including, without
limitation, securities convertible into voting securities) of the
Reinsurer or of Global Markets Access Ltd., its parent ("GMA") by one
or more purchasers acting in concert in a single transaction or in a
series of related transactions; provided, however, that "Change of
Control" shall not included a public offering of the capital stock of
the Reinsured or GMA.
(4) In the event that the Reinsurer ceases to have a financial strength
rating or claims-paying ability rating from any of Standard & Poor's
Ratings Services, Fitch IBCA, Inc. or Duff & Xxxxxx Credit Rating Co.
of "A-" or higher, the Reinsurer will have ninety (90) days from the
date of downgrading to restore such rating to at least "A-". If the
Reinsurer is unsuccessful within the aforesaid 90-day period,
termination pursuant to this paragraph shall be effective upon the
Reinsurer's receipt of Notice of termination.
Upon termination pursuant to paragraphs (1), (2), (3) or (4) above,
the Reinsurer shall continue to cover all Policies written by the Reinsured
prior to such termination and coming within the scope of this Agreement until
the natural expiration of such Policies.
This Agreement may be canceled with respect to the Reinsurer at the
discretion of the Commissioner of Insurance of the State of Maryland acting as
rehabilitator, liquidator or receiver of the Reinsured.
As used in this Agreement, "Notice" shall mean written notice (i)
sent by facsimile to the party concerned to the facsimile number set forth in
this Agreement or previously designated in writing by the party, provided that a
copy is also promptly mailed or delivered or (ii) addressed to the party
concerned at its address set forth in this Agreement or previously designated by
that party in writing and sent by certified or express mail return receipt
requested, or by courier or hand delivery. Notice shall be deemed effective (i)
if sent by facsimile, the date sent, (ii) if sent by mail, the date received or
(iii) if delivered by courier or by hand, the date delivered.
ARTICLE III
LOSS AND LOSS EXPENSES
The Reinsurer shall pay its share up to any applicable limit of
liability of Losses under Policies covered by this Agreement. Except as provided
in Articles V and XIV, "Loss" and "Losses" shall mean only such amounts that are
actually paid by the Reinsured in settlement of claims under Policies or in
satisfaction of judgments involving Policies. If such settlement involves the
refinancing of the obligations insured under a new Policy (the "Refinanced
Obligations") by the issuance of new obligations that are insured by the
Reinsured (the
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"Refinancing Obligations"), each reinsurer shall assume under this Agreement the
same proportionate share of the Refinancing Obligations as the Reinsurer assumed
of the Refinanced Obligations.
The Reinsurer shall be liable for its proportionate share of "Loss
Expenses" unless the Reinsurance Memorandum provides otherwise. "Loss Expenses"
shall mean court costs, interest upon judgments, and allocated investigation,
adjustment and legal expenses, including expenses related to the workout of a
potential loss or the protection and perfection of any subrogation or salvage
rights or security interest under a Policy. Losses and Loss Expenses
(collectively "Policy Payments") shall not include (a) salaries paid to
employees of the Reinsured, (b) awards or judgments against the Reinsured
occasioned by failure of the Reinsured to settle a claim or make payment under
its policy, when such failure arises from bad faith, negligence or misconduct on
the part of the Reinsured or any agent or employee of the Reinsured or (c)
liability of the Reinsured, arising by contract, operation of law or otherwise,
from its participation or membership, whether voluntary or involuntary, in any
insolvency fund, including any guaranty fund, association, pool, plan or other
facility that provides for the assessment of, payment by or assumption by the
Reinsured of a part or the whole of any claim, debt, charge, fee or other
obligation of any insurer, or its successor or assigns, that has been declared
insolvent by any authority having jurisdiction, or which is otherwise unable to
meet any claim, debt, charge, fee or other obligation in whole or in part. Loss
Expenses shall include expenses paid by the Reinsured to American Capital Access
Service Corporation, an affiliate of the Reinsured ("ACASC"); provided that such
expenses are allocated to the Policy on a cost basis and that such expenses do
not included any portion of ACASC' employee salaries or general office expenses.
Loss Expenses shall not be included in calculating the Reinsurer's limit of
liability, except to the extent that the respective Reinsurance Memorandum
otherwise provides.
The Reinsured agrees to keep the Reinsurer informed as to any
default or potential default of any non-payment(s) of amounts due under
obligations covered by Policies reinsured by this Agreement. In any event,
Notice (as defined in Article II) of a default shall be given to the Reinsurer
within fifteen (15) days of notification to the Reinsured of such default.
Failure to provide such Notice shall not relieve the Reinsurer of its obligation
for any Loss resulting from such claim except to the extent that it has suffered
undue prejudice.
The Reinsurer agrees to abide by the Loss settlements of the
Reinsured. The Reinsured shall determine in its sole discretion (i) what shall
constitute a claim or Loss covered under the Reinsured's insurance policies,
(ii) the Reinsured's liability thereunder and (iii) the correct amount or
amounts, if any, that the Reinsured shall pay thereunder. The Reinsurer shall be
bound by the determination of the Reinsured concerning the salvage and
subrogation rights and remedies of the Reinsured under the Policies, and the
Reinsured shall have complete and sole control of the direction of all claims
and salvage and subrogation remedies.
Salvage and subrogation recoveries (after the Reinsured and the
Reinsurer have recovered their expenses) (the "Recoveries") will be credited to
Reinsurer in accordance with the Reinsurance Memorandum. In the event that such
Recoveries exceeds all Policy Payments during the term of a Policy, such excess
shall be treated as additional premium and apportioned between the Reinsured and
the Reinsurer in the same proportion that premiums for the Policy
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were apportioned.
ARTICLE IV
PREMIUMS AND COMMISSIONS
The Reinsured shall pay to the Reinsurer its share of the premium
after first deducting a ceding commission and other costs allowed by the
Reinsurer (the commission and other costs collectively, the "ceding
commission"), as such premium and commission are set forth in the Reinsurance
Memorandum for each particular risk reinsured under this Agreement.
If obligations covered by a Policy are refunded in advance of
maturity and a credit is allowed to the premium charged for insuring the
refunding obligations, the Reinsurer shall receive its pro rata share of such
credit and shall refund its pro rata share of any unearned premium debited to
the refunded obligations net of the ceding commission applicable thereto,
provided that the Reinsurer is offered the same pro rata share of the refunding
transaction.
ARTICLE V
REPORTS AND REMITTANCES
Within fifteen (15) days following the end of each month, the
Reinsured shall provide to the Reinsurer the following:
(1) An account current setting forth in the aggregate for the month:
(a) Gross Net Written Premium Income;
(b) Facultative Premium Ceded;
(c) Reinsurer's share of Recoveries;
(d) Ceding Commission;
(e) Any excise tax due by Reinsurer pursuant to Article XII;
(f) Net amount due Reinsurer (the sum of (c) and (d), less (e) and
(f));
(g) Reinsurer's share of subject deferred premium revenue;
(h) Reinsurer's share of subject case basis reserves established
by the Reinsured; and
(i) Reinsurer's share of subject contingency reserves established
by the Reinsured.
(2) A premium bordereau report setting forth for each Policy the name and
location of each issuer, a description of the issue insured including
par amount insured, maturity dates, underlying rating (if available),
the effective date of coverage, sector, total premium, premium rate,
premium and par amounts subject to this Agreement and such other
information as the Reinsurer and Reinsured may agree with respect to
the bordereau report;
(3) A Recoveries bordereau setting forth for each Policy paid claims,
amount of Recoveries, and such other information as Reinsurer may
reasonably require;
(4) Payment of the net amount due the Reinsurer as set forth in (1)(f)
above. In the event that a net balance is due the Reinsured by the
Reinsurer, such amount will be paid by the
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Reinsurer within fifteen (15) days after the reports are furnished to
the Reinsurer; provided, however, that if the Reinsurer objects to all
or any portion of the amount due by the Reinsurer based on its good
faith belief that such amount is incorrect, then the Reinsurer shall
not be obligated to pay the disputed amount until the parties have
resolved the dispute to their mutual satisfaction.
(5) Within thirty (30) days after the end of each calendar quarter, the
Reinsured will provide to the Reinsurer any other information regarding
the Policies that the Reinsurer may require that is reasonably
available to the Reinsured.
(6) As used herein, the term "Gross Net Written Premium Income" shall mean
all premium actually received or due in respect of Policies (whether
direct or assumed) written during the Term.
Notwithstanding the foregoing, at the option and upon the demand of
the Reinsured, the Reinsured shall be paid by special remittance within three
(3) Business Days (as defined below) upon receipt of a special account, which
shall be prepared by the Reinsured and shall contain all relevant details in
connection with the Loss or Loss Expense. When the Reinsured has determined with
a reasonable degree of certainty that a Policy Payment will occur, the
Reinsured, at its option, may present such special account to the Reinsurer
prior to the date of the Policy Payment by the Reinsured. Provided that the
Reinsurer receives such special account at least three Business Days prior to
the date of Policy Payment by the Reinsured, the Reinsurer shall make payment to
the Reinsured by 12:00 p.m., Eastern Standard time, on the Business Day prior to
such scheduled date of Policy Payment by wire transfer in immediately available
funds. If for any reason the Reinsured shall not make such Policy Payment on the
scheduled date and no such Policy Payment is anticipated within two (2) Business
Days, or if such Policy Payment was anticipated but two (2) Business Days have
expired without making such policy payment, the Reinsured shall return to the
Reinsurer within two (2) Business Days the amount paid to the Reinsured by the
Reinsurer for such Policy Payment to the extent not used therefor, plus interest
payable at the same rate as the first six-month U.S. Treasury Xxxx issued during
that quarter. As used herein, "Business Day" shall mean any day other than a
Saturday, Sunday or holiday on which the Reinsured is not open for business.
The Reinsurer shall provide the Reinsured with its annual financial
statement and, to the extent available, quarterly or semi-annual financial
statements, in English, promptly after such statements become available for
distribution.
ARTICLE VI
RESERVES
The Reinsurer shall maintain reserves with respect to its
proportionate share of outstanding and incurred but not reported loss, unearned
premium and contingency reserves as appropriate and required based on statutory
accounting and actuarial principles consistently applied, and comply with all
other requirements, as required by applicable law.
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ARTICLE VII
STATUTORY FINANCIAL CREDIT
The Reinsurer shall take all steps necessary to enable the
Reinsured to obtain full credit for the reinsurance provided by this Agreement
in all applicable jurisdictions, including compliance with Maryland law and
regulations; provided, however, that the Reinsurer shall not be required to
engage in any activity that would require the Reinsurer to operate a trade or
business or obtain any license or certification within the United States. The
obligations of the Reinsurer under this Article VII shall include providing
security or entering into appropriate security devices in the amount required by
law (collectively, the "Security") to permit the Reinsured to obtain full
reinsurance credit. When two or more types of Security are permitted under
applicable law, the Reinsurer may, in its sole discretion, select the Security
it will establish or provide and substitute other Security after initial
Security has been established or provided. The Reinsured and Reinsurer agree
that, if possible, any Security provided to Reinsured will be held in a manner
so as to allow the Reinsured to take financial credit for the reinsurance
provided by this Agreement and also allow, if possible, the Reinsurer to treat
such Security as an admitted asset in accordance with applicable law.
When required by applicable law in order for the Reinsured to take
financial credit for the reinsurance provided by this Agreement, the Reinsured
shall be entitled to withhold from the Reinsurer as security for the payment of
the latter's obligations, an amount herein called the "Deposit." The Deposit
shall equal the Reinsurer's share of Losses and Loss Expenses paid by the
Reinsured but not recovered from the Reinsurer and outstanding, and incurred but
not reported loss, unearned premium and contingency reserves. The Reinsured
shall hold the deposit in a segregated account for the sole and exclusive
benefit of Reinsurer and only use such funds as provided hereunder. In the event
the Reinsured becomes insolvent, any assets of the Reinsurer held by the
Reinsured, including but not limited to the deposit, shall be deemed to be held
in trust for the sole and exclusive benefit of the Reinsurer.
The Deposit shall be adjusted quarterly to equal Losses and Loss
Expenses paid by the Reinsured but not recovered from the Reinsurer and the
unearned premium, contingency and outstanding and incurred but not reported loss
reserves, calculated on the basis of the requirements of applicable law,
corresponding to the Reinsurer's proportionate share of risks reinsured
hereunder.
At any time after default by the Reinsurer of payments owing to
the Reinsured under this Agreement, the Reinsured may use so much of the Deposit
as may be required to eliminate the default. Until the Deposit has been utilized
in such manner, interest thereon shall be credited to the Reinsurer quarterly at
the lesser of the prime rate or the same interest rate payable on the first
six-month U.S. Treasury Xxxx issued during each quarter.
Upon termination of this Agreement, if the Reinsured and the
Reinsurer agree that the Reinsured will withdraw the Business Reinsured from the
Reinsurer, the Reinsured shall credit and pay to the Reinsurer the balance of
any funds of the Reinsurer in the possession of the Reinsured, including,
without limitation, any funds withheld by the Reinsured as Security, and return
any Security in the possession of the Reinsured. If the cessions in force are
allowed to run
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to their normal expiry, then any funds withheld by or other Security in the
possession of the Reinsured shall be adjusted quarterly.
If the Reinsurer elects to use a Letter of Credit as Security, the
following provisions shall apply to the Reinsurer:
(1) The Reinsurer shall provide to the Reinsured a letter of credit in form
and amount required by applicable law. If the issuing or confirming
bank shall cease to meet applicable legal requirements during the term
of the letter of credit, the Reinsurer shall replace such letter of
credit with a complying one upon the earlier of the stated expiration,
next extension or renewal date, or modification or amendment of the
letter of credit. Within thirty (30) day of the Reinsurer's receipt of
the quarterly report required by Article V of this Agreement:
(a) if the Reinsurer's share of the obligations under this
Agreement shall exceed the then existing balance of the letter
of credit made available, the Reinsurer shall, if required by
applicable law, secure delivery to the Reinsured of an
amendment to the letter of credit increasing the amount of the
letter of credit available by the amount required under
applicable law; or
(b) if the Reinsurer's share of the obligations under this
Agreement shall be less than the balance of the letter of
credit available on the accounting date, the Reinsured shall
release such excess credit by agreeing to an amendment to the
letter of credit reducing the amount of the letter of credit
available by the amount of such excess credit.
(2) Except as may otherwise be required under applicable law, the Reinsurer
and the Reinsured agree that a letter of credit provided by the
Reinsurer pursuant to this Agreement may be drawn upon at any time by
the Reinsured or its successors in interest only for one or more of the
following:
(a) to reimburse the Reinsured for the Reinsurer's share of
premiums (adjusted for return to the Reinsurer of the pro rata
portion of the Ceding Commission paid to the Reinsured)
returned to the owners of Policies reinsured under this
Agreement on account of cancellations of such Policies; and
(b) to reimburse the Reinsured for the Reinsurer's share of Losses
and Loss Expenses paid by the Reinsured pursuant to the
provisions of the Policies reinsured by this Agreement.
When the Reinsured has received notification of the non-renewal of
the letter of credit and when the Reinsurer's obligations under this Agreement
with respect to risks and obligations covered by letter of credit remain
unliquidated and undischarged ten (10) days prior to such expiration date, the
Reinsurer shall supply to the Reinsured substitute Security meeting the
requirements of this Article.
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All of the foregoing shall be applicable without diminution
because of insolvency on the part of the Reinsured or the Reinsurer.
ARTICLE VIII
DUE DILIGENCE RESPONSIBILITIES OF THE REINSURED
In accordance with customary practice in the financial guaranty
insurance industry, the Reinsured will be responsible for performing due
diligence with respect to all obligations to be ceded to and reinsured by the
Reinsurer pursuant to this Agreement, as may be necessary to identify and
evaluate the credit risks attendant thereto. Such evaluation and analysis shall
comport with the written underwriting criteria, standards and guidelines of the
Reinsured. The Reinsured will provide copies of credit reports, financial
statements, environmental impact reports, market research and feasibility
studies, appraisals and other related documentation to the Reinsurer at the time
that the Reinsurance Memorandum described in Article I is presented to the
Reinsurer. In addition, the Reinsured will perform surveillance with respect to
the obligations reinsured hereunder, in order to avoid or mitigate claims
through early warning and remedial management. The surveillance function shall
include the responsibility: (i) to monitor compliance with covenants, changes in
the status, credit ratings or credit profile of reinsured obligations, (ii) to
maintain a watch list and, (iii) where necessary, to engage in the
re-structuring and re-financing of troubled credits.
ARTICLE IX
ACCESS TO RECORDS
The Reinsurer or its authorized representative shall have access to
the books and records of the Reinsured at all reasonable times for the purpose
of obtaining information concerning this Agreement or its subject matter. This
access shall include all papers in possession of the Reinsured in connection
with claims and the adjustment of claims. The Reinsured or its authorized
representatives shall have access to the books and records of the Reinsurer,
where required by a governmental or regulatory authority.
ARTICLE X
REINSURANCE FOLLOWS ORIGINAL POLICIES
All reinsurance for which the Reinsurer shall be liable by
subscribing to this Agreement shall be subject in all respects to the same
rates, terms, conditions, interpretations, waivers, the exact proportion of
premiums paid to the Reinsured and to the same modification, alterations and
cancellations as the respective Policies of the Reinsured to which such
reinsurance relate, the true intent of this Agreement being that the Reinsurer
shall, in every case to which this Agreement applies and in the proportion
specified in the Reinsurance Memoranda, follow the fortunes of the Reinsured.
This Agreement shall be construed as an honorable undertaking between the
parties hereto and shall not be defeated by technical legal constructions.
However, except as provided in Article XV, nothing in this Agreement shall be
construed to expand the liability of the Reinsurer beyond what is specifically
assumed under this Agreement by creating rights of any third party, including
any insured of the Reinsured, in any rights under this Agreement.
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ARTICLE XI
TAXES
The Reinsured shall be liable for premium and Federal excise taxes
on premiums reported to the Reinsurer hereunder. The Reinsured may deduct any
Federal excise tax from the premium to be paid to the Reinsurer.
ARTICLE XII
SERVICE OF PROCESS, JURISDICTION AND VENUE
Subject to the parties hereto first complying with the provisions
of Article XVI hereof, the Reinsurer hereby irrevocably submits to the
non-exclusive jurisdiction of any Federal or New York State court sitting in New
York City over any suit, action or proceeding arising out of or relating to this
Agreement. The Reinsurer irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding brought in such court and any claim that
any such suit, action or proceeding brought in such a court was brought in an
inconvenient forum. The Reinsurer agrees that a final judgment, not subject to
any further appeal, in any such suit, action or proceeding brought in such a
court shall be conclusive and binding upon it and will be given effect in the
country of domicile of the Reinsurer to the fullest extent permitted by
applicable law and may be enforced in any Federal or New York State court
sitting in New York City (or any other courts to the jurisdiction of which the
Reinsurer is or may be subject) by a suit upon such judgment, provided that
service of process is effected upon it as specified in this Article or as
otherwise permitted by law. Nothing herein shall be deemed to limit or waive the
Reinsurer's right to remove a suit, action or proceeding to a federal court of
the United States.
Pursuant to any statute of any state, territory or district of the
United States that makes provisions therefor, the Reinsurer hereby designates
the Superintendent, Commissioner or Director of Insurance or other officer
specified for the purpose in the statute, or his successor or successors in
office, as its true and lawful attorney, upon whom may be served any lawful
process in any action, suit or proceeding arising hereunder that may be
instituted by or on behalf of the Reinsured or any beneficiary under this
Agreement, and hereby designates the person named in Article XX hereof as the
person to whom such officer is authorized to mail such process or a true copy
thereof.
The Reinsurer hereby consents to process being served in any suit,
action or proceeding of the nature referred to above in any Federal or New York
State court sitting in New York City by service of process as set forth above,
provided that, to the extent lawful and possible, written notice of said service
upon such agent shall be mailed by registered or certified air mail, postage
prepaid, return receipt requested, to the Reinsurer at its address specified
Article XX hereof or to any other address which the Reinsurer shall have
designated in accordance with Article XX. The Reinsurer irrevocably waives, to
the fullest extent permitted by law, all claim of error by reason of any such
service (although the Reinsurer does not waives claims that service of process
was not actually received by the Reinsurer) and agrees that such service shall
be deemed to be effective service of process upon the Reinsurer in any such
suit,
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action or proceeding and shall, to the fullest extent permitted by law, be held
to be valid and personal service upon the Reinsurer, unless the service of
process was not actually received by the Reinsurer.
Nothing in this Article shall affect the right of the Reinsurer to
receive service of process in any other manner permitted by law or limit the
right of the Reinsurer to bring proceedings against the Reinsured in any court
having jurisdiction over the Reinsured and such proceedings. Nothing in this
Article shall limit the provisions of Article XV of this Agreement.
ARTICLE XIII
CURRENCY
All premium and losses arising with respect to the Business
Reinsured, accounts, reports, deposits, arbitration awards and/or court
judgments arising out of this Agreement shall be in United States currency.
Premiums paid to the Reinsured for Policies covered by this
Agreement in other than United States currency shall be paid by the Reinsured to
the Reinsurer in United States currency at the rate of exchange on which the
original accounts were settled or, if not converted at such time, at the rate of
exchange used by the Reinsured in its own books of account at the time of the
settlement or in accordance with any subsequent adjustment to such account.
The amounts recoverable by the Reinsured from the Reinsurer for
its proportional share of losses under the Business Reinsured in other than
United States currency shall be converted into United States currency at the
same rate of exchange as were applied in the settlement of the original losses
or, if not converted at such time, at the rate of exchange used by the Reinsured
in its own books of account at the time of the settlement or in accordance with
any subsequent adjustment to such account.
The Reinsurer shall bear the currency risk for its proportionate
share in the event that (i) an insured obligation is denominated in a foreign
currency, (ii) the Reinsurer's limit of liability is denominated in United
States currency and (iii) the amount insured is such that the Reinsurer's
applicable limit of liability for the cession is applicable using the currency
exchange rate in effect on the Policy effective date. The Reinsurer's percentage
participation shall be calculated by converting the Reinsurer's limit of
liability using the currency exchange rate in effect on the Policy effective
date, and the Reinsurer shall be entitled to its proportionate share of premiums
and liable for its proportionate share of Policy Payments based on such
percentage, notwithstanding any later change in currency exchange rates which
result in the Reinsurer's limit of liability being exceeded.
ARTICLE XIV
INSOLVENCY
In the event of the insolvency of the Reinsured, the amounts owing
by the Reinsurer under this Agreement shall be immediately payable directly to
the Reinsured, or to its liquidator, receiver, conservator or statutory
successor on the basis of the liability of the Reinsured without
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diminution because of the insolvency of the Reinsured or because the liquidator,
receiver, conservator or statutory successor of the Reinsured 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 Reinsured shall give written
notice to the Reinsurer of the pendency of a claim against the Reinsured
indicating the policy or bond reinsured 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 Reinsured 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 Reinsured 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 Reinsured solely as a result of the defense
undertaken by the Reinsurer.
The reinsurance shall be payable by the Reinsurer to the Reinsured
or to its liquidator, receiver, conservator or statutory successor, except (a)
where the Agreement specifically provides another payee of such reinsurance in
the event of insolvency of the Reinsured and (b) where the Reinsurer with the
consent of the direct insured or insureds has assumed such Policy obligations of
the Reinsured as direct obligations of the Reinsurer to the payees under such
policies and in substitution for the obligations of the Reinsured to such
payees, provided that any such assumption shall be subject to the approval of
the Maryland Insurance Commissioner of a certificate of assumption.
ARTICLE XV
ARBITRATION
All disputes arising from this Agreement shall first be
adjudicated by a Board of Arbitration (the "Board") consisting of three
arbitrators, all of whom shall be active or retired executive officers of
insurance or reinsurance companies having no direct or indirect financial
interest in either party or its affiliates. Each of the parties hereto shall
select one arbitrator. A third arbitrator will be chosen by the two arbitrators
selected by the parties. A party shall initiate arbitration ("Petitioner") by
providing the other party with Notice, demanding arbitration and identifying its
selected arbitrator. The other party ("Respondent") will have thirty (30) days
from its receipt of a demand for arbitration within which to identify an
arbitrator. In the event that Respondent fails to identify an arbitrator within
such thirty (30) day period, Petitioner shall have the right to identify a
second arbitrator, and Respondent will not be deemed aggrieved thereby. The
arbitrators will jointly select a third arbitrator within thirty (30) days after
both arbitrators have been selected. If the two arbitrators do not agree on the
selection of a third arbitrator within such thirty (30) day period, the third
arbitrator shall be designated by the American Arbitration Association.
The Board shall interpret this Agreement as an honorable
engagement and will make its award with a view to effecting the purpose and
intent of this Agreement in a reasonable manner, rather than in accordance with
the technical interpretation of this Agreement. The Board
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will be relieved from judicial formalities. The decision of a majority of the
Board will be final and binding upon the parties.
The parties shall equally bear the fees and costs of the Board of
Arbitrators. The remaining costs of the arbitration shall be paid as the Board
shall direct.
The arbitration shall take place in the City and State of New
York, unless the Board designates another location with the mutual consent of
the parties. The rules and procedures for pre-hearing investigations shall be
established by the Board and the investigation shall be completed within ninety
(90) days of the appointment of the third arbitrator. Petitioner shall deliver a
written arbitration brief to the Board and to the Respondent within thirty (30)
days of completion of the pre-hearing investigations. Respondent shall deliver a
written response to the Board and the Petitioner within thirty (30) days of its
receipt of Petitioner's brief. A hearing shall be held within thirty (30) days
of submission of Respondent's response. The Board shall render its decision
within sixty (60) days after completion of the hearing unless the Board requests
and the parties consent to an extension of time.
The Board may alter the time periods set forth in this Article for
good cause shown.
This Article shall survive the termination of this Agreement.
ARTICLE XVI
APPLICABLE LAW
This Agreement shall be interpreted in accordance with the laws of
the State of New York, without giving effect to the conflict of law rules
thereof.
ARTICLE XVII
SET OFF
The Reinsured and the Reinsurer have the right to set off amounts
due from one to the other. The party asserting the right of set off may exercise
such right at any time whether the amount(s) due constitute payment of premiums,
losses or otherwise. In the event of the insolvency of a party hereto, set off
shall only be allowed in accordance with applicable law.
ARTICLE XVIII
CONFIDENTIALITY
The Reinsurer agrees to maintain the confidentiality of the
Policies, the reinsurance of the Policies and the underlying transactions and
documents (the "Information"), except
(i) to employees, officers, directors and legal counsel with a
need to know the Information,
(ii) to reinsurers, bankers, governmental agencies that
regulate the Reinsurer
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and the rating agencies that rate the Reinsurer with a need to
know the Information,
(iii) in response to a subpoena calling for production of the
Information, or
(iv) to any other person as to whom the Reinsured has given
its prior written consent to each such disclosure, which
consent shall not be unreasonably withheld or delayed.
In the case of subparagraphs (i) and (ii) above, no disclosure of
the Information shall be permitted if any such entity or individual is
affiliated with a financial guaranty insurer in competition with the Reinsured.
In the case of subparagraph (iii) above, the Reinsurer shall promptly notify the
Reinsured of such subpoena and shall at the Reinsured's direction and expense
contest production of the Information thereunder.
The foregoing requirements of confidentiality shall not apply to
those portions of the Information that (a) are generally available to the public
other than as a result of a disclosure by the Reinsurer or its representatives
or (b) become available to the Reinsurer from a source that is not bound by an
obligation of confidentiality to the Reinsured. If required by a participant in
a transaction insured or to be insured by a Policy, the Reinsurer shall execute
a separate confidentiality agreement containing the foregoing obligations of
confidentiality with respect to such transaction. Nothing contained herein shall
be deemed to expand or limit the non-competition obligation contained under
Section 4, Article X of that certain Quota Share Reinsurance Agreement, between
the parties hereto, effective on the later of January 1, 1999 or the closing of
that certain public offering of the Reinsurer's stock.
ARTICLE XIX
ADDRESSES FOR NOTICES
All notices and other communications required by this
Agreement (each a "Notice") shall be sent to the parties at the following
addresses, respectively, unless a party designates another address in writing:
Global Markets Guaranty Ltd. ACA Financial Guaranty Corporation
Xxxxxxxx Xxxx, Xxxxxxxx St. Xxx Xxxxxxx Xxxxx 00xx Xxxxx
X.X. Xxx XX0000 Xxx Xxxx, New York 10006 U.S.A.
Xxxxxxxx, XX FX Bermuda
Fax No.: 441- Fax No.: 000-000-0000
Attn: Chief Exec. Officer Attn: Reinsurance Officer
IN WITNESS WHEREOF, the parties, by their duly authorized
representatives, have executed this Master Facultative Reinsurance Agreement as
of the 25th day of November, 1998.
REINSURED: REINSURER:
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GLOBAL MARKETS GUARANTY LTD. ACA FINANCIAL GUARANTY CORPORATION
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ H. Xxxxxxx Xxxxxx
------------------------------ ---------------------------------
Xxxxxx X. Xxxxxxxx H. Xxxxxxx Xxxxxx
President and C.E.O. Chairman and C.E.O.
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EXHIBIT A
TO
MASTER FACULTATIVE REINSURANCE AGREEMENT
BETWEEN
ACA FINANCIAL GUARANTY CORPORATION
AND
GLOBAL MARKETS GUARANTY LTD.
REINSURANCE MEMORANDUM
INDIVIDUAL RISK UNDER
MASTER FACULTATIVE REINSURANCE AGREEMENT
REINSURANCE MEMORANDUM NO. _____________________________________________________
ISSUER: ________________________________________________________________________
ISSUE: ________________________________________________________________________
ACA POLICY NUMBER: _____________________________________________________________
POLICY EFFECTIVE DATE: _________________________________________________________
TOTAL PRINCIPAL INSURED BY COMPANY: ____________________________________________
TOTAL PRINCIPAL CEDED TO REINSURER: ____________________________________________
FORM OF REINSURANCE:
________________________________________________________________________________
________________________________________________________________________________
METHOD FOR ALLOCATING SUBROGATION RECOVERIES:
________________________________________________________________________________
________________________________________________________________________________
SPECIFIC MATURITIES CEDED TO REINSURER (IF OTHER THAN PROPORTIONATE SHARE OF
ENTIRE ISSUE IS CEDED):
________________________________________________________________________________
________________________________________________________________________________
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REINSURANCE MEMORANDUM NO.
EFFECTIVE DATE OF REINSURANCE (IF DIFFERENT FROM POLICY EFFECTIVE DATE):
________________________________________________________________________________
________________________________________________________________________________
DEVIATIONS FROM COVER PROVIDED BY COMPANY'S ORIGINAL POLICY:
________________________________________________________________________________
________________________________________________________________________________
GROSS FACULTATIVE PREMIUM CEDED
RATE: ________________________________________________________
AMOUNT: ______________________________________________________
CEDING COMMISSION AND OTHER COSTS
RATE: ________________________________________________________
AMOUNT: ______________________________________________________
OTHER COSTS: _________________________________________________
NET FACULTATIVE PREMIUM CEDED: _________________________________________________
The cession evidenced by this Reinsurance Memorandum shall be subject
to all the terms and conditions contained in that certain Master Facultative
Reinsurance Agreement between the undersigned, dated as of , 1998.
SUBMITTED BY: ACCEPTED BY:
ACA FINANCIAL GUARANTY GLOBAL MARKETS GUARANTY LTD.
CORPORATION
BY: __________________________________ BY: __________________________________
NAME: _______________________________ NAME: ________________________________
TITLE: _______________________________ TITLE: _______________________________
DATE: ______________________________ DATE: _________________________________
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