INSURANCE CAPITAL BUILD-UP INCENTIVE PROGRAM
SURPLUS NOTE
Amount $25,000,000
Term: 20 years
Payment Dates: October 1, January 1, April 1, and July 1
Interest Rate Determination Date: The interest rate shall be determined two
business days prior to the payment date in order to set the rate for the
following quarter.
Day Count: actual days divided by 360 for the specified quarter.
This Surplus Note is executed this 9th day of November, 2006, by and between
Universal Property & Casualty Insurance Company, (NAIC # 10861), an Insurer
authorized to write residential property and casualty insurance in Florida
("Insurer"), and The State Board of Administration of Florida ("Board"), the
parties. It is deemed to be in the best interest of the Insurer to increase its
Surplus as to policyholders for the purpose of increasing the number of new
residential policies covering the risk of hurricanes the Insurer writes in
Florida.
The Insurer's application for this Surplus Note was received by the Board on
June 15, 2006, and the Insurer has, on or before the date of this Surplus Note
contributed $25 million in New Capital, as defined below, to its Surplus.
For and in consideration of the mutual agreements as set forth, the Insurer
hereby makes a contribution to Surplus in New Capital of $25 million and
covenants to meet the Minimum Writing Ratio of Net Written Premium to Surplus of
at least 2:1 for the term of this Surplus Note.
DEFINITIONS APPLICABLE TO THIS SURPLUS NOTE:
(a) "Applicant" means the Insurer making application under the Program.
(b) "Approve," "Approving," "Approved," or "Approval" means the Insurer's
application has been approved contingent upon a review and prioritization of all
the applicants who may have applied for the limited funds available under the
Program during the application periods specified in (4)(e), (f), or (g) of Rule
19-15.001. If the amount of the Surplus Notes requested does not exceed the
funds available during these application periods, it will not be necessary for
the Board to prioritize applicants prior to distributing funds, but in all cases
the Insurer shall be required to contribute New Capital and provide verification
of a deposit prior to the Board distributing the proceeds derived from the
Surplus Note.
(c) "Board" means the State Board of Administration of Florida.
(d) "Cash" or "Cash Equivalents" means unencumbered cash or unencumbered cash
equivalents as specified in Section 625.012(1), F.S. Cash Equivalents are
short-term, highly liquid investments, with original maturities of 3 months or
less, which are both readily convertible to known amounts of cash and so near
their maturity that they present insignificant risk of changes in value because
of changes in interest rates.
1 Form SBA 15-2, new 11/06
Rule 19-15.001, F.A.C.
(e) "Impair" or "Impaired" means the Insurer's Surplus is below the Minimum
Required Surplus as specified in Section 215.5595(2)(c), F.S.
(f) "Insurer" means an authorized insurance company seeking to participate in
the Program.
(g) "Minimum Capital Contribution" means, with respect to Insurers who apply to
the Board by July 1, 2006, a contribution of New Capital to its Surplus which is
at least equal to the amount of the Surplus Note. "Minimum Capital Contribution"
means, with respect to all other applicants applying after July 1, 2006 and
before June 1, 2007, a contribution to its Surplus that is twice the amount of
the Surplus Note.
(h) "Minimum Required Surplus" means, for purposes of this Program, that the
Insurer's total Surplus, after the issuance of the Surplus Note and New Capital
contribution equals at least $50 million.
(i) "Minimum Writing Ratio" means a 2:1 ratio of Net Written Premium to Surplus.
(j) "Net Written Premium" means direct Premium plus assumed Premium less ceded
Premium.
(k) "New Capital" must be in the form of Cash or Cash Equivalents and be
recorded as additional paid-in capital or new stock issued. New Capital does not
include Citizens Property Insurance Corporation take-out bonuses pursuant to
Section 627.3511, F.S. A New Capital contribution does not constitute
contributions by the Insurer made prior to the Insurer's application date for
the Surplus Note or any other funds contributed to the Insurer's Surplus which
are made for purposes other than in conjunction with the requirements of the
Program.
(l) "Surplus Note" means the Surplus Note issued by the Insurer to the Board.
(m) "Office" means the Office of Insurance Regulation, which was created in
Section 20.121(3), F.S.
(n) "Premium" means premiums relating to residential property insurance in
Florida including the peril of wind.
(o) "Program" means the Insurance Capital Build-Up Incentive Program created by
Section 215.5595, F.S.
(p) "Substantial Impairment" or "Substantially Impair" means that the
Commissioner of Insurance Regulation (Commissioner) has solvency concerns that
the Insurer may not be able to meet the obligations of its policyholders and has
provided the Board with a written explanation.
(q) "Surplus" means the Insurer's admitted assets less the Insurer's liabilities
and refers to the entire Surplus of the Insurer.
THIS SURPLUS NOTE IS SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS:
(1) No Prepayment Penalties: There is no penalty for pre-payment of this Surplus
Note.
(2) Surplus Note Proceeds: The Surplus Note proceeds will be distributed by the
issuance of a check to the Insurer unless the Insurer provides a resolution
passed by the Insurer's governing board, authorizing and requesting a wire
transfer of the Note proceeds and providing wire transfer instructions.
(3) Statutory Requirements:
(a) Minimum Required Surplus: Insurer represents, as a condition of obtaining
this Surplus Note, that Insurer's Surplus, New Capital, and the Surplus Note,
when added together, equals at least $50 million.
(b) $50 million Limit for Insurers and Insurer Groups: The Insurer represents
that the Program proceeds to be made available to the Insurer under this Surplus
Note, together with Program proceeds already received or applied for by other
2 Form SBA 15-2, new 11/06
Rule 19-15.001, F.A.C.
members of the Insurer group, when added together does not exceed $50 million.
(c) New Capital Contributions to Surplus: The contribution to Surplus is made in
the form of cash and meets or exceeds the Minimum Capital Contribution as
defined above. This (These) asset(s) have been approved by the Office as found
to be acceptable assets pursuant to Part II of Chapter 625, F.S.
(d) Depository Letter: Prior to the execution of this Surplus Note, Insurer has
provided to the Board a letter from a depository institution which states the
amount of unencumbered Cash or Cash Equivalents that have been deposited into
the Insurer's account.
(e) Writing Ratio: The Insurer represents that it is now at the Minimum Writing
Ratio and will maintain the Minimum Writing Ratio during the term of the Surplus
Note. In the alternative, the Insurer may represent that it is not currently at
the Minimum Writing Ratio, but it will meet that ratio within sixty days from
the date the Surplus Note is executed and will maintain the Minimum Writing
Ratio for the term of the Surplus Note.
(f) The Insurer represents that it will make all quarterly filings using Form
SBA 15-3 to the Office. This Form is available on the Board's website,
▇▇▇.▇▇▇▇▇▇.▇▇▇, under "Insurance Capital Build-Up Incentive Program" then
"Quarterly Net Written Premium Report."
(4) Payment Conditions:
(a) Payment Address: Payments shall be quarterly and shall be remitted as
follows:
The instructions for wiring funds for loan repayments are as follows:
BANK OF AMERICA - TAMPA
ABA #▇▇▇▇▇▇▇▇▇
CREDIT: STATE BOARD OF ADMINISTRATION OF FLORIDA
ACCOUNT #003660048119
You will need to instruct your bank to wire the funds to our
bank as named above. Please have your bank reference your NAIC
number and your company name on all wires.
Send an email notice of your payment before 11:00 a.m. ET the
day your money is coming to the Board. Notification should be
sent to
▇▇▇▇@▇▇▇▇▇▇.▇▇▇
and should include your NAIC number, company name, effective
date of payment, and amount of payment. Indicate portion of
payment allocated to principal and the portion allocated to
interest. Failure to notify the SBA may result in a delay of
credit for payment.
(b) Interest Rate: The Surplus Note shall accrue interest on the unpaid
principal balance at a rate equivalent to the 10-year U.S. Treasury Bond rate.
The rate will be adjusted quarterly for the term of the Surplus Note based on
the 10-year Constant Maturity Treasury rate.
(c) Interest for the First Three Years: For the first three years of the Surplus
Note, Insurer is required to pay interest only. However, principal payments can
be made during this time. Interest payments shall begin to accrue from the date
of this Surplus Note.
3 Form SBA 15-2, new 11/06
Rule 19-15.001, F.A.C.
(d) Repayment Limitations: Any payment of principal or interest by the Insurer
on this Surplus Note must be approved by the Commissioner, who shall approve the
payment unless the Commissioner determines that such payment will Substantially
Impair the financial condition of the Insurer. If such a determination is made,
the Commissioner shall approve such payment that will not Substantially Impair
the financial condition of the Insurer. The Board will seek approval of payments
from the Commissioner and will notify any Insurer if a payment of principal
and/or interest has been disapproved or, if a lower amount has been approved,
the amount by which the usual payment is to be reduced.
(5) Default: Conditions, Consequences, and Insurer Responsibilities.
(a) Conditions Resulting in Default:
1. Failure to reach the Minimum Writing Ratio within 60 days of an Insurer
receiving the proceeds of the Surplus Note distributed by the Board or the
failure to maintain the Minimum Writing Ratio once reached unless a supplemental
agreement is provided for in the Surplus Note that allows the Insurer more time
to reach the Minimum Writing Ratio due to financial considerations.
2. Failure to submit quarterly filings of Form SBA 15-3 to the Office.
3. Failure to maintain the Minimum Required Surplus except for situations
involving the payment of losses resulting from a catastrophic event or a series
of events resulting in catastrophic losses or where Minimum Required Surplus is
reduced as a result of the accounting treatment for deferred acquisition costs.
4. Misuse of Program Proceeds: The Surplus Note will be in default if proceeds
received pursuant to the Surplus Note are converted into any asset not
authorized under Part II of Chapter 625, F.S.
5. Failure to make a payment of interest and/or principal where the payment by
the Insurer has been approved by the Office.
6. Failure to make a payment of interest and/or principal where the payment by
the Insurer has not been approved by the Office, but alternative payments have
been approved.
7. False or Misleading Statements. Any representations, including those made in
the application and/or accompanying documentation, which is false or misleading.
8. When the Insurer pays any ordinary or extraordinary dividend when there are
payments of principal or interest payments that are past due under the Surplus
Note.
(b) Consequences of Default: For all defaults, the Board, in its sole
discretion, may exercise any one of the following options:
1. Increase the interest rate to the maximum interest rate permitted by law;
2. Accelerate the repayment of principal and interest;
3. Shorten the term of the Surplus Note;
4. Call the Surplus Note and demand full repayment.
(c) Insurer responsibilities: The Insurer shall notify the Board when any of the
above conditions resulting in default arises.
(6) Reorganization, Dissolution, or Liquidation: In the event of reorganization,
dissolution, 100% reinsurance or liquidation of Insurer, pursuant to Section
215.5595(5), F.S., the Board shall be treated as a class 3 creditor pursuant to
Section 631.271, F.S., for the unpaid principal and interest on this Surplus
Note.
(7) Resolution by Governing Board: The Insurer's governing board has passed a
resolution which authorizes Insurer to enter into this Surplus Note and to meet
all the requirements contained in this Surplus Note.
4 Form SBA 15-2, new 11/06
Rule 19-15.001, F.A.C.
(8) Governing Law: This Surplus Note is governed by the laws of the State of
Florida, without giving effect to conflict of law provisions thereof. Any
dispute or claim arising out of or in connection with this Surplus Note will be
submitted exclusively to the Circuit Court for the Second Judicial Circuit, in
and for ▇▇▇▇ County, Florida for trial and determination by the court. The
parties consent to the jurisdiction of such court and to service of process
outside the State of Florida pursuant to the requirements of such court in any
matter submitted to it.
(9) Supplemental Agreements:
(a) Under the "Terms and Conditions" section above, the representation in (3)(e)
is waived.
(b) The Insurer and the Board agree that the default condition referenced in
(5)(a)(1) above which relates to the failure to reach the Minimum Writing Ratio
within 60 days shall be waived due to the likelihood that its attainment may
have an adverse financial impact.
(c) In lieu of provision (5)(a)( 1), the Insurer agrees that the 2:1 Minimum
Writing Ratio requirement will be met by June 1, 2007, that the Insurer will
write new policies consistent with its business plan described in the Surplus
Note Application, and that the Insurer's writing ratio will progressively move
toward the attainment of the 2:1 Minimum Writing Ratio each quarter during the
specified time frame.
(d) Should the Insurer fail to increase its writing ratio for two consecutive
quarters prior to June 1, 2007, fail to obtain the 2:1 Minimum Writing Ratio by
June 1, 2007, or drop below the 2:1 Minimum Writing Ratio once it is obtained
for two consecutive quarters; the Board and the Insurer agree that the interest
rate as specified in provision (4)(b) will increase while this situation lasts
by 25 basis points if the resulting writing ratio is between 1.5:1 and 2:1 and
the interest rate will increase by 450 basis points if the writing ratio is
below 1.5:1. If the writing ratio remains below 1.5:1 for three consecutive
quarters after June 1, 2007, the Insurer agrees to repay a portion of the
Surplus Note such that the Minimum Writing Ratio will be obtained for the
following quarter.
(e) If the full payment of principal and interest are not received when due as a
result of the Commissioner not approving the Insurer's repayment or repayments,
the Board may lengthen the term of the Surplus Note and make any other
adjustments with the Approval of the Commissioner that will be necessary to
protect the state's interest in the repayment of the Surplus Note. Interest will
continue to accrue. The Insurer agrees to accept such terms and adjustments.
(f) Interest shall continue to accrue in any situation involving a default.
(g) A late fee in the amount of 5% of the invoiced amount may be charged if a
payment is received five calendar days after the due date except such fee will
not be charged if it results from a delay beyond the control of the insurer
arising from the Office's disapproval of the payments or delay in issuing
approval of the payment of interest or principal.
(10) Entire Agreement: This Surplus Note contains the entire agreement between
the above referenced parties. There are no other addendums or agreements with
any other party which form a part of this contract.
Form SBA 15-2, new 11/06
Rule 19-15.001, F.A.C.
5
IN WITNESS WHEREOF, this agreement has been executed as of the date above.
Attest to:
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name Print Name & Title
STATE OF Florida }
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COUNTY OF Broward }
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The foregoing instrument was acknowledged before me by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
personally known to me _X_ or who presented as identification
_________________ this 7th day of November, 2006.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------
NOTARY PUBLIC
My Commission Expires:
Attest to:
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------- ---------------------
Name Print Name & Title
STATE OF Florida }
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COUNTY OF Broward }
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The foregoing instrument was acknowledged before me by ▇▇▇▇ ▇. ▇▇▇▇▇▇,
personally known to me _X_ or who presented as identification
_________________ this 7th day of November, 2006.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------
NOTARY PUBLIC
My Commission Expires:
6 Form SBA 15-2, new 11/06
Rule 19-15.001, F.A.C.
Attest to:
The State Board of Administration of Florida
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ 11-09-06
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ Date
Executive Director
7 Form SBA 15-2, new 11/06
Rule 19-15.001, F.A.C.