No. 4270-0003
WORKERS' COMPENSATION
QUOTA SHARE
REINSURANCE AGREEMENT
between
ZENITH INSURANCE COMPANY
and
AMERICAN RE-INSURANCE COMPANY
No. 4270-0003
TABLE OF CONTENTS
ARTICLE PAGE
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I APPLICATION OF AGREEMENT 1
II COVER 1
III LIMITS OF COVER 1
IV EXCLUSIONS 2
V DEFINITIONS 3
VI LOSSES AND LOSS ADJUSTMENT
EXPENSES 4
VII PREMIUM 4
VIII CEDING COMMISSION 5
IX REPORTS AND REMITTANCES 6
X WARRANTY 7
XI INSOLVENCY CLAUSE 7
XII ACCESS TO RECORDS 7
XIII RESERVES AND TAXES 8
XIV OFFSET AND SECURITY CLAUSE 8
XV COMMENCEMENT AND
TERMINATION 9
XVI COMMUTATION 9
No. 4270-0003
WORKERS' COMPENSATION
QUOTA SHARE
REINSURANCE AGREEMENT
THIS AGREEMENT made and entered into by and between ZENITH INSURANCE COMPANY,
Woodland Hills, California (hereinafter referred to as the "Company") and
AMERICAN RE-INSURANCE COMPANY, Princeton, New Jersey (hereinafter referred
to as the "Reinsurer").
WITNESSETH:
The Reinsurer hereby reinsures the Company to the extent and on the terms and
conditions and subject to the exceptions, exclusions and limitations
hereinafter set forth and nothing hereinafter shall in any manner create any
obligations or establish any rights against the Reinsurer in favor of any
third parties or any persons not parties to this Agreement.
ARTICLE I
APPLICATION OF AGREEMENT
This Agreement applies to all business written by the Company and classified
as Workers Compensation and Employers Liability in the state of Florida,
except as excluded under Article IV herein.
ARTICLE II
COVER
The Company shall cede to the Reinsurer and the Reinsurer shall accept from
the Company a 20% quota share participation of the net retained insurance
liability of the Company, as respects policies in force at 12:01 A.M., April
1, 1998 and new and renewal policies issued thereafter except as excluded in
Article IV, subject to the limitations set forth in Article III.
ARTICLE III
LIMITS OF COVER
A. As respects policies issued by the Company, the Company shall cede to
the Reinsurer and the Reinsurer shall accept from the Company a 20%
quota share participation of the Company's net retained insurance
liability, subject to the limitation set forth in paragraph B., below.
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No. 4270-0003
B. It is understood and agreed that in no event shall the Reinsurer's
limit of liability exceed its pro rata share of $550,000 per
occurrence after all other inuring reinsurance.
ARTICLE IV
EXCLUSIONS
1. Reinsurance, except for the intracompany pooling arrangement.
This exclusion shall not apply to insureds who do not agree to
the Novation Agreement covering in force workers' compensation
policies from Riscorp Insurance Company and Riscorp Property
and Casualty Insurance Company to Zenith Insurance Company.
2. Risks involving a nuclear facility or nuclear material, spent
fuel or waste as defined in the Nuclear Incident Exclusion
Clause, except for the use of radioactive isotopes.
3. Liability of Company arising by contract, operations of law or
otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency
Fund" includes any guarantee fund, insolvency fund, plan,
pool, association, fund or other facility which provides for
the assessment of, payment by, or assumption by the company
of a part or the whole of any claim, debt, charge, fee or
other obligations of an insurer, or its successors or assigns,
which has been declared insolvent by any authority having
jurisdiction.
4. Pools, Associations and Syndicates.
5. Construction and maintenance of Caisson or ▇▇▇▇▇▇ Dams (except
earth filled Dams).
6. Manufacturing, packaging, handling or shipping of explosives,
explosive substances intended for use as an explosive,
ammunition, fuses, arms or fireworks.
7. Manufacturing, Production and Refining Petroleum or its
products.
8. Professional Sports Teams.
9. Railroad Operations.
10. Oil and Gas drilling, refining, production or manufacturing.
11. Underground Mining.
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No. 4270-0003
12. Tunneling Operations involving tunnels over 100 feet.
13. Wrecking or Demolition of buildings, structures or vessels
over 5 stories in height.
14. Asbestos, Lead Paint or other toxic substance abatement, when
written as such.
15. Maritime or ▇▇▇▇▇ Act (except for USL&H).
ARTICLE V
DEFINITIONS
A. The term "net retained insurance liability" as used herein means the
remaining portion of the Company's gross liability on the policies
covered hereunder after deducting all excess of loss reinsurance and
all pro rata reinsurance, other than the quota share reinsurance
provided under this Agreement.
B. The term "occurrence" as used herein means each accident or
occurrence or series of accidents or occurrences, arising out of one
event.
C. As respects Occupational or Other Disease under Workers' Compensation
and Employers' Liability policies, a loss for the purpose of this
Agreement shall be deemed to have occurred at the date when
compensability of the employee commenced, or if such date cannot be
definitely determined, the loss as respects such employee affected by
the disease, shall be deemed to have occurred at the date when the
claim became known to the Company, but in no event later than the
last day of employment during the term of the policy or policies of
the Company.
D. In the event more than one employee of the same insured suffers an
Occupational or Other Disease of one specific kind or class during
the same policy year, the resulting losses to the Company shall be
deemed to be from one occurrence and the date of such occurrence for
the purpose of this Agreement shall be the inception date of the last
policy issued by the Company to the employer, prior to the date on
which the first such loss occurred, but within the Agreement year.
The term "Occupational Disease" shall be as defined by applicable
statutes or regulations.
E. The term "Net Written Premium" as used herein means all direct
written premium, less premium ceded for inuring reinsurance, less
return premiums and dividends paid on policies that are written
subject to a loss sensitive dividend plan.
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No. 4270-0003
F. The term "policies" as used herein means each of the Company's
binders, policies and contracts providing insurance and reinsurance
on the business reinsured under this Agreement.
G. The term "Agreement Year" as used herein shall be each 12 month
period beginning with April 1, 1998.
ARTICLE VI
LOSSES AND LOSS ADJUSTMENT EXPENSES
A. Subject to the provisions of Article III, the Reinsurer, in
proportion to its participation, shall pay to the Company a pro rata
share of sums actually paid by the Company in settlement of losses
under its policies including amounts paid for managed care
arrangements, such as network access fees, bill repricing services
and other usual and customary managed care facilities. However, in
the event of the insolvency of the Company payment of loss for which
the Company is liable shall be made by the Reinsurer to the
liquidator, receiver or statutory successor of the Company in
accordance with the provisions of Article XI of this Agreement.
B. Subject to the provisions of Article III, the Reinsurer shall bear in
proportion to its participation expenses incurred by the Company in
the investigation, adjustment and litigation of all claims under its
policies, excluding the office expenses of the Company and the
salaries and expenses of its officials and employees.
C. The Reinsurer shall benefit pro rata in all salvages, discounts and
other recoveries.
D. The Company has the obligation to investigate and, to the extent that
may be required by the policies reinsured hereunder, defend any claim
affecting this reinsurance and to pursue such claim to final
determination.
ARTICLE VII
PREMIUM
A. Within 30 days following April 1, 1998, the Company shall pay to the
Reinsurer 20% of the Company's unearned premium reserve on its net
retained insurance liability in force at 12:01 A.M., April 1, 1998 on
the Riscorp Insurance Company, Riscorp Property and Casualty
Insurance Company and Zenith Insurance Company business covered
hereunder.
B. The Company shall also pay to the Reinsurer for the reinsurance
provided under this Agreement 20% of the Net Written Premium of the
Company for the new and renewal business covered hereunder, after
deduction of premiums paid for inuring reinsurance.
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No. 4270-0003
ARTICLE VIII
CEDING COMMISSION
A. The Reinsurer shall make a provisional commission allowance of 35% to
the Company on the premiums ceded under this Agreement. The Company
shall debit the Reinsurer with the provisional commission allowance
in the monthly accounts. The provisional commission shall be subject
to adjustment annually, until all losses have been settled or the
Agreement is commuted, whereupon a final commission adjustment will
be made consistent with the actuarially determined losses. However,
the first adjustment shall be thirty-six months after the end of each
Agreement Year. On all return premiums the Company shall return to
the Reinsurer the provisional commission allowance of 35%.
B. The ultimate commission allowance which the Reinsurer shall make to
the Company shall be in accordance with the following plan and shall
be computed on premiums earned under this Agreement:
IF THE REINSURER'S LOSS RATIO IS: THE ULTIMATE COMMISSION SHALL BE:
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77% or higher 29.1% minimum
70% or higher but less than 77% 34.0% less a .7% decrease for
each 1% increase in the
Reinsurer's loss ratio down to a
29.1% commission at an 77%
loss ratio
66% or higher but not exceeding 36% less .5% decrease for each
70% 1% increase in the Reinsurer's
loss ratio down to a 34%
commission at a 70% loss ratio
60% or higher but not exceeding 40.5% less a .75% decrease for
66% each 1% increase in the
Reinsurer's loss ratio down to a
36% commission at a 66% loss
ratio
60% or less 40.5%
C. The commission allowance which the Reinsurer makes to the Company on
the business transacted under this Agreement includes provision for
all taxes, assessments and any other expenses whatsoever, except loss
adjustment expenses.
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No. 4270-0003
D. The term "Reinsurer's loss ratio" means the "Reinsurer's losses
incurred" as defined in paragraph E. below, divided by "premiums
earned" as defined in paragraph F. below.
E. The term "Reinsurer's Losses Incurred" as used herein shall be
understood to mean ceded losses (net of salvages, subrogations,
inuring reinsurance and Special Disability Trust Funds recovered) and
allocated loss adjustment expenses paid by the Reinsurer under this
Agreement as of the effective date of calculation, plus the reserve
for ceded losses and allocated loss adjustment expenses outstanding
(including a reserve for incurred but not reported losses) as of the
same date, all as respects losses occurring during the Agreement Year
under consideration on the business covered hereunder.
F. The term "premiums earned" as used herein means the total of the
Reinsurer's net premiums written during the current Agreement Year,
plus the pro rata unearned premium at the close of the preceding
Agreement Year less the pro rata unearned premium at the close of the
current Agreement Year, said pro rata unearned premium to be
calculated on a daily pro rata basis.
G. If the ultimate commission on the premiums earned during the
Agreement Year exceeds the commission already allowed on the premiums
earned, the Reinsurer shall pay the difference to the Company at 36
months after the end of each Agreement Year. If the commission
already allowed on the premiums earned exceeds the ultimate
commission on the premiums earned, the difference shall be refunded
by the Company to the Reinsurer within 30 days.
H. Annual calculation of the ultimate commission shall continue until
all of the Reinsurer's Losses Incurred hereunder have been finally
settled.
I. The ceding commission terms herein are subject to annual
renegotiation at any April 1.
ARTICLE IX
REPORTS AND REMITTANCES
A. The Company shall report monthly net written premiums, collected
premiums, paid loss and allocated loss adjustment expense and the
provisional ceding commission.
B. The Company shall report monthly unearned premium and outstanding
loss reserves including provisions for IBNR. The Company shall also
report its unearned premium reserve at the inception of this
Agreement.
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No. 4270-0003
C. Within thirty days after the end of each month, collected premiums
less the provisional commission allowance shall be paid by the
Company, and paid Loss and Loss Adjustment Expense shall be paid by
the Reinsurer, subject to the limits provided in Article III.
ARTICLE X
WARRANTY
The Company warrants to the Reinsurer that excess of loss reinsurance excess
of $550,000 per occurrence for its Workers Compensation business shall be
maintained, or so deemed to be in effect and collectible for the duration of
this Agreement and shall inure to the benefit of this Agreement whether
collectible or not.
ARTICLE XI
INSOLVENCY CLAUSE
The reinsurance provided by this Agreement and each and every reinsurance
agreement heretofore or hereafter entered into by and between the parties
hereto shall be payable by the Reinsurer directly to the Company or to its
liquidator, receiver or statutory successor on the basis of the liability of
the Company under the contract or contracts reinsured without diminution
because of the insolvency of the Company. In the event of the insolvency of
the Company, the liquidator or receiver or statutory successor of the Company
shall give written notice of the pendency of each claim against the Company
on a policy or bond reinsured within a reasonable time after such claim is
filed in the insolvency proceeding; and 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 which it may deem available to the Company, its liquidator or
receiver or statutory successor. The expense thus incurred by the Reinsurer
shall be chargeable, subject to court approval, against the Company as part
of the expense of liquidation to the extent of such proportionate share of
the benefit as shall accrue to the Company solely as a result of the defense
undertaken by the Reinsurer. The reinsurance shall be payable as set forth
above except where this Agreement specifically provides for the payment of
reinsurance proceeds to another party in the event of the insolvency of the
Company.
ARTICLE XII
ACCESS TO RECORDS
The Company shall place at the disposal of the Reinsurer and the Reinsurer
shall have the right to inspect, through its authorized representatives, at
all reasonable times during the
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No. 4270-0003
currency of this Agreement and thereafter, the books, records and papers of
the Company pertaining to the reinsurance provided ▇▇▇▇▇▇▇▇▇ and all claims
made in connection therewith.
ARTICLE XIII
RESERVES AND TAXES
A. The Reinsurer shall maintain legal reserves with respect to unearned
premiums and claims hereunder.
B. The Company will be liable for all taxes on premiums reported to the
Reinsurer hereunder and will reimburse the Reinsurer for such premium
taxes where the Reinsurer is required to pay the same.
ARTICLE XIV
OFFSET AND SECURITY CLAUSE
A. Each party hereto has the right, which may be exercised at any time,
to offset any amounts, whether on account of premiums or losses or
otherwise, due from such party to another party under this Agreement
or any other reinsurance agreement heretofore or hereafter entered
into between them, against any amounts, whether on account of
premiums or losses or otherwise due from the latter party to the
former party. The party asserting the right of offset may exercise
this right, whether as assuming or ceding insurer or in both roles in
the relevant agreement or agreements.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one) all of its rights under this Agreement
to receive premium or loss payments at any time from such other party
("Collateral"), to secure its premium or loss obligations to such
other party at any time under this agreement and any other
reinsurance agreement heretofore or hereinafter entered into by and
between them ("Secured Obligations"). If at any time a party is in
default under any Secured Obligation or shall be subject to any
liquidation, rehabilitation, reorganization or conservation
proceeding, each other party shall be entitled in its discretion, to
apply, or to withhold for the purpose of applying in due course, any
Collateral assigned and pledged to it by the former party and
otherwise to realize upon such Collateral as security for such
Secured Obligations.
C. The security interest described herein, and the term "Collateral,"
shall apply to all payments and other proceeds in respect of the
rights assigned and pledged. A party's security interest in
Collateral shall be deemed evidenced only by the counterpart of this
Agreement delivered to such party.
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D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this
Article shall survive any cancellation or other termination of this
Agreement.
ARTICLE XV
COMMENCEMENT AND TERMINATION
A. This Agreement shall take effect as of 12:01 A.M., April 1, 1998 and
is entered into for an unlimited period but either party may
terminate this Agreement at March 31, 1999 or any subsequent March 31
thereafter, by giving not less than 90 days notice in writing by
certified letter.
B. At termination of this Agreement, the Reinsurer shall be relieved of
all liability hereunder for losses occurring subsequent to the
termination date for which the Reinsurer shall return the unearned
premium, if any, as of the termination date.
C. This Agreement may be renewed and/or extended for successive 12-month
periods at any April 1 on terms to be agreed by the parties hereto.
Either party may notify the other party of its desire to renew or
extend this Agreement by written notice to the other party prior to
any April 1.
ARTICLE XVI
COMMUTATION
Either party may elect to commute the liability of the Reinsurer twelve
months after termination or any time thereafter. Such commutation shall be
effected by a return to the Company of the commuted value (to be actuarially
determined and agreed by the Company and the Reinsurer) of outstanding losses.
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No. 4270-0003
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed in duplicate this 13th day of October, 1998.
ACCEPTED: 20% PART OF 100%
ZENITH INSURANCE COMPANY
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Senior Vice-President
AMERICAN RE-INSURANCE COMPANY
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Vice President
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