EXHIBIT 10 (A)
QUOTA SHARE RETROCESSION AGREEMENT
Effective: July 1, 2000
entered into by and between
AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS
Dallas, Texas
and
DORINCO REINSURANCE COMPANY
Midland, Michigan
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ASSOCIATES, INC.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
CONTENTS
ARTICLE PAGE
1 BUSINESS REINSURED 1
2 COVER 1
3 COMMENCEMENT AND TERMINATION 2
4 TERRITORY 3
5 WARRANTY 3
6 EXCLUSIONS 4
7 ACCOUNTS AND REMITTANCES 5
8 CEDING COMMISSION 6
9 COMMISSION ADJUSTMENT 6
10 DEFINITIONS 8
11 ORIGINAL CONDITIONS 9
12 CURRENCY 9
13 LOSS AND UNEARNED PRMEIUM RESERVE FUNDING 9
14 TAXES 9
15 LOSS AND LOSS EXPENSE 10
16 EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS
OF POLICY LIMITS 11
17 ASSESSMENTS AND ASSIGNMENTS 12
18 DELAY, OMISSION OR ERROR 12
19 INSPECTION 12
20 ARBITRATION 12
21 SERVICE OF SUIT 13
22 INSOLVENCY 13
23 ENTIRE AGREEMENT 13
24 INTERMEDIARY 13
QUOTA SHARE RETROCESSION AGREEMENT
This Agreement is made and entered into by and between AMERICAN HALLMARK
INSURANCE COMPANY OF TEXAS, Dallas, Texas (hereinafter called the "Company")
and DORINCO REINSURANCE COMPANY, Midland, Michigan (hereinafter called the
"Reinsurer").
ARTICLE 1
BUSINESS REINSURED
This Agreement is to share with the Reinsurer the interests and liabilities
of the Company under all Policies classified by the Company as Private
Passenger Automobile Business (including Motorist Bodily Injury and Property
Damage, Physical Damage, Uninsured/ Underinsured Motorist Bodily Injury and
Property Damage and Personal Injury Protection) written or renewed by or
through American Hallmark General Agency, Inc., Dallas, Texas for and on
behalf of State and County Mutual Insurance Company, Ft. Worth, Texas
(hereinafter called the "Issuing Carrier") and assumed by the Company as
reinsurance from the Issuing Carrier, during the term of this Agreement,
subject to the terms and conditions herein contained.
It is understood that the business reinsured under this Agreement is deemed
to include coverages extended for non-resident drivers under the Motor
Vehicle Financial Responsibility Law or the Motor Vehicle Compulsory
Insurance Law, or any similar law of any state or province, following the
provisions of the Issuing Carrier's Policies when they include or are deemed
to include so called "out of state insurance" provisions.
ARTICLE 2
COVER
At inception, the Company will cede, and the Reinsurer will accept as
reinsurance, a 65% share of all business reinsured hereunder.
At the end of each Underwriting Period (as defined in Article 10), the
Company may request that the quota share percentage applicable to Policies
attaching during that Period be adjusted back to the beginning of the Period
to a minimum of 55% or a maximum of 70%. Any such request shall be made as
soon as practicable after the end of the Underwriting Period and be based
solely on the Company's desire to achieve a certain net written premium to
policyholders surplus ratio, not its loss ratio. Any and all retroactive
quota share percentage adjustments must be agreed by the Reinsurer, which
agreement will not be unreasonably withheld. The Reinsurer agrees to
communicate to the Company its acceptance or rejection of the Company's
request within two working days after receipt. In the event of a
retroactive adjustment, the additional or return premium, ceding commission
and paid losses shall be reflected in the Company's next monthly report.
In no event shall the net written premium ceded hereunder for any
Underwriting Year exceed $24,000,000.
ARTICLE 3
COMMENCEMENT AND TERMINATION
This Agreement shall become effective at 12:01 a.m., Central Standard Time,
July 1, 2000, with respect to losses under policies written or renewed
(i.e., attaching) on or after that time and date, and shall remain in full
force and effect until terminated as provided in the following paragraph.
Either the Company or the Reinsurer shall have the right to terminate this
Agreement as of 12:01 a.m., Central Standard Time, any January 1 or July 1,
by giving 90 days' prior notice in writing.
In the event of termination of this Agreement, the Reinsurer will continue
to cover all Policies coming within the scope of this Agreement, including
those written or renewed during the period of notice, until the natural
expiration or anniversary of such Policies, whichever occurs first, but in
no event longer than 12 months from the date of termin-ation.
However, in the event that any Policy is required by law or regulation to be
continued in force, the Reinsurer will continue to remain liable with
respect to each such Policy until the Issuing Carrier may legally cancel,
non-renew or otherwise eliminate liability under such Policy or Policies.
This provision will include but is not limited to Policies which must be
issued or renewed because a producing agent, broker or managing general
agent cannot be canceled or has not been timely canceled, until the
expiration date of such Policies.
Upon termination, the Company, at its option, may elect to terminate the
Reinsurer's liability for all losses occurring subsequent to termination, in
which case the Reinsurer will return to the Company the ceded unearned
premium reserve as of the time and date of termination (less previously
allowed ceding commission).
ARTICLE 4
TERRITORY
This Agreement will cover wherever the Issuing Carrier's Policies cover.
ARTICLE 5
WARRANTY
It is warranted for purposes of this Agreement that the maximum Policy
limits for which American Hallmark General Agency, Inc. shall have the
authorization to bind the Issuing Carrier for business ceded hereunder shall
be as follows or so deemed:
A. Bodily Injury, per person/per accident $20,020/$40,020
B. Property Damage, per accident $15,020
C. Physical Damage Actual Cash Value (ACV)
not to exceed $40,020 per
vehicle
D. Personal Injury Protection, per
person/per accident $2,520
Uninsured/Underinsured Motorist Bodily
Injury, per person/per accident $20,020/$40,020
Uninsured/Underinsured Motorist Property
Damage, per accident $15,020
In the event of a statutory increase in limits by the State of Texas, or
travel by an insured to a state with greater statutory requirements, the
maximum Policy limits shall be increased to statutory limits in effect.
ARTICLE 6
EXCLUSIONS
This Agreement does not cover:
All business not specifically described in the BUSINESS REINSURED ARTICLE of
this Agreement.
Garagekeepers legal liability.
Vendors single interest.
Vehicles principally used as ambulances, fire and police units.
Commercial vehicles rated as such, and all automobile fleets.
Mobile homes.
Automobile dealers.
War risks as excluded in the attached North American War Exclusion Clause
(Reinsurance) No. 08-45.
Business excluded by the attached Nuclear Incident Exclusion Clauses B
Liability B Reinsurance B U.S.A., No. 08-31.1 and Canada, No. 08-32.1.
Business excluded by the attached Nuclear Incident Exclusion Clauses B
Physical Damage B Reinsurance B U.S.A., No. 08-33 and Canada,
No. 08-34.2.
Assumed reinsurance, except for reinsurance assumed by the Company from
State and County Mutual Insurance Company.
Vehicles used in racing or speed events.
Taxis, limos, buses and livery.
Pools, Associations and Syndicates, except losses from Assigned Risk Plans
or similar styled plans/pools are not excluded.
Loss or damage or costs or expenses arising from seepage and/or pollution
and/or contamination, other than contamination from smoke damage.
Nevertheless, this exclusion does not preclude any payment of the cost
of the removal of debris of property damaged by a loss otherwise covered
hereunder, but subject always to a limit of 25% of the Company's Property
Business loss under the original Policy.
Should the Issuing Carrier be assigned a risk under an Assigned Risk Plan,
or similar mandatory plan, which is otherwise excluded by the foregoing
exclusions list, the Reinsurer will waive such exclusions (other than
exclusions H., I. and J.) in respect of such assigned risks.
Errors and omissions notwithstanding, if without the knowledge and contrary
to the instructions of its supervisory personnel, the Issuing Carrier is
bound on a risk specifically excluded hereunder, other than exclusions H.,
I., and J., or by an existing insured extending its operations, such
reinsurance as would have been afforded but for the exclusion shall apply
for a period of 30 days following receipt by said underwriting personnel of
knowledge thereof.
ARTICLE 7
ACCOUNTS AND REMITTANCES
Within 60 days following the end of each month, the Company will render a
net account to the Reinsurer for the current Underwriting Year,
segregated by Underwriting Period. Prior Underwriting Years having
activity during the month will be accounted for separately in a similar
manner. Such account will contain the following:
Ceded net written premium (i.e., ceded gross written premium, including
the Reinsurer's share of 100% of the Policy fees, less returns and
cancellations), under Policies attaching to each Underwriting
Period; less
1. The ceding commission as provided for in this Agreement; less
2. Loss and loss expense paid under Policies attaching to each
Underwriting Period; plus
3. Subrogation, salvage, or other recoveries attributable to Policies
attaching to each Underwriting Period.
Within 60 days following the end of the month the debtor party will
remit to the creditor party any balance due.
This account will also bear a notation advising of the following
information, separately for each Underwriting Period:
Outstanding loss and loss expense reserve at the end of the month;
The unearned premium reserve at the end of the month;
Should loss attributable to an ISO catastrophe(s) be involved, the ISO
number(s) and the paid loss and loss expense and the outstanding
loss and loss expenses applicable.
Within 60 days following the end of each calendar year, the Company shall
furnish to the Reinsurer any other information reasonably available to
the Company which the Reinsurer may require for its Annual Convention
Statement.
ARTICLE 8
CEDING COMMISSION
The Reinsurer will allow the Company a provisional ceding commission of
41.0% of the ceded net written premium. Return commission shall be allowed
on return premiums at the same rate.
ARTICLE 9
COMMISSION ADJUSTMENT
A. 1. The final ceding commission shall be determined by the loss
experience under this Agreement for each Underwriting Year (as
defined in Article 10). There shall be provisional adjustments and
a final adjustment for each Underwriting Year, all in accordance
with the other paragraphs of this Article.
Within 60 days after 24 months from the beginning of each
Underwriting Year, the Company will calculate an adjusted ceding
commission for the Underwriting Year then expired based on
premiums earned and losses incurred. The ceding commission paid
to that date, whether provisional or prior adjustment, shall be
adjusted between the parties as appropriate. At the end of each
Underwriting Year, adjustments will continue to be made annually
until all losses have been paid or closed, at which time the
ceding commission will become final.
Premium earned for the period shall mean all net written premium
ceded to this Agreement for Policies attaching to the Underwriting
Year, less the ceded unearned premium reserve as of the date of
calculation.
4. Losses incurred for the period shall mean the loss and loss
expense paid by the Reinsurer (less salvages and recoveries
received) under Policies attaching to the Underwriting Year, plus
the ceded loss and loss expense reserves outstanding as of the
date of calculation.
B. 1. Should the ratio of losses incurred to premium earned be 64.5% or
higher, then the adjusted ceding commission shall be 31.0%.
2. Should the ratio of losses incurred to premium earned be less than
64.5%, then the adjusted commission shall be determined by adding one
percentage point to the ceding commission for each percentage point
reduction loss ratio subject to a ceding commission of 41.0% at a loss
ratio of 54.5% or less.
3. Should the ratio of losses incurred to premium earned be greater
than 64.5% or less than 54.5%, the difference between the actual loss
ratio and 64.5% or 54.5%, as the case may be, will be multiplied by the
earned premium for the Underwriting Year and carried forward as a debit
or credit to the ensuing Underwriting Year calculation. Following
termination of this Agreement any debit or credit carryforward
remaining after the final adjustment of the concluding Underwriting
Year will be null and void.
C. 1. Upon termination, any period of less than 12 months from inception
shall be considered as an Underwriting Year for purposes of this
Article; any period of less than 12 months from anniversary will
be considered as part of the preceding Underwriting Year.
2. Should this Agreement be terminated on a runoff basis wherein the
Reinsurer is liable for losses occurring after the date of
termination, then such runoff period shall be considered as part
of the last Underwriting Year.
Should the Reinsurer's participation in this Agreement increase or
decrease within an Underwriting Year, the incremental participation
percentage increase or decrease shall be treated as a separate new or
terminated participation, respectively, for purposes of calculating
amounts due hereunder.
ARTICLE 10
DEFINITIONS
A. The term "Policy" as used in this Agreement shall mean any binder,
policy, or contract of insurance or reinsurance issued, accepted or
held covered provisionally or otherwise, by or through American
Hallmark General Agency, Inc., Dallas, Texas for and on behalf of the
Issuing Carrier.
B. The term "Underwriting Year" as used in this Agreement shall be defined
as follows:
1. The first Underwriting Year shall be the period from July 1, 2000
through June 30, 2001;
2. Each subsequent 12-month period commencing on July 1 shall be
considered a separate Underwriting Year.
Those Policies with an inception, renewal or anniversary date during
the Underwriting Periods within a given Underwriting Year shall be
considered "attached" to that Underwriting Year. All premium
attributable to, and all loss arising out of such Policies until
expiration, cancellation, or next anniversary, whichever occurs first,
will be ascribed to that Underwriting Year.
The term "Underwriting Period" as used in this Agreement shall be
defined as follows:
The first Underwriting Period shall be the period from July 1, 2000
through September 30, 2000;
Each subsequent 3-month period shall be considered a separate
Underwriting Period.
Those Policies with an inception, renewal or anniversary date during a
given Underwriting Period shall be considered "attached" to that
Underwriting Period.
All premium attributable to, and all loss arising out of such Policies
until expiration, cancellation, or next anniversary, whichever occurs
first, will be ascribed to that Underwriting Period.
ARTICLE 11
ORIGINAL CONDITIONS
All insurances falling under this Agreement shall be subject to the same
terms, rates, conditions and waivers, and to the same modifications,
alterations and cancellations as the respective Policies of the Issuing
Carrier (except that in the event of the insolvency of the Company the
provisions of the INSOLVENCY ARTICLE of this Agreement shall apply) and the
Reinsurer shall be credited with its exact proportion of the original gross
premium (including Policy fees) received by the Company.
ARTICLE 12
CURRENCY
The currency to be used for all purposes of this Agreement shall be United
States of America currency.
ARTICLE 13
LOSS AND UNEARNED PREMIUM RESERVE FUNDING
With respect to loss and unearned premium reserves, funding will be in
accordance with the attached Loss Funding Clause No. 13-04.
ARTICLE 14
TAXES
The Company will be liable for taxes (except Federal Excise Tax) on premiums
reported to the Reinsurer hereunder. Federal Excise Tax applies only to
those Reinsurers, excepting Underwriters at Lloyd's, London and other
Reinsurers exempt from the Federal Excise Tax, who are domiciled outside the
United States of America.
The Reinsurer has agreed to allow for the purpose of paying the Federal
Excise Tax 1% of the premium payable hereon to the extent such premium is
subject to Federal Excise Tax.
In the event of any return of premium becoming due hereunder, the Reinsurer
will deduct 1% from the amount of the return, and the Company or its agent
should take steps to recover the Tax from the U.S. Government.
ARTICLE 15
LOSS AND LOSS EXPENSE
Any loss settlement made by the Company, whether under strict Policy
conditions or by way of compromise, shall be unconditionally binding upon
the Reinsurer in proportion to its participation, and the Reinsurer shall
benefit proportionally in all salvages and recoveries.
The Reinsurer shall bear its proportionate share of all expenses incurred by
the Company in the investigation, adjustment, appraisal or defense of all
claims under Policies reinsured hereunder (excluding, however, office
expenses and salaries of officials of the Company) and shall receive its
proportionate share of any recoveries of such expenses.
The Company will advise the Reinsurer by separate report, regardless of any
question on liability or coverage, of any claim involving the following:
Fatalities.
Bodily injuries involving:
Brain stem, quadriplegia, paraplegia or severe paralysis,
Serious ▇▇▇▇▇,
Amputations of major limbs,
Serious impairment of vision.
Potential coverage disputes or bad faith situations which may give rise to a
payment for Excess of Policy Limits or Extra Contractual Obligations.
Any claims that do not fall within these categories, but have a potential of
significant liability to the Reinsurer.
ARTICLE 16
EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS OF POLICY LIMITS
This Agreement shall protect the Company, where the loss includes any Extra
Contractual Obligations for 100% of such Extra Contractual Obligations.
"Extra Contractual Obligations" are defined as those liabilities not covered
under any other provision of this Agreement and which arise from handling of
any claim on business covered hereunder, such liabilities arising because
of, but not limited to, the following: failure by the Issuing Carrier or
Company to settle within the Policy limit, or by reason of alleged or actual
negligence, fraud or bad faith in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any action against its insured
or in the preparation or prosecution of an appeal consequent upon such
action.
The date on which any Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the
original loss.
In the event a loss includes an amount in excess of the Issuing Carrier's
Policy limit, 100% of such amount in excess of the Issuing Carrier's Policy
limit shall be added to the amount of the Issuing Carrier's Policy limit,
and the sum thereof shall be covered.
For the purpose of this Article, the word "loss" shall mean any amounts
which the Issuing Carrier would have been contractually liable to pay had it
not been for the limit of the original Policy.
Notwithstanding the above, as respects any loss which includes either Extra
Contractual Obligations or Excess of Policy Limits or both, the Reinsurer's
limit of liability for Extra Contractual Obligations and/or Excess of Policy
Limits shall be limited to $2,000,000 each loss in addition to the indemnity
loss.
However, this Article shall not apply where the loss has been incurred due
to the fraud of a member of the Board of Directors or a corporate officer of
the Issuing Carrier or Company acting individually or collectively or in
collusion with any individual or corporation of any other organization or
party involved in the presentation, defense or settlement of any claim
covered hereunder.
ARTICLE 17
ASSESSMENTS AND ASSIGNMENTS
The Reinsurer hereby assumes liability for any and all assessments and
assignments imposed as a result of Policies reinsured hereunder (whether
before or after the termination of this Agreement) levied or made by a
guaranty fund, insolvency fund, plan, pool, association or other arrangement
created by statute or regulation including, but not limited to, fees
associated with the Auto Theft Prevention Pool. The Company shall account
to the Reinsurer for any recovery of such assessments, or any credit allowed
to and realized by the Company from the Issuing Carrier, and return to the
Reinsurer its share of any recovery or credit.
ARTICLE 18
DELAY, OMISSION OR ERROR
Any inadvertent delay, omission or error shall be not held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay, omission
or error is rectified upon discovery.
ARTICLE 19
INSPECTION
The Company shall place at the disposal of the Reinsurer at all reasonable
times, and the Reinsurer shall have the right to inspect, through its
authorized representatives, all books, records and papers of the Company in
connection with any reinsurance hereunder or claims in connection herewith.
ARTICLE 20
ARBITRATION
Any irreconcilable dispute between the parties to this Agreement will be
arbitrated in Dallas, Texas in accordance with the attached Arbitration
Clause No. 22-01.1.
ARTICLE 21
SERVICE OF SUIT
The attached Service of Suit Clause No. 20-01.5 B U.S.A. will apply to this
Agreement.
ARTICLE 22
INSOLVENCY
In the event of the insolvency of the Company, the attached Insolvency
Clause No. 21-01 B 1/1/86 will apply.
ARTICLE 23
ENTIRE AGREEMENT
This Agreement sets forth all of the duties and obligations between the
Company and the Reinsurer and supersedes any and all prior or
contemporaneous or written agreements with respect to matters referred to in
this Agreement. The Agreement may not be modified, amended or changed
except by an agreement in writing signed by both parties.
ARTICLE 24
INTERMEDIARY
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Associates, Inc. is hereby recognized as the intermediary
negotiating this Agreement. All communications (including but not limited
to notices, statements, premiums, return premiums, commissions, taxes,
losses, loss expenses, salvage and loss settlements) relating hereto shall
be transmitted to the Company and the Reinsurer through ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Associates, Inc., ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
Payments by the Company to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Associates, Inc. shall be deemed
to constitute payment to the Reinsurer. Payments by the Reinsurer to ▇▇▇▇
▇. ▇▇▇▇▇▇▇ Associates, Inc. shall be deemed only to constitute payment to
the Company to the extent that such payments are actually received by the
Company.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed by their duly authorized representatives at:
Dallas, Texas, this ___________ day of ______________________________, 2000.
_______________________________________________________
AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS
Midland, Michigan, this __________ day of ___________________________, 2000.
_______________________________________________________
DORINCO REINSURANCE COMPANY