Exhibit 99.2
CONFORMED COPY
QUOTA SHARE RETROCESSION AGREEMENT
by and between
HARTFORD FIRE INSURANCE COMPANY
(the "Retrocedent")
and
ENDURANCE REINSURANCE CORPORATION OF AMERICA
(the "Retrocessionaire")
Dated as of May 15, 2003
INDEX OF EXHIBITS
Exhibit A - Form of Cash Settlement Statement
Exhibit B - Trust Agreement
INDEX OF SCHEDULES
Schedule 1.1 Reinsured Liability Caps
Schedule 1.2 Reinsured Contracts
Schedule 1.3 Allocation Schedule
Schedule 1.4 IBNR Factors
Schedule 2.9 Preliminary Cash Settlement Statement
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QUOTA SHARE RETROCESSION AGREEMENT
This QUOTA SHARE RETROCESSION AGREEMENT (together with all Exhibits and
Schedules hereto, this "Retrocession Agreement"), dated as of May 15, 2003, by
and between HARTFORD FIRE INSURANCE COMPANY, an insurance company organized
under the laws of the State of Connecticut (together with its successors and
permitted assigns, the "Retrocedent") and ENDURANCE REINSURANCE CORPORATION OF
AMERICA, an insurance company organized under the laws of the State of New York
(together with its successors and permitted assigns, the "Retrocessionaire").
WHEREAS, the Retrocedent, HartRe Company, L.L.C. ("HartRe"), a Connecticut
limited liability company, and the Retrocessionaire have entered into a Purchase
Agreement, dated as of May 15, 2003 (the "Purchase Agreement"), pursuant to
which the Retrocessionaire will acquire, among other things, the exclusive right
to renew contracts constituting the Business (as defined therein); and
WHEREAS, as part of such Purchase Agreement, the Retrocedent and the
Retrocessionaire have agreed to enter into this Retrocession Agreement pursuant
to which the Retrocedent will cede, and the Retrocessionaire will assume, on a
100% quota share basis, all of the Reinsured Liabilities (as defined herein).
NOW, THEREFORE, for and in consideration of the premises and the promises
and the mutual agreements hereinafter set forth and set forth in the Purchase
Agreement and the other Related Documents, the parties hereto, intending to be
legally bound, covenant and agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Defined Terms. Capitalized terms used but not defined herein
and which are defined in the Purchase Agreement shall have the meanings ascribed
to them in the Purchase Agreement. As used in this Retrocession Agreement, the
following terms shall have the meanings set forth herein:
"Additional Canadian Contracts" shall mean Renewal Contracts issued with
respect to Canadian cedents by the Retrocedent at the Retrocessionaire's
direction in accordance with Section 2.7.
"Adjusted Closing Cash Settlement Statement" shall have the meaning set
forth in Section 2.10.
"Adjustment Date" shall mean December 31, 2004 and each June 30th and
December 31st thereafter until all claims under the Reinsured Contracts are
finally settled.
"Blended Target Loss Ratio" shall have the meaning set forth in Section
2.6(c).
"Calculated According to the Allocation Schedule" shall mean, with respect
to the calculations required under this Retrocession Agreement, calculated in
accordance with Schedule 1.3 hereto, which sets forth the methodologies and
assumptions for apportioning premium, losses, loss adjustment expenses,
commissions, brokerage and/or any other payment obligations or liabilities
(including any adjustment to any of the foregoing in accordance with this
Retrocession Agreement) under the Reinsured Contracts between the Retrocedent
and the Retrocessionaire.
"Cash Settlement Statement" shall mean a cash settlement statement
substantially in the form set forth on Exhibit A hereto.
"Ceding Commission" shall have the meaning set forth in Section 2.5(a).
"Claims Handling Agreement" means the Claims Handling Agreement, dated May
15, 2003, between the Retrocedent and the Retrocessionaire.
"Closing" shall mean the closing of the transactions contemplated by this
Retrocession Agreement.
"Effective Date" shall mean 12:01 a.m. (based upon the stated local time
of the respective Reinsured Contract), April 1, 2003.
"Excluded Liabilities" shall mean any liability or obligation of the
Retrocedent that arises out of or under a Reinsured Contract for:
(1) any loss relating to a Reinsured Event incepting prior to the
Effective Date and all allocated and unallocated loss adjustment expense and
loss development relating to the foregoing (except if and to the extent
apportioned to Retrocessionaire pursuant to Schedule 1.3 or the Claims Handling
Agreement);
(2) premium taxes, including any litigation or other proceedings
concerning premium taxes, to the extent arising on account of the Retrocedent's
Pro Rata Portion of premiums;
(3) Extra Contractual Liabilities and any related attorneys' fees
and other expenses sustained by the Retrocedent to the extent arising out of
acts, errors or omissions by the Retrocedent or any of its officers, employees,
agents or representatives prior to the Closing;
(4) any assessment resulting from participation or membership,
whether voluntary or involuntary, in any state guaranty association or
insolvency fund relating to periods prior to the Effective Date;
(5) subject to Article XII of the Claims Handling Agreement, any
additional liability or obligation arising out of the Retrocedent's failure to
follow any lawful instruction relating to the Reinsured Liabilities made by the
Retrocessionaire in accordance with its rights thereunder;
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(6) any liability or expense of any nature whatsoever arising from
contracts which are not Reinsured Contracts;
(7) escheat liabilities for claims checks issued prior to the
Effective Date, except to the extent the proceeds of such checks are remitted to
the Retrocessionaire;
(8) except to the extent otherwise apportioned to Retrocessionaire
(as Calculated According to the Allocation Schedule), commissions, expense
allowances, brokerage and other fees and compensation payable to reinsurance
intermediaries and other Producers;
(9) judgments, settlements, defense costs or any other fees, costs
or expenses arising out of, under or relating to Existing Litigation;
(10) any and all loss and loss adjustment expense with respect to
Reinsured Contracts within Retrocedent's New York cooperative insurance program
in excess of the layer cap set forth on Schedule 1.1; and
(11) aggregate loss and loss adjustment expense relating to the
catastrophes identified by the Insurance Services Organization as ISO CAT No.
088 (starting May 2, 2003 and ending May 11, 2003) in excess of the aggregate
cap on the payment obligation of the Retrocessionaire hereunder as set forth on
Schedule 1.1.
"Existing Litigation" shall mean (i) any litigation or other proceeding
(including arbitration) relating to a Reinsured Contract and to which
Retrocedent is a party as of the Closing Date and (ii) any litigation or other
proceeding (including arbitration) arising after the Closing Date relating to
liabilities that are not Reinsured Liabilities.
"Extra Contractual Liabilities" shall mean all liabilities or obligations
(including attorney's fees and any other related expenses), other than those
reinsured under the terms of and within the limits of the Reinsured Contracts,
whether to ceding companies, Governmental Bodies or any other Person for
consequential, exemplary, punitive, compensatory, treble, special or any other
form of extracontractual damages relating to the Reinsured Contracts which arise
from any alleged or actual act, error or omission, whether or not intentional,
in bad faith or otherwise, relating to: (i) the marketing, underwriting,
production, issuance, cancellation or administration of the Reinsured Contracts,
(ii) the investigation, defense, trial, settlement or handling of claims,
benefits, or payments arising out of, under or relating to the Reinsured
Contracts or (iii) the failure to pay or the delay in payment of benefits,
claims or any other amounts due or alleged to be due under or in connection with
the Reinsured Contracts.
"Final Cash Settlement Statement" shall have the meaning set forth in
Section 2.9.
"Final Closing Statement of Business" shall have the meaning set forth in
Section 2.9.
"Fronting Fee" shall have the meaning set forth in Section 2.7.
"Group A Contracts" shall mean the Reinsured Contracts identified with the
designation letter "A" on Schedule 1.2 (property treaty segment).
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"Group B Contracts" shall mean the Reinsured Contracts identified with the
designation letter "B" on Schedule 1.2 (property catastrophe segment).
"Group C Contracts" shall mean the Reinsured Contracts identified with the
designation letter "C" on Schedule 1.2 (aviation segment).
"Group D Contracts" shall mean the Reinsured Contracts identified with the
designation letter "D" on Schedule 1.2 (Reinsured Contracts other than Group A
Contracts, Group B Contracts or Group C Contracts).
"Interim Cash Settlement Statement " shall have the meaning set forth in
Section 2.9.
"Market Value" shall have the meaning set forth in Section 10.2.
"Monthly Report" shall have the meaning set forth in Section 4.1.
"Net Cash Transfer Amount" shall have the meaning set forth in the Cash
Settlement Statement.
"90-Day Treasury Rate" shall mean the annual yield rate, as of any given
date, of actively traded U.S. Treasury securities having a remaining duration to
maturity of three months, as such rate is published under "Treasury Constant
Maturities" in Federal Reserve Statistical Release H.15(519).
"Novated Contract" shall have the meaning set forth in Section 2.3(a).
"Novation" shall have the meaning set forth in Section 2.3(a).
"Obligations" shall have the meaning set forth in the Trust Agreement.
"Override Commission" shall mean the applicable percentage of Reinsured
Contract Premium for each Reinsured Contract as such percentage is set forth
under the column denoted "Cede Comm." on Schedule 1.2.
"Pro Rata Portion" shall mean the Retrocessionaire's Pro Rata Portion (as
determined in accordance with Schedule 1.3) or the Retrocedent's Pro Rata
Portion (as determined in accordance with Schedule 1.3), as the context
requires; provided, however, if a Reinsured Contract is terminated prior to its
normal expiration date, the parties' respective Pro Rata Portions with respect
to such Reinsured Contract shall be adjusted in accordance with the
methodologies set forth on Schedule 1.3 to reflect such Reinsured Contract's
actual date of expiration.
"Profit Sharing Commission" shall have the meaning set forth in Section
2.6.
"Reinsured Contract Premium" shall mean Retrocessionaire's Pro Rata
Portion of the reinsurance premium under the Reinsured Contracts as Calculated
According to the Allocation Schedule and actually received (including by way of
offset under the underlying Reinsured Contract) by the Retrocessionaire, net of
(i) any such premium paid which is required to be returned to Reinsureds due to
termination or cancellation of a Reinsured Contract and (ii) with
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respect to Ohio Schools Council business only, any reinsurance premium paid to
the reinsurer under the Specified Third Party Reinsurance Contract. Reinsured
Contract Premium with respect to USAIG aviation pool business shall mean the net
premiums reported to the Retrocedent as its share of the USAIG members' net
premium.
"Reinsured Contracts" shall mean the contracts set forth on Schedule 1.2
hereto as well as contracts of insurance and reinsurance issued by or on behalf
of the Retrocedent pursuant to Section 2.7 ("Fronted Contracts"). Fronted
Contracts shall not constitute Reinsured Contracts for purposes of Sections
2.5(b), 2.5(c) or 2.6.
"Reinsured Event" means any occurrence, act, omission, event or claim that
must take place during the term of a Reinsured Contract or during the term of an
insurance policy reinsured by a Reinsured Contract, as the case may be, in order
for the Retrocedent to be liable (without giving effect to this Retrocession
Agreement) under such Reinsured Contract for losses resulting therefrom.
"Reinsured Liabilities" shall mean Retrocessionaire's Pro Rata Portion of
all liabilities and obligations arising out of or under the Reinsured Contracts,
including Retrocessionaire's Pro Rata Portion of the losses or allocated loss
adjustment expense, ceding commission, brokerage or unearned premium obligation
arising from the Reinsured Contracts, in each case Calculated According to the
Allocation Schedule (to the extent not otherwise reimbursed through payment of
the Ceding Commission under Section 2.5(a)), including Extra Contractual
Liabilities sustained by the Retrocedent; provided, that Reinsured Liabilities
shall not include any Excluded Liabilities.
"Retrocedent's Pro Rata Portion" shall mean, with respect to any item of
income, expense, liability or asset, the Pro Rata Portion thereof allocated to
Retrocedent pursuant to Schedule 1.3.
"Retrocessionaire's Pro Rata Portion" shall mean, with respect to any item
of income, expense, liability or asset, the Pro Rata Portion thereof allocated
to Retrocessionaire pursuant to Schedule 1.3.
"Revised Adjusted Net Cash Transfer Amount" shall have the meaning set
forth in Section 2.10(b).
"SAP" shall mean statutory accounting principles consistently applied.
"Third Party Accountant" shall mean KPMG LLP or, if KPMG LLP declines to
serve in such capacity under this Retrocession Agreement, such other independent
accounting firm as may be mutually acceptable to the Retrocedent and the
Retrocessionaire (or if the Retrocedent and the Retrocessionaire cannot agree on
such an independent accounting firm within five (5) Business Days of the Third
Party Accountant's declining to serve, an independent accounting firm mutually
acceptable to the Retrocedent's and the Retrocessionaire's respective
independent accountants).
"Trust Account" shall have the meaning set forth in Section 10.2.
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"Trust Agreement" shall have the meaning set forth in Section 10.2.
"Trustee" shall have the meaning set forth in Section 10.3.
"Type A Reinsured Contracts" shall mean those Reinsured Contracts
designated as "Type A Reinsured Contracts" on Schedule 1.2.
"Type B Reinsured Contracts" shall mean those Reinsured Contracts
designated as "Type B Reinsured Contracts" on Schedule 1.2.
"Ultimate Loss Ratio" shall have the meaning set forth in Section 2.6(c).
"USAIG Pool" shall mean United States Aircraft Insurance Group aviation
pool.
Section 1.2. Interpretation.
(a) When a reference is made in this Retrocession Agreement to an
Article, Section or Schedule, such reference shall be to an Article or Section
of, or a Schedule to, this Retrocession Agreement unless otherwise indicated.
The Article and Section headings and table of contents contained in this
Retrocession Agreement are solely for the purpose of reference, are not part of
the agreement of the parties and shall not affect in any way the meaning or
interpretation of this Retrocession Agreement. Whenever the words "include,"
"includes" or "including" are used in this Retrocession Agreement, they shall be
deemed to be followed by the words "without limitation." The phrase "made
available" in this Retrocession Agreement shall mean that the information
referred to has been made available if requested by the party to whom such
information is to be made available. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Retrocession Agreement
shall refer to this Retrocession Agreement as a whole and not to any particular
provision of this Retrocession Agreement. All terms defined in this Retrocession
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Retrocession Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such term. Any agreement, instrument or
statute defined or referred to herein or in any agreement or instrument that is
referred to herein means such agreement, instrument or statute as from time to
time amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes. References to a Person are also to its permitted
successors and assigns.
(b) The parties have participated jointly in the negotiation and
drafting of this Retrocession Agreement; consequently, in the event an ambiguity
or question of intent or interpretation arises, this Retrocession Agreement
shall be construed as if drafted jointly by the parties thereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Retrocession Agreement.
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ARTICLE II
BASIS OF REINSURANCE
Section 2.1. Cession.
(a) As of the Effective Date, the Retrocedent hereby cedes on an
indemnity basis to the Retrocessionaire, and the Retrocessionaire hereby accepts
and agrees to reinsure and indemnify the Retrocedent for, 100% of all Reinsured
Liabilities. In consideration thereof, an amount equal to $110,329,478
(corresponding to line a. of Schedule 2.9) representing Retrocessionaire's Pro
Rata Portion of premium collected as of the Effective Date will be payable to
the Retrocessionaire at Closing and therefore reflected in the Cash Settlement
Statement and included in calculating the Net Cash Transfer Amount paid to the
Retrocessionaire on the third Business Day following the Closing. The
reinsurance provided by this Retrocession Agreement is on a gross basis, without
deduction for any inuring reinsurance or retrocession; provided that (1) with
respect to the USAIG Pool participations and the Ohio Schools program described
in Schedule 1.2 and in Section 2.7, the reinsurance provided hereunder shall be
on the basis of 100% of the Retrocedent's net participation in the foregoing
programs (referred to as "member's net" in the USAIG Pool) and (2) until June 1,
2003, the reinsurance hereunder with respect to property facultative Reinsured
Contracts shall be net of any collected inuring retrocessions (net of related
reinstatement premiums) that apply solely to the property facultative book of
business. Notwithstanding anything in this Retrocession Agreement to the
contrary, the parties hereto agree that the Retrocessionaire shall not be
required to indemnify the Retrocedent for any Excluded Liability.
(b) In the event that the provisions of this Retrocession Agreement
would operate to breach any net retention condition under any third party
retrocession contract covering any Reinsured Contract, this Retrocession
Agreement shall be deemed amended solely to the extent necessary to avoid any
non-compliance with or breach of any provisions of such third party retrocession
contract.
Section 2.2. Effect of Reinsured Contracts. Except as otherwise set forth
in this Retrocession Agreement or the Claims Handling Agreement, the reinsurance
provided under this Retrocession Agreement shall be subject to the same risks,
clauses, terms, limits, conditions, endorsements, modifications, waivers,
interpretations or alterations of or affecting the Reinsured Contracts, it being
the intent of the parties that the Retrocessionaire shall follow the fortunes of
the Retrocedent in respect of all business ceded hereunder and that the risks,
clauses, terms, limits, conditions, endorsements, modifications, waivers,
interpretations and alterations of this Retrocession Agreement shall be fully
concurrent with the Reinsured Contracts; provided, however, notwithstanding
anything in this Agreement or any Related Document to the contrary, in no event
shall Retrocedent, its Affiliates or any of its or their respective
Representatives or Producers modify, alter or waive any of the terms of the
Reinsured Contracts without the Retrocessionaire's express written consent.
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Section 2.3. Renewal and Novation of Reinsured Contracts.
(a) As requested by the Retrocessionaire in its sole discretion, the
Retrocedent shall consent to and use its reasonable best efforts to reasonably
assist the Retrocessionaire in (i) renewing the Reinsured Contracts; (ii)
canceling and rewriting the Reinsured Contracts; and/or (iii) novating the
Reinsured Contracts as if the Reinsured Contracts were direct obligations
originally reinsured by the Retrocessionaire, subject to the reallocation of
unearned premium required under Schedule 1.3 ("Novation"); provided that the
terms and conditions of any agreement memorializing any such Novation are
mutually agreed upon by the Retrocedent and the Retrocessionaire. Any Reinsured
Contract that is the subject of a Novation is referred to in this Retrocession
Agreement as a "Novated Contract."
(b) Notwithstanding the foregoing, in the event that a Reinsured
Contract is not novated from the Retrocedent to the Retrocessionaire, such
Reinsured Contract shall continue for all purposes of this Retrocession
Agreement to be a Reinsured Contract hereunder. If a Reinsured Contract novated
pursuant to this Section is determined by appropriate regulatory authority, by
judicial decision or otherwise not to be properly novated, the Reinsured
Liabilities under such contract shall continue to be reinsured under the terms
of this Retrocession Agreement.
Section 2.4. Restricted Marketing Activities. Except as otherwise
contemplated by the Claims Handling Agreement or the Purchase Agreement, in no
event shall the Retrocessionaire use the Retrocedent's name, logo or other
service or trade names or marks without the Retrocedent's prior written consent.
Section 2.5. Ceding Commissions.
(a) An amount equal to $25,754,744 (corresponding to line b. of
Schedule 2.9) representing the Retrocessionaire's Pro Rata Portion of brokerage
and ceding commissions as of March 31, 2003 (the "Ceding Commission") will be
payable to the Retrocedent at Closing and therefore reflected in the Cash
Settlement Statement and included in calculating the Net Cash Transfer Amount
paid to the Retrocessionaire on the third Business Day following the Closing.
(b) A nonrefundable advance payment of $15,000,000 in respect of the
Override Commission described in this Section 2.5(b) will be payable to the
Retrocedent at Closing and therefore reflected in the Cash Settlement Statement.
As additional consideration for the transactions contemplated by this
Retrocession Agreement, the Purchase Agreement and the Related Documents, the
Retrocessionaire hereby agrees to pay to the Retrocedent an amount equal to the
Override Commission which becomes payable in each calendar month following the
Closing Date, but only to the extent that the aggregate Override Commission
exceeds $15,000,000. Such amounts shall be paid by the Retrocessionaire to the
Retrocedent on a monthly basis within ten (10) days after the end of the
calendar month in which such Reinsured Contract Premium is received by the
Retrocessionaire, beginning with the calendar month during which the total
aggregate Override Commission exceeds $15,000,000.
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(c) At the Closing, an amount equal to $1,765,272 (corresponding to
line f. of Schedule 2.9), representing a payment of 1.6% of Reinsured Contract
Premium collected through March 31, 2003, will be paid to the Retrocedent and
therefore reflected in the Cash Settlement Statement. Further, as reimbursement
for internal underwriting expenses of the Retrocedent not previously recovered
by the Retrocedent from premium earned prior to the Closing Date or pursuant to
Section 2.5(a), the Retrocessionaire hereby agrees to pay to the Retrocedent
1.6% of the Reinsured Contract Premium collected after March 31, 2003, with
respect to the Reinsured Contracts, which shall be payable pursuant to Section
4.3 on a monthly basis by applying such percentage to the amount of such premium
actually collected in the preceding month.
Section 2.6. Profit Sharing Commissions.
(a) The Retrocessionaire shall pay to the Retrocedent the
Profit-Sharing Commission if the Retrocessionaire's Ultimate Loss Ratio (as
defined in Section 2.6(c)) as of such Adjustment Date is less than the Blended
Target Loss Ratio (as defined in Section 2.6(d)) as of such Adjustment Date.
"Profit-Sharing Commission" shall mean an amount equal to (X * Y) - Prior Net
Payments, where:
X = (A) 0.5, multiplied by (B) the Blended Target Loss Ratio minus
the Ultimate Loss Ratio; provided, that X shall not be less than zero; and
Y = the aggregate Reinsured Contract Premium for the Group A
Contracts, Group B Contracts and Group C Contracts for the period from the
Effective Date to the relevant Adjustment Date.
Prior Net Payments = the cumulative amounts previously paid by the
Retrocessionaire pursuant to this Section 2.6(a) for prior Adjustment Dates,
less any amounts previously repaid by the Retrocedent pursuant to Section 2.6(b)
for prior Adjustment Dates.
If the amount determined by subtracting the Ultimate Loss Ratio from the Blended
Target Loss Ratio is zero or less, no Profit Sharing Commission shall be payable
by the Retrocessionaire for such Adjustment Date pursuant to this Section
2.6(a).
(b) If as of any Adjustment Date, the amount produced by the
calculation set forth in Section 2.5(a) is positive, the Retrocessionaire shall
pay such amount to the Retrocedent, or if as of any Adjustment Date the amount
produced by the calculation set forth in Section 2.5(a) is negative, the
Retrocedent shall pay such amount to the Retrocessionaire. Payments required
under this Section 2.5(a) shall be made within thirty (30) days after each
Adjustment Date. It is expressly understood that in no event shall the
Retrocedent be required to make any payment under this Section 2.6 in excess of
the amounts previously received from the Retrocessionaire under this Section 2.6
and not previously repaid by the Retrocedent.
(c) "Ultimate Loss Ratio" shall mean, as of each Adjustment Date,
the ratio, expressed as a percentage, of (a) the sum of (i) the amount of losses
and allocated loss adjustment expenses paid by the Retrocessionaire in respect
of the Group A Contracts, Group B Contracts and Group C Contracts from the
Effective Date to the relevant Adjustment Date and (ii) the amount of case loss
reserves and incurred but not reported loss reserves of the
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Retrocessionaire in each case computed in accordance with the IBNR factors set
forth on Schedule 1.4 (unless otherwise agreed in writing by the parties) in
respect of the Group A Contracts, Group B Contracts and Group C Contracts as of
the relevant Adjustment Date to (b) the amount of the Reinsured Contract Premium
for the Group A Contracts, Group B Contracts and Group C Contracts from the
Effective Date to such Adjustment Date.
(d) "Blended Target Loss Ratio" shall mean an amount equal to:
(i) The sum of (A) 0.55 multiplied by the Reinsured Contract Premium
for the Group A Contracts for the period from the Effective Date to the
relevant Adjustment Date, and (B) 0.45 multiplied by the Reinsured
Contract Premium for the Group B Contracts for the period from the
Effective Date to the relevant Adjustment Date, and (C) 0.67 multiplied by
the Reinsured Contract Premium for the Group C Contracts for the period
from the Effective Date to the relevant Adjustment Date,
divided by
(ii) The aggregate Reinsured Contract Premium for the Group A
Contracts, Group B Contracts and Group C Contracts for the period from the
Effective Date to the relevant Adjustment Date.
(e) In the event that the parties cannot agree as to the calculation
of the Profit Sharing Commission, such dispute shall be resolved by the Third
Party Accountant within forty-five (45) days of its receipt of a written notice
of such dispute from the Retrocedent, a copy of which shall be provided by the
Retrocedent to the Retrocessionaire simultaneously with transmittal thereof to
the Third Party Accountant. Each party shall have the right to make whatever
submissions it deems necessary to the Third Party Accountant in order to resolve
such dispute, provided that the submitting party shall simultaneously provide a
copy of such materials to the other party to this Retrocession Agreement. Each
party shall be obligated to submit to the Third Party Accountant its calculation
of the Profit Sharing Commission. The Third Party Accountant's calculation of
the Profit Sharing Commission shall not exceed or be less than the amount
thereof calculated by either party hereto. In resolving any such dispute, the
fees, costs and expenses of the Third Party Accountant shall be shared by each
party in proportion to the difference between the Profit Sharing Commission as
calculated by the Third Party Accountant and that originally submitted by each
party to the Third Party Accountant.
Section 2.7. Fronting.
(a) Following the Closing Date until February 29, 2004,
Retrocessionaire shall have the authority to require Retrocedent to issue
Additional Canadian Contracts, subject to Applicable Law. Additional Canadian
Contracts shall be reinsured by Retrocessionaire under this Retrocession
Agreement and considered Reinsured Contracts for which Retrocessionaire's Pro
Rata Portion of all amounts shall be 100%. On a quarterly basis,
Retrocessionaire will pay Retrocedent a fronting fee of two percent (2%) of the
gross written premiums for the Additional Canadian Contracts written during the
prior quarter (the "Fronting Fee") and reimburse the Retrocedent for any amounts
paid by Retrocedent for taxes, boards and bureaus as a result of the issuance of
each Additional Canadian Contract.
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(b) Following the Closing Date, Retrocessionaire shall participate
in USAIG aviation pool business by fully reinsuring Retrocedent's participation,
and Retrocedent shall continue its participation as and to the extent permitted
by USAIG (at a level not greater than its current level) until the earlier of
(i) December 31, 2005, and (ii) such date as Retrocessionaire becomes a member
of the USAIG pool (the "USAIG Fronting Period"). All acceptances on behalf of
the Retrocedent and all participations of the Retrocedent as a member of the
USAIG pool shall be reinsured by Retrocessionaire under this Retrocession
Agreement and considered Reinsured Contracts for which Retrocessionaire's Pro
Rata Portion of all amounts shall be 100%. On a quarterly basis,
Retrocessionaire will pay Retrocedent a fronting fee of two percent (2%) of the
net written premiums reported to the Retrocedent as its share of the USAIG
members' net written premium for the prior quarter ("Fronting Fee") and
reimburse the Retrocedent for any amounts paid by the Retrocedent for taxes,
boards, bureaus and unless paid pursuant to Section 3.2(iii), guaranty fund
assessments (net of any amounts credited by USAIG for such assessments) directly
related to the Retrocedent's participation in the USAIG pool during the USAIG
Fronting Period. Retrocessionaire shall reimburse Retrocedent for any other
direct out of pocket expenses paid by the Retrocedent and directly related to
the Retrocedent's participation in the USAIG pool provided such expenses relate
principally to an underwriting year or portion thereof for which the
Retrocessionaire is reinsuring the Retrocedent, in each case only to the extent
that (i) the Retrocedent is obligated to incur or pay such expense pursuant to
the USAIG members contracts to which Retrocedent is a party; (ii) such expense
is incurred pursuant to action agreed among a majority of the USAIG pool
members; (iii) such expense is incurred in defending or responding to any
investigation, suit or administrative proceeding relating to the USAIG pool; or
(iv) such expense has been approved by the Retrocessionaire, which approval
shall not be unreasonably withheld, conditioned or delayed. Retrocedent shall
consult with Retrocessionaire as to any USAIG pool action for which notice has
been provided to Retrocedent in advance and Retrocedent shall vote in accordance
with the prior instructions of the Retrocessionaire with respect to all such
actions.
Section 2.8. Contract Adjustable Features. With respect to any Reinsured
Contract which incorporates an adjustable commission, a loss corridor, annual
aggregate deductible, no claims bonus or other loss sensitive element (each, a
"Feature"), the Retrocessionaire and the Retrocedent shall be allocated the
economic benefit associated with such Feature in accordance with Schedule 1.3.
Any adjustments pursuant to this Section 2.8 will be settled in the ordinary
course pursuant to Article V.
Section 2.9. Closing Statements of Business; True-Ups.
(a) Attached as Schedule 2.9 is a pro forma Cash Settlement
Statement prepared by the Retrocedent (such Cash Settlement Statement,
"Preliminary Cash Settlement Statement"). For purposes of preparing the
Preliminary Closing Statement of Business and the Preliminary Cash Settlement
Statement, the Retrocedent shall apply the methodologies and assumptions set
forth on Schedule 1.3 and the Pro Rata Portions.
(b) No later than June 30, 2003, the Retrocedent shall deliver to
the Retrocessionaire the following:
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(i) Statements setting forth the premiums collected, losses and
other amounts paid, retrocessional premiums paid and retrocessional
losses and other amounts collected, and the parties' respective Pro
Rata Portions thereof, during the periods of (i) the Effective Date
through April 30, 2003, and (ii) May 1, 2003 through May 31, 2003,
together with all other information reasonably necessary to verify
the estimates reflected on the Preliminary Cash Settlement Statement
(the "Activity Reports").
(ii) A statement prepared by the Retrocedent setting forth on an
estimated preliminary basis the unearned premium and other assets as
well as liabilities associated with the Reinsured Contracts being
transferred to the Retrocessionaire as of April 1, 2003 (the
"Preliminary Closing Statement of Business"), together with a
certification of the chief financial officer of HartRe (or other
officer acceptable to the Retrocessionaire) that all items appearing
on the Preliminary Closing Statement of Business were: (w)
calculated in good faith by the Retrocedent; (x) based upon the
Books and Records; (y) calculated in accordance with SAP as applied
by the Retrocedent in preparing its books and records; and (z)
Calculated According to the Allocation Schedule.
(iii) If the Retrocedent determines, based on each of the Activity
Report, the Preliminary Closing Statement of Business and the
methodologies and assumptions set forth on Schedule 1.3, that an
adjustment to the Preliminary Cash Settlement Statement is necessary
to give effect to the requirements of Schedule 1.3, a revision to
the Preliminary Cash Settlement Statement (at which time such
revised Preliminary Cash Settlement Statement shall be deemed the
"Interim Cash Settlement Statement").
For purposes of preparing the Preliminary Closing Statement of Business and the
Interim Cash Settlement Statement, the Retrocedent shall apply methodologies and
assumptions set forth on Schedule 1.3 and the Pro Rata Portions.
(c) By no later than February 15, 2004, or earlier as mutually
agreed to, the Retrocedent shall (i) review the Preliminary Closing Statement of
Business to confirm that it was (x) based upon the Books and Records; (y)
calculated in accordance with SAP as applied by the Retrocedent in the
preparation of its books and records; and (z) Calculated According to the
Allocation Schedule, in each case, as of the Effective Date based on information
available as of the Closing Date, and (ii) if the Retrocedent determines that
the Preliminary Closing Statement of Business should be revised based upon such
review, the Retrocedent shall prepare a revised version thereof. Such revised
Preliminary Closing Statement of Business, or, if no such revision is prepared,
the original Preliminary Closing Statement of Business, shall thenceforth be
deemed the "Final Closing Statement of Business". No later than February 15,
2004, the Retrocedent shall deliver to the Retrocessionaire a certification of
the chief financial officer of HartRe (or officer of the Retrocedent acceptable
to the Retrocessionaire) that all items appearing on the Final Closing Statement
of Business were: (w) calculated in good faith by the Retrocedent; (x) based
upon the Books and Records; (y) calculated in accordance with SAP as applied by
the Retrocedent in preparing its Books and Records; and (z) Calculated According
to the Pro Rata Allocation Schedule, in each case, as of the Effective Date
based on information available as of
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the Closing Date, and (ii) if necessary to reflect any adjustments set forth on
the Final Closing Statement of Business, a final Cash Settlement Statement (such
Cash Settlement Statement, the "Final Cash Settlement Statement"). For purposes
of preparing the Final Closing Statement of Business and the Final Cash
Settlement Statement, the Retrocedent shall apply methodologies and assumptions
set forth on Schedule 1.3 and the Pro Rata Portions.
(d) If the parties are not able to agree in writing as to the
accuracy of either (i) the Interim Cash Settlement Statement (if prepared), (ii)
if no Interim Cash Settlement Statement has been prepared by June 30, 2003, the
Preliminary Cash Settlement Statement, or (iii) the Final Cash Settlement
Statement, then within seven (7) days following (x) delivery of the Interim Cash
Statement, (y) June 30, 2003 or (z) delivery of the Final Cash Settlement
Statement, as applicable, each of the items prepared pursuant to this Section
2.9 to date shall be promptly submitted to and subject to review by the Third
Party Accountant pursuant to the provisions of Section 2.10.
(e) The Retrocedent agrees that following the Closing Date the
Retrocessionaire shall have such access to the Retrocedent's books and records,
including internal accounting and pricing records and data, whether or not
stored in hardcopy form or on magnetic, optical or other media, relating to the
Business as the Retrocessionaire may deem necessary and employees involved with
the Reinsured Contracts as the Retrocessionaire may deem necessary for the
review of any items prepared pursuant to this Section 2.9, and any submissions
to the Third Party Accountant.
(f) The Retrocessionaire agrees that, except in the case of fraud,
its only remedy in the event of an inaccuracy in any statement or officer's
certification delivered pursuant to this Section 2.9 is to have the relevant
statement revised (and, if such statement is a Cash Settlement Statement, to
receive any adjustment under Section 2.11).
Section 2.10. Third Party Accountant.
(a) Within twenty (20) Business Days after submission of items
prepared pursuant to Section 2.9 to the Third Party Accountant pursuant to
Section 2.9(d), the Third Party Accountant shall review each such item and
render a written report thereon to the Retrocessionaire and the Retrocedent
setting forth (i) any adjustments to the Net Cash Transfer Amount reflected on
the most recent Cash Settlement Statement and (ii) a restatement of the most
recent Cash Settlement Statement (an "Adjusted Closing Cash Settlement
Statement") (the Net Cash Transfer Amount as shown on an Adjusted Closing Cash
Settlement Statement following any adjustments thereto by the Third Party
Accountant, the "Revised Adjusted Net Cash Transfer Amount"). In conducting its
review, the Third Party Accountant shall apply the methodologies and assumptions
set forth on Schedule 1.3 and the Pro Rata Portions, and shall take into
consideration any other submissions made by the Retrocessionaire and the
Retrocedent. The fees, costs and expenses of the Third Party Accountant shall be
shared equally by the Retrocedent and the Retrocessionaire.
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Section 2.11. Post-Closing Aggregate Adjustments.
(a) Unless a Cash Settlement Statement has been delivered to the
Third Party Accountant, in the event that such Cash Settlement Statement sets
forth adjustments to the prior Cash Settlement Statement that have not been
previously adjusted, then, within five (5) Business Days of the delivery by the
Retrocedent of the later Cash Settlement Statement, the Retrocedent shall pay to
the Retrocessionaire the amount, if any, by which the Net Cash Transfer Amount
as shown on the later Cash Settlement Statement exceeds the Net Cash Transfer
Amount as shown on the prior Cash Settlement Statement, or the Retrocessionaire
shall pay to the Retrocedent the amount, if any, by which the Net Cash Transfer
Amount as shown on the later Cash Settlement Statement is less than Net Cash
Transfer Amount as shown on the prior Cash Settlement Statement, in each case by
wire transfer of immediately available funds, plus interest on such amount from
and including the Closing Date up to but not including the date of payment
accrued at the 90-Day Treasury Rate.
(b) In the event that (A) the Third Party Accountant makes no
adjustments to such subsequent Cash Settlement Statement and (B) the Net Cash
Transfer Amount as shown on the most recent Cash Settlement Statement exceeds
the Net Cash Transfer Amount as shown on the prior Closing Cash Settlement
Statement, the Retrocedent shall pay an amount equal to such excess (to the
extent not previously paid) to the Retrocessionaire, in cash, by wire transfer
of immediately available funds, within five (5) Business Days of delivery of the
most recent Cash Settlement Statement, plus interest on such amount from and
including the Closing Date up to but not including the date of payment accrued
at the 90-Day Treasury Rate. In the event that (A) the Third Party Accountant
makes no adjustments to such subsequent Cash Settlement Statement and (B) the
Net Cash Transfer Amount as shown on the most recent Cash Settlement Statement
is less than the Net Cash Transfer Amount as shown on the prior Cash Settlement
Statement, the Retrocessionaire shall pay an amount equal to such shortfall (to
the extent not previously paid) to the Retrocedent, in cash, by wire transfer of
immediately available funds, within five (5) Business Days of delivery of the
most recent Cash Settlement Statement, plus interest on such amount from and
including the Closing Date up to but not including the date of payment accrued
at the 90-Day Treasury Rate.
(c) In the event that the Third Party Accountant makes adjustments
to a Cash Settlement Statement, then, within five (5) Business Days of the
delivery by the Third Party Accountant to the Retrocessionaire and the
Retrocedent of the Adjusted Closing Cash Settlement Statement, the Retrocedent
shall pay to the Retrocessionaire the amount, if any, by which the Revised
Adjusted Net Cash Transfer Amount as shown on the Adjusted Closing Cash
Settlement Statement exceeds the Net Cash Transfer Amount as shown on the prior
Cash Settlement Statement (to the extent not previously paid), or the
Retrocessionaire shall pay to the Retrocedent the amount, if any, by which the
Revised Adjusted Net Cash Transfer Amount as shown on the Adjusted Closing Cash
Settlement Statement is less than the Net Cash Transfer Amount as shown on the
prior Closing Cash Settlement Statement (to the extent not previously paid), in
each case by wire transfer of immediately available funds, plus interest on such
amount from and including the Closing Date up to but not including the date of
payment accrued at the 90-Day Treasury Rate.
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ARTICLE III
PREMIUMS AND ALLOWANCES
Section 3.1. Retrocedent's Payment Obligations. The Retrocedent shall pay
the Retrocessionaire one hundred percent (100%) of the following amounts as and
when received after the Closing Date:
(i) the Reinsured Contract Premium, including additional premiums
and the Retrocessionaire's Pro Rata Portion of other receivables relating
to the Reinsured Contracts (in each case as Calculated According to the
Allocation Schedule);
(ii) to the extent a cedent so directs, all return premiums relating
to Novated Contracts (if any);
(iii) to the extent a cedent so directs, all return premiums
relating to canceling and rewriting the Reinsured Contracts on the
Retrocessionaire's contract forms attributable to periods on or after the
Effective Date;
(iv) litigation and arbitration proceeds, awards and other
recoveries to the extent relating to Reinsured Liabilities;
(v) the Retrocessionaire's Pro Rata Portion of premium tax refunds
(if any);
(vi) the Retrocessionaire's Pro Rata Portion of any and all
reinsurance recoverables under the Specified Third Party Reinsurance
Contract;
(vii) salvage and subrogation and other recoveries from third
parties to the extent they relate to the Reinsured Liabilities; and
(viii) any and all amounts paid by Retrocessionaire relating to the
Excluded Liabilities.
Section 3.2. Retrocessionaire's Payment Obligations. Retrocessionaire
agrees to:
(i) reimburse Retrocedent for the Retrocedent's Pro Rata Portion of
any and all state and local premium, franchise, income, retaliatory and
reciprocal taxes paid by Retrocedent with respect to premiums written with
respect to Reinsured Contracts;
(ii) transfer to the Retrocedent the Retrocedent's Pro Rata Portion
of premiums, including reinstatement and additional premiums, and other
receivables relating to the Reinsured Contracts (in each case as
Calculated According to the Pro Rata Allocation Schedule) if received by
the Retrocessionaire; and
(iii) pay Retrocedent's Pro Rata Portion of guaranty fund
assessments for direct written USAIG business not previously reimbursed
and included on Schedule 1.2 or otherwise paid pursuant to Section 2.7,
net of the Retrocedent's Pro Rata Portion of any amounts credited by USAIG
for such assessments.
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Section 3.3. Defeasible Payments. If any payment to the Retrocessionaire
pursuant to Section 3.1 is avoided as a preferential transfer, fraudulent
conveyance or otherwise or is rescinded or otherwise defeased by a payor under a
Reinsured Contract, if the Retrocedent is required under Applicable Law to
return such payment to such payor, then (i) the Retrocedent shall be deemed
never to have received such payment so avoided, rescinded or otherwise defeased,
(ii) the Retrocessionaire shall promptly return such payment to the Retrocedent,
and (iii) the Retrocedent shall promptly return such payment to such payor.
Section 3.4. Premium Collection Risk. The parties hereby acknowledge and
agree that the credit risk of either party not receiving any outstanding premium
receivables associated with the Reinsured Contracts relating to periods before
and after the Effective Date shall be borne by the parties in proportion to
their respective Pro Rata Portions.
Section 3.5. Reinstatement Premium. Reinstatement premium, if any,
collected with respect to any Reinsured Contract shall be apportioned between
the parties as set forth on Schedule 1.3.
ARTICLE IV
ACCOUNTING AND REINSURANCE SETTLEMENT
Section 4.1. Delivery of Accounting and Settlement Reports. Within thirty
(30) days following the end of each calendar month, the Retrocedent shall
provide the Retrocessionaire with accounting and settlement reports, including a
report of the items set forth in Section 3.1, in a format to be mutually agreed
upon by the parties (the "Monthly Report"). To the extent the changes are
reasonably required by the Retrocessionaire to prepare, make or file necessary
or required financial or regulatory reports, the parties shall use commercially
reasonable efforts to agree to a mutually acceptable alternative form of Monthly
Report which shall involve no additional cost to the Retrocedent.
Section 4.2. Payment of Amounts Indicated in Accounting and Settlement
Reports. Simultaneously with the Retrocedent's delivery of the Monthly Report,
the Retrocedent shall pay any allowances and other amounts due to the
Retrocessionaire indicated by such Monthly Report. The Retrocessionaire shall
pay any amount due to the Retrocedent on or before the thirtieth (30th) day
following its receipt of the Monthly Report that have not been paid previously
pursuant to the Claims Handling Agreement. Any late payment of an amount
required by this Retrocession Agreement to be paid or remitted by the
Retrocedent to the Retrocessionaire or by the Retrocessionaire to the
Retrocedent shall bear simple interest from and including the date such payment
is due under this provision until, but excluding, the date of payment, at a rate
per annum equal to the 90-Day Treasury Rate.
Section 4.3. Offset. Any debts or credits incurred on and after the
Effective Date in favor of or against the Retrocedent, on one hand, or the
Retrocessionaire, on the other hand, under this Retrocession Agreement are
deemed mutual debts or credits, as the case may be, arising as of the Closing
Date and shall be set off, and only the balance shall be allowed or paid.
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ARTICLE V
REINSURED CONTRACT CLAIMS HANDLING
Section 5.1. Claims Handling. Claims handling associated with the
Reinsured Contracts and the Reinsured Liabilities shall be administered in
accordance with the Claims Handling Agreement, provided that all Novated
Contracts shall be administered by the Retrocessionaire.
Section 5.2. Declaratory Judgments.
(a) In the event that the Retrocedent under any Reinsured Contract
shall be liable for declaratory judgment expense, the declaratory judgment
expense covered under this Retrocession Agreement shall be treated in the same
manner as such expense is covered in the Reinsured Contract and shall be shared
by the parties hereto in accordance with their Pro Rata Portions for such
Reinsured Contract as set forth in Schedule 1.3.
(b) In the event of any declaratory judgment by or against either
the Retrocessionaire or the Retrocedent relating to any Reinsured Contract, the
parties agree to consult and concur as to the appropriate apportionment of the
resulting declaratory judgment expenses consistent with the principles set forth
in Schedule 1.3 for allocations of loss.
ARTICLE VI
OVERSIGHTS, ERRORS AND OMISSIONS
Section 6.1. Continuing Liability.
(a) Inadvertent delays, errors or omissions made in connection with
this Retrocession Agreement shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred;
provided that such error or omission is rectified promptly after discovery; and
provided, further, that this Section 6.1 shall not relieve either party from a
breach of the Claims Handling Agreement.
(b) Inadvertent or clerical errors and omissions in preparing
Schedule 1.2 will be corrected as agreed by the parties and, upon such
agreement, will not relieve either party from any liability had such error not
occurred.
ARTICLE VII
INSOLVENCY
Section 7.1. Insolvency. In the event of the insolvency of the
Retrocedent, all reinsurance under this Retrocession Agreement shall be payable
by the Retrocessionaire on the basis of the liability of the Retrocedent under
the Reinsured Contracts without diminution because of the insolvency of the
Retrocedent. In the event of insolvency and the appointment of a conservator,
receiver, liquidator or statutory successor of the Retrocedent, all amounts
payable
17
by the Retrocessionaire hereunder to the Retrocedent shall be payable directly
to the Retrocedent or to such conservator, receiver, liquidator or statutory
successor.
Section 7.2. Notice of Pendency of Claim. It is understood, however, that
in the event of the insolvency of the Retrocedent the liquidator or receiver or
statutory successor of the Retrocedent shall give written notice to the
Retrocessionaire of the pendency of a claim against the Retrocedent on the
Reinsured Contracts reinsured hereunder within a reasonable time after such
claim is filed in the insolvency proceeding and that during the pendency of such
claim, the Retrocessionaire 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 Retrocedent or its liquidator or
receiver or statutory successor. It is further understood that the expense thus
incurred by the Retrocessionaire shall be chargeable, subject to court approval,
against the Retrocedent as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Retrocedent as a
result of the defense undertaken by the Retrocessionaire.
ARTICLE VIII
DURATION AND TERMINATION
Section 8.1. Effective Date. This Retrocession Agreement shall commence on
the Effective Date. This Retrocession Agreement shall remain in effect until all
Reinsured Liabilities have been finally, unconditionally and irrevocably settled
or expired, unless earlier terminated according to the provisions of Section
8.2.
Section 8.2. Termination. This Retrocession Agreement may be terminated by
a writing stating the effective date of termination by mutual written agreement
of the parties.
ARTICLE IX
DUTY OF COOPERATION
Section 9.1. Full Cooperation. Subject to the Claims Handling Agreement
and Sections 5.10 and 6.2 of the Purchase Agreement, the parties hereto shall
cooperate using reasonable best efforts in order to comply with their respective
duties and obligations and accomplish the objectives of this Retrocession
Agreement including, without limitation, making available to each other their
respective officers and employees for interviews and meetings with Governmental
Bodies or other Persons and furnishing any additional assistance, information
and documentation as may be reasonably requested by the other party from time to
time. In addition, the Retrocedent and the Retrocessionaire shall cooperate and
use reasonable best efforts to obtain all consents, approvals and agreements of,
and to give and make all notices and filings with, any Governmental Body
necessary to authorize, approve or permit the transactions contemplated
hereunder or by the Claims Handling Agreement.
Section 9.2. Furnishing of Relevant Information. Upon request, each party
hereto shall furnish to the other relevant information concerning the Reinsured
Contracts and Reinsured Liabilities, including but not limited to studies or
models used in the determination of pricing or
18
setting reserves and other information relating to Reinsured Liabilities, and
each shall have the right to review and copy the books and records of the other
concerning such Reinsured Contracts and Reinsured Liabilities upon reasonable
notice, during normal business hours and at the cost and expense of the
requesting party.
Section 9.3. Confidential Information. All of the information and
documentation delivered in accordance with this Retrocession Agreement,
including any information and documentation delivered pursuant to Section 9.2,
is subject to the terms of Section 6.3 and 7.2 of the Purchase Agreement.
ARTICLE X
SECURITY AND REINSURANCE CREDIT
Section 10.1. Reinsurance Credit. The Retrocessionaire shall take all
steps necessary to permit the Retrocedent to obtain full credit for the
reinsurance provided by this Retrocession Agreement in the State of Connecticut,
to the extent credit is not otherwise available under Applicable Law. It is
understood and agreed that any term or condition required by such law or
regulation to be included in this Retrocession Agreement for the Retrocedent to
receive financial credit for the reinsurance provided by this Retrocession
Agreement shall be deemed to be incorporated in this Retrocession Agreement by
reference.
Section 10.2. Trust.
(a) On the third (3rd) Business Day following the Closing Date, the
Retrocessionaire shall enter into a trust agreement in the form attached hereto
as Exhibit B (the "Trust Agreement") and establish a trust account (the "Trust
Account") for the benefit of the Retrocedent in amount equal to the Obligations
as of the Effective Date. On a monthly basis, the Retrocessionaire shall adjust
the assets held in the Trust Account in accordance with Section 10.2(b) so that
the aggregate fair market value of such assets equals or exceeds the Obligations
as of the applicable month-end.
(b) At the direction of the Retrocessionaire, the assets held in the
Trust Account shall be invested in accordance with Retrocessionaire's internal
investment policies so long as such investments are permissible investments
under the investment law provisions of the insurance law of Retrocedent's
domiciliary state. The aggregate fair market value of the assets held in the
Trust Account (the "Market Value"), shall at all times be at least equal to the
Obligations. The amount of the Trust Account shall be adjusted on a monthly
basis so as to equal the Obligations. On a monthly basis, the Retrocedent shall
prepare a specific statement of the Obligations. If the statement shows that the
Obligations exceed 100% of the balance of the Trust Account as of the statement
date, Retrocessionaire shall, within ten (10) Business Days after receipt of
such notice of excess, secure delivery to the Trustee additional cash or
Eligible Securities (as defined in the Trust Agreement) having a current fair
market value equal to such difference. If the statement shows that the
Obligations are less than 102% of the balance of the Trust Account as of the
statement date, the Retrocedent shall, within ten (10) Business Days after
delivery of such statement to the Retrocessionaire, deliver a notice of
withdrawal to the Trustee
19
directing the Trustee to withdraw from the Trust Account and deliver to the
Retrocessionaire assets from the Trust Account having a current fair market
value equal to such excess amount.
Section 10.3. Security to Reinsureds. The Retrocedent shall maintain any
security which it is required to provide the parties reinsured under the
Reinsured Contracts, with expense of maintenance of any such security to be
apportioned between the parties in accordance with their Pro Rata Portions.
ARTICLE XI
WAIVER OF JURY TRIAL
Section 11.1. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS RETROCESSION AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1. Amendments. This Retrocession Agreement may be amended,
supplemented or modified, and any provision hereof may be waived, only pursuant
to a written instrument making specific reference to this Retrocession Agreement
signed by each of the parties hereto. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
Section 12.2. Entire Agreement. This Retrocession Agreement, the Trust
Agreement, the Purchase Agreement, the Claims Handling Agreement, and the other
Related Documents including all Schedules and Exhibits attached hereto and
thereto, constitute the entire agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein and supercede all
prior agreements and understandings between the parties with respect to such
subject matters.
Section 12.3. Governing Law. This Retrocession Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
regard to the conflict of laws principles thereof.
Section 12.4. Severability and Validity. The provisions set forth in this
Retrocession Agreement are severable. If any term, provision, covenant or
restriction of this Retrocession Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable in any
jurisdiction or against its regulatory or public policy, the remainder of this
Retrocession Agreement, and the application of such provision to other Persons
or circumstances, shall not be affected thereby and shall remain valid and
enforceable in such jurisdiction, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. Upon a determination that any
20
term, provision, covenant or restriction is invalid, void or unenforceable or
against the regulatory or public policy of the governing jurisdiction, the
parties hereto shall negotiate in good faith to modify this Retrocession
Agreement so as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated by this Retrocession
Agreement are fulfilled to the extent possible.
Section 12.5. Counterparts. This Retrocession Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument and shall become
effective when one or more counterparts have been signed by each of the parties
to this Retrocession Agreement and delivered to the other party hereto.
Section 12.6. Assignment. This Retrocession Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Nothing in this Retrocession Agreement shall
create or be deemed to create any third party beneficiary rights in any Person
not a party to this Retrocession Agreement. No assignment, delegation or other
transfer of this Retrocession Agreement or of any rights or obligations
hereunder may be made by either party to this Retrocession Agreement (in whole
or in part, voluntary or involuntary, by operation of law or otherwise, other
than by operation of law in a merger) without the prior written consent of the
other party hereto.
Section 12.7. Expenses. Except as otherwise specifically provided herein,
each of the parties hereto shall bear its own expenses incurred by it in
connection with the preparation, negotiation, execution, delivery and
performance of this Retrocession Agreement.
Section 12.8. Survival. The provisions of Articles XI and XII hereof shall
survive the termination of this Retrocession Agreement.
Section 12.9. Notices. All notices, requests, claims, demands and other
communications to be given under this Retrocession Agreement shall be in writing
and shall be given (and shall be deemed to have been duly given upon receipt) by
delivery in person, by facsimile transmission (which is confirmed) or sent by
overnight courier (providing proof of delivery) or by registered or certified
mail (postage prepaid, return receipt requested), to the other party at the
following address (or at such other address for a party as shall be specified by
like notice):
(a) If to the Retrocedent, to:
Hartford Fire Insurance Company
Hartford Plaza
Hartford Plaza
Hartford Connecticut 06115-1900
Attention: General Counsel
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
with copies to:
21
The Hartford Financial Services Group, Inc.
Hartford Plaza
Hartford, Connecticut 06115-1900
Attention: General Counsel
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
and
LeBoeuf, Lamb, ββββββ & ββββββ, L.L.P.
βββ ββββ ββββ ββββββ
βββ ββββ, βββ ββββ βββββ-ββββ
Attention: ββββββ β. βββββββββ
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
(b) If to the Retrocessionaire, to:
Endurance Reinsurance Corporation of America
βββ βββββββββββ ββββββ
βββββ ββββββ, βββ ββββ
Attention: βββββ ββββββ, Esq.
General Counsel
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
with a copy to:
Skadden, Arps, Slate, βββββββ & ββββ LLP
ββββ βββββ ββββββ
βββ ββββ, βββ ββββ βββββ
Attention: ββββββ β. ββββββββ
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
22
IN WITNESS WHEREOF, the parties hereto have executed this Retrocession
Agreement as of the date and year first above written.
HARTFORD FIRE INSURANCE COMPANY
By: /s/ βββββββ β. βββββββ
------------------------------------
Name: βββββββ β. βββββββ
Title: Executive Vice President
ENDURANCE REINSURANCE CORPORATION
OF AMERICA
By: /s/ ββββββ β. βββββββ
------------------------------------
Name: ββββββ β. βββββββ
Title: President
23