Exhibit 10.41
Lumbermens Mutual Casualty Company
September 28, 2004
SeaBright Insurance Holdings, Inc.
SeaBright Insurance Company
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Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Gentlemen:
Reference is hereby made to that certain Purchase Agreement
(as amended through the date hereof, the "Purchase Agreement"), dated as of July
14, 2003, by and among SeaBright Insurance Holdings, Inc. f/k/a Insurance
Holdings, Inc., a Delaware corporation ("Buyer"), ▇▇▇▇▇▇ Employers Group, Inc.,
a Washington corporation ("KEG"), Lumbermens Mutual Casualty Company, an
Illinois domiciled mutual insurance company ("LMC"), Eagle Pacific Insurance
Company, a Washington domiciled insurance company ("Eagle Pacific"), and Pacific
Eagle Insurance Company, a California domiciled insurance company ("Pacific
Eagle" and, together with KEG, LMC and Eagle Pacific, the "Sellers").
Reference is also made to that certain Adverse Development
Excess of Loss Reinsurance Agreement (the "Reserve Cover Agreement"), effective
as of September 30, 2003, by and between LMC and SeaBright Insurance Company
f/k/a ▇▇▇▇▇▇ Employers Insurance Company, an Illinois domiciled insurance
company ("SeaBright"), and that certain Amended and Restated Reinsurance Trust
Agreement (the "Trust Agreement"), dated as of February 29, 2004, by and among
LMC, SeaBright and the Bank of New York, as Trustee , which secures LMC's
obligations under the Reserve Cover Agreement. Capitalized terms used but not
defined herein shall have the respective meanings ascribed to them in the
Reserve Cover Agreement.
Buyer and LMC hereby agree as follows:
1. Acknowledgement of Purchase Price Adjustment Amount. The
parties hereto acknowledge and agree that the Initial Loss Reserves
(as defined in the Reserve Cover Agreement) are equal to $16,178,770.
The parties hereto further acknowledge and agree that the Adjustment
Amount (as defined in the Purchase Agreement), as determined as set
forth in the Purchase Agreement, results in an increase to the
Preliminary Purchase Price (as defined in the Purchase Agreement) of
$771,116 (inclusive of interest accruing from the period of September
30, 2003 through September 30, 2004 at the rate set forth in the
Purchase Agreement), calculated as set forth in Exhibit A. Upon
payment of such amount in accordance with the provisions of this
letter agreement, each of LMC and Buyer shall have complied in full
with all purchase price adjustment obligations set forth in Section
4.4 of the Purchase Agreement, and neither Buyer nor LMC shall have
any further liability or obligation to any other party with respect to
such purchase price adjustment provisions. Promptly upon the
effectiveness of this letter agreement as set forth in paragraph 4
below,
but in no event later than two (2) business days following such
effectiveness, Buyer shall pay to LMC an amount equal to $771,116, of
which $395,993 shall be payable by wire transfer to an account
designated by LMC and $375,123 shall be payable via offset of an equal
amount owing by LMC and its affiliates to Buyer with respect to the
payment by Buyer of certain reinsurance premiums that were the
responsibility of LMC and its affiliates pursuant to Section 8.10 of
the Purchase Agreement.
2. Engagement of Independent Actuary to Determine Appropriate
Loss Reserves. The parties hereto are in disagreement as to the proper
aggregate amount to be reserved by SeaBright on account of its actual
or potential obligations under the Policies for (i) losses incurred
but not yet reported and (ii) loss adjustment expenses and for future
loss development calculated in accordance with statutory accounting
principles and practices prescribed or permitted by the Illinois
Department of Insurance, net of, without duplication, (y) recoveries,
salvages and subrogations and (z) reinsurance with respect to the
Policies deemed admissable ("Loss Reserves") that are the subject of
the Reserve Cover Agreement. As the determination of such amount
affects LMC's funding requirements pursuant to the Trust Agreement,
the parties hereto desire to engage ▇▇▇▇▇▇▇▇▇▇▇ - ▇▇▇▇▇▇ ▇▇▇▇▇▇
("▇▇▇▇▇▇▇▇▇▇▇") for the purpose of determining its point estimate
(point estimate shall be defined as the selected or best estimate of
the analysis) of such Loss Reserves as of September 30, 2004. Upon
▇▇▇▇▇▇▇▇▇▇▇'▇ final determination of such amount (which shall be final
and binding on the parties hereto), such amount shall be used as the
Subsequent Loss Reserves in order to calculate the Actual Loss Result
as of September 30, 2004 in accordance with Article IV of the Reserve
Cover Agreement and Section 1.13 of the Trust Agreement (the
"September 30 Results"). Within ten (10) business days following the
determination of the September 30 Results, LMC shall, if necessary,
place additional assets into the Trust Account to increase the balance
of the Trust Account (as defined in the Trust Agreement) to an amount
equal to 102% of its obligations under the Reserve Cover Agreement (as
of September 30, 2004) using the September 30 Results to calculate the
Aggregate Net Loss or Aggregate Net Gain. The costs of engaging
▇▇▇▇▇▇▇▇▇▇▇ for such purpose shall be split equally and paid in equal
amounts by each of Buyer and LMC. Each of Buyer and LMC agree to
provide reasonable access to its books and records and personnel to
▇▇▇▇▇▇▇▇▇▇▇ (or any other actuarial firm(s) described below) to assist
it in making such determination, and shall use reasonable efforts to
cause ▇▇▇▇▇▇▇▇▇▇▇ to complete such determination as promptly as
practicable with a goal of completing such determination on or before
October 31, 2004. The determination of the applicable amount of Loss
Reserves for all applicable dates or periods following September 30,
2004 for purposes of Section 1.13 of the Trust Agreement or otherwise
shall initially be determined by Buyer (and, until September 30, 2006,
shall be calculated on a basis consistent with the methodologies used
by ▇▇▇▇▇▇▇▇▇▇▇ in preparing its point estimate of the Actual Loss
Result as of September 30, 2004), but LMC shall have the right to
review Buyer's determination of such Loss Reserves. If LMC does not
agree with the Buyer's determination, and if the difference is
irreconcilable between the parties for a period in excess of 45 days,
the difference shall be referred to an independent actuarial firm to
be agreed upon by the parties. To the extent that the parties fail to
agree on an independent actuarial firm, a panel of three actuaries
shall be used, one to be chosen by each party and the third by the two
actuaries so chosen. Each actuary shall be required to provide its
point estimate of the applicable amount of loss reserves, and the
determinations of the three actuaries shall be averaged and the result
shall be final and binding on the parties hereto
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for all purposes of the Reserve Cover Agreement and the Trust
Agreement. The costs of any such actuarial firm(s) shall be split
equally and paid in equal amounts by each of Buyer and LMC.
3. No Other Modifications; Affirmation. Except as expressly
amended by this letter agreement, none of the Purchase Agreement, the
Reserve Cover Agreement or the Trust Agreement is otherwise amended or
modified, and each remains in full force and effect in accordance with
its original terms (as previously amended in writing prior to the date
of this letter agreement). This letter agreement shall be governed by
the internal law (and not the law of conflicts) of the State of
Illinois.
4. Effectiveness. Each party hereto shall use its reasonable
efforts to obtain all applicable regulatory and similar approvals
required from the Illinois Department of Insuarnce and other
applicable insurance regulatory authorities promptly following the
date hereof. This letter agreement shall become effective immediately
upon the granting of all such approvals, and shall become null and
void if such approvals are not received on or before Octember 7, 2004.
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In witness whereof, each of the parties has caused this letter
agreement to be executed as of the date first written above.
SEABRIGHT INSURANCE HOLDINGS, INC.
f/k/a INSURANCE HOLDINGS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: President
SEABRIGHT INSURANCE COMPANY f/k/a
▇▇▇▇▇▇ EMPLOYERS INSURANCE COMPANY
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: President
LUMBERMENS MUTUAL CASUALTY COMPANY
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President
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