UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
001-34126
HCI Group, Inc.
(Exact name of Registrant as specified in its charter)
Florida | 20-5961396 | |
(State of Incorporation) |
(IRS Employer
Identification No.) |
5300 West Cypress Street, Suite 100
Tampa, FL 33607
(Address, including zip code, of principal executive offices)
(813) 849-9500
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol |
Name of Each Exchange on Which Registered |
||
Common Shares, no par value | HCI | New York Stock Exchange |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate number of shares of the Registrants Common Stock, no par value, outstanding on July 31, 2019 was 8,180,174.
HCI GROUP, INC. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
HCI GROUP, INC. AND SUBSIDIARIES
(Dollar amounts in thousands)
June 30,
2019 |
December 31,
2018 |
|||||||
(Unaudited) | ||||||||
Assets |
||||||||
Fixed-maturity securities, available for sale, at fair value (amortized cost: $207,563 and $184,670, respectively) |
$ | 209,914 | $ | 182,723 | ||||
Equity securities, at fair value (cost: $27,770 and $45,671, respectively) |
29,861 | 41,143 | ||||||
Short-term investments, at fair value |
508 | 66,479 | ||||||
Limited partnership investments, at equity |
30,790 | 32,293 | ||||||
Investment in unconsolidated joint venture, at equity |
791 | 845 | ||||||
Assets held for sale |
10,025 | 9,810 | ||||||
Real estate investments |
63,228 | 54,490 | ||||||
|
|
|
|
|||||
Total investments |
345,117 | 387,783 | ||||||
Cash and cash equivalents |
217,153 | 239,458 | ||||||
Restricted cash |
700 | 700 | ||||||
Accrued interest and dividends receivable |
1,682 | 1,792 | ||||||
Income taxes receivable |
1,511 | 971 | ||||||
Premiums receivable |
26,398 | 16,667 | ||||||
Prepaid reinsurance premiums |
29,543 | 17,932 | ||||||
Reinsurance recoverable: |
||||||||
Paid losses and loss adjustment expenses |
19,183 | 11,151 | ||||||
Unpaid losses and loss adjustment expenses |
58,897 | 112,760 | ||||||
Deferred policy acquisition costs |
20,851 | 16,507 | ||||||
Property and equipment, net |
13,873 | 13,338 | ||||||
Intangible assets, net |
4,498 | 4,800 | ||||||
Other assets |
12,734 | 9,004 | ||||||
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|
|
|
|||||
Total assets |
$ | 752,140 | $ | 832,863 | ||||
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|
|
(continued)
1
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets continued
(Dollar amounts in thousands)
June 30,
2019 |
December 31,
2018 |
|||||||
(Unaudited) | ||||||||
Liabilities and Stockholders Equity |
||||||||
Losses and loss adjustment expenses |
$ | 154,242 | $ | 207,586 | ||||
Unearned premiums |
193,426 | 157,729 | ||||||
Advance premiums |
13,652 | 6,192 | ||||||
Assumed reinsurance balances payable |
| 14 | ||||||
Accrued expenses |
11,099 | 6,483 | ||||||
Deferred income taxes, net |
2,750 | 1,068 | ||||||
Revolving credit facility |
9,500 | | ||||||
Long-term debt |
162,293 | 250,150 | ||||||
Other liabilities |
18,684 | 22,200 | ||||||
|
|
|
|
|||||
Total liabilities |
565,646 | 651,422 | ||||||
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|
|
|
|||||
Commitments and contingencies (Note 18) |
||||||||
Stockholders equity: |
||||||||
7% Series A cumulative convertible preferred stock (no par value, 1,500,000 shares authorized, no shares issued or outstanding) |
| | ||||||
Series B junior participating preferred stock (no par value, 400,000 shares authorized, no shares issued or outstanding) |
| | ||||||
Preferred stock (no par value, 18,100,000 shares authorized, no shares issued or outstanding) |
| | ||||||
Common stock (no par value, 40,000,000 shares authorized, 8,053,573 and 8,356,730 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively) |
| | ||||||
Additional paid-in capital |
| | ||||||
Retained income |
184,739 | 182,894 | ||||||
Accumulated other comprehensive income (loss), net of taxes |
1,755 | (1,453 | ) | |||||
|
|
|
|
|||||
Total stockholders equity |
186,494 | 181,441 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 752,140 | $ | 832,863 | ||||
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
2
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(Dollar amounts in thousands, except per share amounts)
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue |
||||||||||||||||
Gross premiums earned |
$ | 83,315 | $ | 85,919 | $ | 165,912 | $ | 171,691 | ||||||||
Premiums ceded |
(31,317 | ) | (32,954 | ) | (62,730 | ) | (65,204 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net premiums earned |
51,998 | 52,965 | 103,182 | 106,487 | ||||||||||||
Net investment income |
4,226 | 3,399 | 7,504 | 6,617 | ||||||||||||
Net realized investment (losses) gains |
(133 | ) | 2,662 | (505 | ) | 4,894 | ||||||||||
Net unrealized investment gains (losses) |
1,326 | (1,557 | ) | 6,619 | (4,157 | ) | ||||||||||
Net other-than-temporary impairment losses |
| (40 | ) | | (80 | ) | ||||||||||
Policy fee income |
800 | 855 | 1,595 | 1,720 | ||||||||||||
Other |
413 | 529 | 869 | 1,071 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
58,630 | 58,813 | 119,264 | 116,552 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Expenses |
||||||||||||||||
Losses and loss adjustment expenses |
24,293 | 21,803 | 51,289 | 41,458 | ||||||||||||
Policy acquisition and other underwriting expenses |
10,077 | 9,959 | 19,750 | 19,319 | ||||||||||||
General and administrative personnel expenses |
7,998 | 7,840 | 15,362 | 14,123 | ||||||||||||
Interest expense |
2,884 | 4,505 | 7,221 | 8,975 | ||||||||||||
Other operating expenses |
3,063 | 3,186 | 6,044 | 6,353 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
48,315 | 47,293 | 99,666 | 90,228 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
10,315 | 11,520 | 19,598 | 26,324 | ||||||||||||
Income tax expense |
2,762 | 5,117 | 5,307 | 9,130 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 7,553 | $ | 6,403 | $ | 14,291 | $ | 17,194 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings per share |
$ | 0.93 | $ | 0.96 | $ | 1.75 | $ | 2.21 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted earnings per share |
$ | 0.90 | $ | 0.92 | $ | 1.72 | $ | 2.03 | ||||||||
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
3
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
(Amounts in thousands)
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income |
$ | 7,553 | $ | 6,403 | $ | 14,291 | $ | 17,194 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss): |
||||||||||||||||
Change in unrealized gain (loss) on investments: |
||||||||||||||||
Net unrealized gain (loss) arising during the period |
1,626 | (65 | ) | 4,330 | (2,693 | ) | ||||||||||
Other-than-temporary impairment loss charged to income |
| 40 | | 80 | ||||||||||||
Call and repayment losses charged to investment income |
1 | 3 | 1 | 4 | ||||||||||||
Reclassification adjustment for net realized loss (gain) |
| 35 | (33 | ) | (661 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net change in unrealized gain (loss) |
1,627 | 13 | 4,298 | (3,270 | ) | |||||||||||
Deferred income taxes on above change |
(413 | ) | (3 | ) | (1,090 | ) | 829 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other comprehensive income (loss), net of income taxes |
1,214 | 10 | 3,208 | (2,441 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income |
$ | 8,767 | $ | 6,413 | $ | 17,499 | $ | 14,753 | ||||||||
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
4
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders Equity
For the Three Months Ended June 30, 2019
(Unaudited)
(Dollar amounts in thousands, except per share amount)
Common Stock |
Additional
Paid-In Capital |
Retained
Income |
Accumulated
Other Comprehensive Income Net of Tax |
Total
Stockholders Equity |
||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance at March 31, 2019 |
8,359,889 | $ | | $ | 103 | $ | 186,396 | $ | 541 | $ | 187,040 | |||||||||||||
Net income |
| | | 7,553 | | 7,553 | ||||||||||||||||||
Total other comprehensive income, net of income taxes |
| | | | 1,214 | 1,214 | ||||||||||||||||||
Exercise of common stock options |
10,000 | | 63 | | | 63 | ||||||||||||||||||
Issuance of restricted stock |
133,160 | | | | | | ||||||||||||||||||
Forfeiture of restricted stock |
(264,211 | ) | | | | | | |||||||||||||||||
Repurchase and retirement of common stock |
(24,478 | ) | | (1,005 | ) | | | (1,005 | ) | |||||||||||||||
Repurchase and retirement of common stock under share repurchase plan |
(160,787 | ) | | (6,668 | ) | | | (6,668 | ) | |||||||||||||||
Common stock dividends ($0.40 per share) |
| | | (3,192 | ) | | (3,192 | ) | ||||||||||||||||
Stock-based compensation |
| | 1,489 | | | 1,489 | ||||||||||||||||||
Additional paid-in capital shortfall allocated to retained income |
| | 6,018 | (6,018 | ) | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at June 30, 2019 |
8,053,573 | $ | | $ | | $ | 184,739 | $ | 1,755 | $ | 186,494 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
5
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders Equity
For the Three Months Ended June 30, 2018
(Unaudited)
(Dollar amounts in thousands, except per share amount)
Common Stock |
Additional
Paid-In Capital |
Retained
Income |
Accumulated
Other Comprehensive (Loss) Income, Net of Tax |
Total
Stockholders Equity |
||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance at March 31, 2018 |
8,593,850 | $ | | $ | | $ | 193,971 | $ | (1,069 | ) | $ | 192,902 | ||||||||||||
Net income |
| | | 6,403 | | 6,403 | ||||||||||||||||||
Total other comprehensive income, net of income taxes |
| | | | 10 | 10 | ||||||||||||||||||
Issuance of restricted stock |
143,360 | | | | | | ||||||||||||||||||
Forfeiture of restricted stock |
(27,115 | ) | | | | | | |||||||||||||||||
Repurchase and retirement of common stock |
(17,256 | ) | | (730 | ) | | | (730 | ) | |||||||||||||||
Repurchase and retirement of common stock under share repurchase plan |
(174,951 | ) | | (7,174 | ) | | | (7,174 | ) | |||||||||||||||
Common stock dividends ($0.375 per share) |
| | | (1,423 | ) | | (1,423 | ) | ||||||||||||||||
Stock-based compensation |
| | 1,033 | | | 1,033 | ||||||||||||||||||
Additional paid-in capital shortfall allocated to retained income |
| | 6,871 | (6,871 | ) | | | |||||||||||||||||
|
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|
|
|
|
|
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|
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Balance at June 30, 2018 |
8,517,888 | $ | | $ | | $ | 192,080 | $ | (1,059 | ) | $ | 191,021 | ||||||||||||
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See accompanying Notes to Consolidated Financial Statements.
6
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders Equity
For the Six Months Ended June 30, 2019
(Unaudited)
(Dollar amounts in thousands, except per share amount)
Common Stock |
Additional
Paid-In Capital |
Retained
Income |
Accumulated
Other Comprehensive (Loss) Income, Net of Tax |
Total
Stockholders Equity |
||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance at December 31, 2018 |
8,356,730 | $ | | $ | | $ | 182,894 | $ | (1,453 | ) | $ | 181,441 | ||||||||||||
Net income |
| | | 14,291 | | 14,291 | ||||||||||||||||||
Total other comprehensive income, net of income taxes |
| | | | 3,208 | 3,208 | ||||||||||||||||||
Exercise of common stock options |
10,000 | | 63 | | | 63 | ||||||||||||||||||
Issuance of restricted stock |
173,160 | | | | | | ||||||||||||||||||
Forfeiture of restricted stock |
(268,892 | ) | | | | | | |||||||||||||||||
Repurchase and retirement of common stock |
(24,849 | ) | | (1,023 | ) | | | (1,023 | ) | |||||||||||||||
Repurchase and retirement of common stock under share repurchase plan |
(192,576 | ) | | (8,006 | ) | | | (8,006 | ) | |||||||||||||||
Common stock dividends ($0.80 per share) |
| | | (6,428 | ) | | (6,428 | ) | ||||||||||||||||
Stock-based compensation |
| | 2,948 | | | 2,948 | ||||||||||||||||||
Additional paid-in capital shortfall allocated to retained income |
| | 6,018 | (6,018 | ) | | | |||||||||||||||||
|
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|
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|
|
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|
|
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Balance at June 30, 2019 |
8,053,573 | $ | | $ | | $ | 184,739 | $ | 1,755 | $ | 186,494 | |||||||||||||
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See accompanying Notes to Consolidated Financial Statements.
7
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders Equity
For the Six Months Ended June 30, 2018
(Unaudited)
(Dollar amounts in thousands, except per share amount)
Common Stock |
Additional
Paid-In Capital |
Retained
Income |
Accumulated
Other Comprehensive Income (Loss), Net of Tax |
Total
Stockholders Equity |
||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance at December 31, 2017 |
8,762,416 | $ | | $ | | $ | 189,409 | $ | 4,566 | $ | 193,975 | |||||||||||||
Net income |
| | | 17,194 | | 17,194 | ||||||||||||||||||
Total other comprehensive loss, net of income taxes |
| | | | (2,441 | ) | (2,441 | ) | ||||||||||||||||
Cumulative effect adjustments for adoption of new accounting standards: |
||||||||||||||||||||||||
Reclassification of after-tax net unrealized holding gains related to equity securities |
| | | 4,168 | (4,168 | ) | | |||||||||||||||||
Reclassification of stranded tax effects related to available-for-sale fixed-maturity and equity securities |
| | | (984 | ) | 984 | | |||||||||||||||||
Issuance of restricted stock |
183,360 | | | | | | ||||||||||||||||||
Forfeiture of restricted stock |
(45,020 | ) | | | | | | |||||||||||||||||
Repurchase and retirement of common stock |
(23,346 | ) | | (941 | ) | | | (941 | ) | |||||||||||||||
Repurchase and retirement of common stock under share repurchase plan |
(359,522 | ) | | (13,711 | ) | | | (13,711 | ) | |||||||||||||||
Purchase of noncontrolling interest |
| | (539 | ) | | | (539 | ) | ||||||||||||||||
Common stock dividends ($0.725 per share) |
| | | (4,421 | ) | | (4,421 | ) | ||||||||||||||||
Stock-based compensation |
| | 1,905 | | | 1,905 | ||||||||||||||||||
Additional paid-in capital shortfall allocated to retained income |
| | 13,286 | (13,286 | ) | | | |||||||||||||||||
|
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|
|||||||||||||
Balance at June 30, 2018 |
8,517,888 | $ | | $ | | $ | 192,080 | $ | (1,059 | ) | $ | 191,021 | ||||||||||||
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See accompanying Notes to Consolidated Financial Statements.
8
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
Six Months Ended
June 30, |
||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 14,291 | $ | 17,194 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Stock-based compensation |
2,948 | 1,905 | ||||||
Net amortization of premiums on investments in fixed-maturity securities |
127 | 528 | ||||||
Depreciation and amortization |
4,702 | 5,439 | ||||||
Deferred income tax expense |
592 | 1,932 | ||||||
Net realized investment losses (gains) |
505 | (4,894 | ) | |||||
Net unrealized investment (gains) losses |
(6,619 | ) | 4,157 | |||||
Other-than-temporary impairment losses |
| 80 | ||||||
Loss (income) from unconsolidated joint venture |
54 | (330 | ) | |||||
Net income from limited partnership interests |
(832 | ) | (852 | ) | ||||
Distributions received from limited partnership interests |
3,616 | 609 | ||||||
Foreign currency remeasurement (gain) loss |
(5 | ) | 115 | |||||
Other |
271 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Accrued interest and dividends receivable |
110 | 511 | ||||||
Income taxes |
(540 | ) | 13,084 | |||||
Premiums receivable |
(9,731 | ) | (8,090 | ) | ||||
Prepaid reinsurance premiums |
(11,611 | ) | (7,294 | ) | ||||
Reinsurance recoverable |
45,831 | 7,203 | ||||||
Deferred policy acquisition costs |
(4,344 | ) | (3,374 | ) | ||||
Other assets |
(1,393 | ) | 1,520 | |||||
Losses and loss adjustment expenses |
(53,344 | ) | (26,191 | ) | ||||
Unearned premiums |
35,697 | 29,932 | ||||||
Advance premiums |
7,460 | 8,202 | ||||||
Assumed reinsurance balances payable |
(14 | ) | 118 | |||||
Reinsurance recovered in advance on unpaid losses |
| (13,885 | ) | |||||
Accrued expenses and other liabilities |
1,063 | (28 | ) | |||||
|
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|
|||||
Net cash provided by operating activities |
28,834 | 27,591 | ||||||
|
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|
|
|||||
Cash flows from investing activities: |
||||||||
Investments in limited partnership interests |
(1,751 | ) | (2,638 | ) | ||||
Distributions received from limited partnership interests |
470 | 114 | ||||||
Purchase of property and equipment |
(1,313 | ) | (1,045 | ) | ||||
Purchase of real estate investments |
(9,892 | ) | (6,520 | ) | ||||
Purchase of intangible assets |
| (409 | ) | |||||
Purchase of fixed-maturity securities |
(75,727 | ) | (50,976 | ) | ||||
Purchase of equity securities |
(15,778 | ) | (20,832 | ) | ||||
Purchase of short-term and other investments |
(684 | ) | (125,001 | ) | ||||
Proceeds from sales of fixed-maturity securities |
2,985 | 77,769 | ||||||
Proceeds from calls, repayments and maturities of fixed-maturity securities |
47,788 | 27,207 | ||||||
Proceeds from sales of equity securities |
32,841 | 40,436 | ||||||
Proceeds from sales, redemptions and maturities of short-term and other investments |
66,897 | 15,117 | ||||||
|
|
|
|
|||||
Net cash provided by (used in) investing activities |
45,836 | (46,778 | ) | |||||
|
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|
|
9
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
(Unaudited)
(Amounts in thousands)
Six Months Ended
June 30, |
||||||||
2019 | 2018 | |||||||
Cash flows from financing activities: |
||||||||
Cash dividends paid |
(6,581 | ) | (5,011 | ) | ||||
Cash dividends received under share repurchase forward contract |
153 | 590 | ||||||
Proceeds from revolving credit facility |
9,500 | | ||||||
Proceeds from exercise of common stock options |
63 | | ||||||
Repayment of long-term debt |
(90,647 | ) | (520 | ) | ||||
Repurchases of common stock |
(1,023 | ) | (941 | ) | ||||
Repurchases of common stock under share repurchase plan |
(8,006 | ) | (13,711 | ) | ||||
Purchase of non-controlling interest |
| (539 | ) | |||||
Debt issuance costs |
(459 | ) | | |||||
|
|
|
|
|||||
Net cash used in financing activities |
(97,000 | ) | (20,132 | ) | ||||
|
|
|
|
|||||
Effect of exchange rate changes on cash |
25 | (112 | ) | |||||
|
|
|
|
|||||
Net decrease in cash, cash equivalents, and restricted cash |
(22,305 | ) | (39,431 | ) | ||||
Cash, cash equivalents, and restricted cash at beginning of period |
240,158 | 256,693 | ||||||
|
|
|
|
|||||
Cash, cash equivalents, and restricted cash at end of period |
$ | 217,853 | $ | 217,262 | ||||
|
|
|
|
|||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for income taxes |
$ | 5,254 | $ | 43 | ||||
|
|
|
|
|||||
Cash paid for interest |
$ | 5,453 | $ | 5,309 | ||||
|
|
|
|
|||||
Non-cash investing and financing activities: |
||||||||
Unrealized gain (loss) on investments in available-for-sale securities, net of tax |
$ | 3,208 | $ | (2,441 | ) | |||
|
|
|
|
|||||
Receivable from sales of equity securities |
$ | | $ | 530 | ||||
|
|
|
|
|||||
Receivable from maturities of fixed-maturity securities |
$ | 2,000 | $ | 15,000 | ||||
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
10
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 1 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited, consolidated financial statements for HCI Group, Inc. and its majority-owned and controlled subsidiaries (collectively, the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information, and the Securities and Exchange Commission (SEC) rules for interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Companys financial position as of June 30, 2019 and the results of operations and cash flows for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2019. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 included in the Companys Form 10-K, which was filed with the SEC on March 8, 2019.
In preparing the interim unaudited consolidated financial statements, management was required to make certain judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates.
Material estimates that are particularly susceptible to significant change in the near term are related to the Companys losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported. The Company uses various assumptions and actuarial data it believes to be reasonable under the circumstances to make these estimates. In addition, accounting policies specific to reinsurance with retrospective provisions, reinsurance recoverable, deferred income taxes, and stock-based compensation expense involve significant judgments and estimates material to the Companys consolidated financial statements.
All significant intercompany balances and transactions have been eliminated.
Adoption of New Accounting Standards
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). The guidance establishes new principles that lessees and lessors will apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 is effective for the Company January 1, 2019 and supersedes accounting for leases prescribed in Topic 840, Leases. ASU 2016-02 leaves lessor accounting substantially unchanged. The key change affecting the Company is the requirement that operating leases be recorded on the balance sheet. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; ASU No. 2018-20, Narrow-Scope Improvements for Lessors; and ASU No.
11
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
2019-01, Codification Improvements to Topic 842. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company was initially required to use a modified retrospective method and apply this standard at the beginning of the earliest comparative period presented in the financial statements. Subsequently, the FASB permitted the application of this standard at the beginning of the adoption period as an alternative.
Effective January 1, 2019, the Company adopted the new standard using the effective date as its date of initial application. As a result, financial information is not updated and the disclosures required under the new standard are not provided for dates and periods prior to January 1, 2019. The Company elected a package of practical expedients, which permits the Company to not reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. Upon adoption, the Company, as a lessee, recognized ROU assets of approximately $771 and lease liabilities of approximately $812 for all operating leases except for those that have a lease term of 12 months or less.
Leases
The Company leases office equipment, storage units, and office space from non-affiliates under terms ranging from one month up to ten years. In assessing whether a contract is or contains a lease, the Company first determines whether there is an identified asset in the contract. The Company then determines whether the contract conveys the right to obtain substantially all of the economic benefits from use of the identified asset or the right to direct the use of the identified asset. The Company elects not to record any lease with a term of 12 months or less on the consolidated balance sheet. For such short-term leases, the Company recognizes the lease payments in expense on a straight-line basis over the lease term.
If the contract is or contains a lease and the Company has the right to control the use of the identified asset, the ROU asset and the lease liability is measured from the lease component of the contract and recognized on the consolidated balance sheet. In measuring the lease liability, the Company uses its incremental borrowing rate for a loan secured by a similar asset that has a term similar to the lease term to discount the lease payments. The contract is further evaluated to determine the classification of the lease as to whether it is finance or operating. If the lease is a finance lease, the ROU asset is depreciated to depreciation expense over the shorter of the useful life of the asset or the lease term. Interest expense is recorded in connection with the lease liability using the effective interest method. If the lease is an operating lease, the ROU asset is amortized to lease expense on a straight-line basis over the lease term. For the presentation of finance leases on the Companys consolidated balance sheet, ROU assets and corresponding lease liabilities are included with property and equipment, net, and long-term debt, respectively. For the presentation of operating leases on the Companys consolidated balance sheet, ROU assets and corresponding lease liabilities are included with other assets and other liabilities, respectively.
The Company as a lessor leases its commercial and retail properties, boat slips, and docks to non-affiliates at various terms. If the contract gives the Companys customer the right to control the use of the identified asset, revenue is recognized on a straight-line basis over the lease term. Initial direct costs incurred by the Company are deferred and amortized on a straight-line basis over the lease term. The Company also records an unbilled receivable, which is the amount by which straight-line revenue exceeds the amount billed in accordance with the lease.
12
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Reclassification
Certain reclassifications of prior year amounts have been made to conform to the current year presentation.
Note 2 Recent Accounting Pronouncements
Accounting Standard to be Adopted in Fiscal Year 2020
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13), Financial InstrumentsCredit Losses (Topic 326), effective January 1, 2020. This update amends guidance on the recognition and measurement of credit losses for assets held at amortized cost and available-for-sale debt securities. For assets held at amortized cost, ASU 2016-13 eliminates the probable initial recognition threshold and, instead, requires credit losses to be measured using the Current Expected Credit Loss (CECL) model. The CECL model requires the measurement of all expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts which incorporate forward-looking information. For available-for-sale debt securities, credit losses will continue to be measured in a manner similar to the current standard. ASU 2016-13 requires a valuation allowance, rather than a write-down, to be recognized for the Companys expected credit losses. The valuation allowance account is a deduction from the amortized cost basis of the financial assets to reflect the net amount expected to be collected. Any subsequent changes to the expected credit losses of the financial assets will be recorded in earnings. The Company is required to use the modified-retrospective method by recognizing a cumulative-effect adjustment to the beginning retained income of fiscal year 2020. As for debt securities in which an other-than-temporary impairment had been recognized before the effective date, the prospective transition method will be used. The Company does not anticipate a material impact on its financial position as a result of adopting this update.
Note 3 Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Companys consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows.
June 30,
2019 |
December 31,
2018 |
|||||||
Cash and cash equivalents |
$ | 217,153 | $ | 239,458 | ||||
Restricted cash |
700 | 700 | ||||||
|
|
|
|
|||||
Total |
$ | 217,853 | $ | 240,158 | ||||
|
|
|
|
Restricted cash primarily represents funds held by certain states in which the Companys insurance subsidiaries conduct business to meet regulatory requirements.
13
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 4 Investments
a) Available-for-Sale Fixed-Maturity Securities
The Company holds investments in fixed-maturity securities that are classified as available-for-sale. At June 30, 2019 and December 31, 2018, the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the Companys available-for-sale securities by security type were as follows:
Cost or
Amortized Cost |
Gross
Unrealized Gain |
Gross
Unrealized Loss |
Estimated
Fair Value |
|||||||||||||
As of June 30, 2019 |
||||||||||||||||
U.S. Treasury and U.S. government agencies |
$ | 26,577 | $ | 88 | $ | (13 | ) | $ | 26,652 | |||||||
Corporate bonds |
162,512 | 2,049 | (288 | ) | 164,273 | |||||||||||
State, municipalities, and political subdivisions |
10,012 | 188 | | 10,200 | ||||||||||||
Exchange-traded debt |
8,344 | 328 | (5 | ) | 8,667 | |||||||||||
Redeemable preferred stock |
118 | 4 | | 122 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 207,563 | $ | 2,657 | $ | (306 | ) | $ | 209,914 | |||||||
|
|
|
|
|
|
|
|
|||||||||
As of December 31, 2018 |
||||||||||||||||
U.S. Treasury and U.S. government agencies |
$ | 61,979 | $ | 24 | $ | (206 | ) | $ | 61,797 | |||||||
Corporate bonds |
103,580 | 134 | (1,809 | ) | 101,905 | |||||||||||
State, municipalities, and political subdivisions |
10,567 | 98 | (3 | ) | 10,662 | |||||||||||
Exchange-traded debt |
8,426 | 82 | (261 | ) | 8,247 | |||||||||||
Redeemable preferred stock |
118 | | (6 | ) | 112 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 184,670 | $ | 338 | $ | (2,285 | ) | $ | 182,723 | |||||||
|
|
|
|
|
|
|
|
Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities as of June 30, 2019 and December 31, 2018 are as follows:
Amortized
Cost |
Estimated
Fair Value |
|||||||
As of June 30, 2019 |
||||||||
Due in one year or less |
$ | 43,816 | $ | 44,011 | ||||
Due after one year through five years |
151,617 | 153,201 | ||||||
Due after five years through ten years |
7,576 | 7,916 | ||||||
Due after ten years |
4,554 | 4,786 | ||||||
|
|
|
|
|||||
$ | 207,563 | $ | 209,914 | |||||
|
|
|
|
Amortized
Cost |
Estimated
Fair Value |
|||||||
As of December 31, 2018 |
||||||||
Due in one year or less |
$ | 50,659 | $ | 50,574 | ||||
Due after one year through five years |
117,826 | 116,498 | ||||||
Due after five years through ten years |
11,602 | 11,253 | ||||||
Due after ten years |
4,583 | 4,398 | ||||||
|
|
|
|
|||||
$ | 184,670 | $ | 182,723 | |||||
|
|
|
|
14
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Sales of Available-for-Sale Fixed-Maturity Securities
Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the three and six months ended June 30, 2019 and 2018 were as follows:
Proceeds |
Gross
Realized Gains |
Gross
Realized Losses |
||||||||||
Three months ended June 30, 2019 |
$ | 74 | $ | | $ | | ||||||
|
|
|
|
|
|
|||||||
Three months ended June 30, 2018 |
$ | 559 | $ | | $ | (35 | ) | |||||
|
|
|
|
|
|
|||||||
Six months ended June 30, 2019 |
$ | 2,985 | $ | 34 | $ | (1 | ) | |||||
|
|
|
|
|
|
|||||||
Six months ended June 30, 2018 |
$ | 77,769 | $ | 1,161 | $ | (500 | ) | |||||
|
|
|
|
|
|
Other-than-temporary Impairment
The Company regularly reviews its individual investment securities for other-than-temporary impairment. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including-
|
the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings; |
|
the length of time and the extent to which the market value of the security has been below its cost or amortized cost; |
|
general market conditions and industry or sector specific factors and other qualitative factors; |
|
nonpayment by the issuer of its contractually obligated interest and principal payments; and |
|
the Companys intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs. |
There was no impairment loss recognized for the three and six months ended June 30, 2019. For the three and six months ended June 30, 2018, the Company recognized $40 and $80, respectively, of impairment loss on one fixed-maturity security. At June 30, 2019, none of the fixed-maturity securities were considered other-than-temporarily impaired versus one fixed-maturity security at June 30, 2018.
15
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Securities with gross unrealized loss positions at June 30, 2019 and December 31, 2018, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:
Less Than Twelve Months | Twelve Months or Longer | Total | ||||||||||||||||||||||
As of June 30, 2019 |
Gross
Unrealized Loss |
Estimated
Fair Value |
Gross
Unrealized Loss |
Estimated
Fair Value |
Gross
Unrealized Loss |
Estimated
Fair Value |
||||||||||||||||||
U.S. Treasury and U.S. government agencies |
$ | | $ | | $ | (13 | ) | $ | 2,675 | $ | (13 | ) | $ | 2,675 | ||||||||||
Corporate bonds |
| | (288 | ) | 31,727 | (288 | ) | 31,727 | ||||||||||||||||
Exchange-traded debt |
(5 | ) | 1,060 | | | (5 | ) | 1,060 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | (5 | ) | $ | 1,060 | $ | (301 | ) | $ | 34,402 | $ | (306 | ) | $ | 35,462 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019, there were 22 securities in an unrealized loss position. Of these securities, 19 securities had been in an unrealized loss position for 12 months or longer.
Less Than Twelve Months | Twelve Months or Longer | Total | ||||||||||||||||||||||
As of December 31, 2018 |
Gross
Unrealized Loss |
Estimated
Fair Value |
Gross
Unrealized Loss |
Estimated
Fair Value |
Gross
Unrealized Loss |
Estimated
Fair Value |
||||||||||||||||||
U.S. Treasury and U.S. government agencies |
$ | (59 | ) | $ | 21,031 | $ | (147 | ) | $ | 35,393 | $ | (206 | ) | $ | 56,424 | |||||||||
Corporate bonds |
(542 | ) | 19,932 | (1,267 | ) | 36,682 | (1,809 | ) | 56,614 | |||||||||||||||
State, municipalities, and political subdivisions |
(3 | ) | 715 | | | (3 | ) | 715 | ||||||||||||||||
Exchange-traded debt |
(261 | ) | 5,275 | | | (261 | ) | 5,275 | ||||||||||||||||
Redeemable preferred stock |
(6 | ) | 112 | | | (6 | ) | 112 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | (871 | ) | $ | 47,065 | $ | (1,414 | ) | $ | 72,075 | $ | (2,285 | ) | $ | 119,140 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018, there were 82 securities in an unrealized loss position. Of these securities, 35 securities had been in an unrealized loss position for 12 months or longer.
b) Equity Securities
The Company holds investments in equity securities measured at fair values which are readily determinable. At June 30, 2019 and December 31, 2018, the cost, gross unrealized gains and losses, and estimated fair value of the Companys equity securities were as follows:
Cost |
Gross
Unrealized Gain |
Gross
Unrealized Loss |
Estimated
Fair Value |
|||||||||||||
June 30, 2019 |
$ | 27,770 | $ | 2,421 | $ | (330 | ) | $ | 29,861 | |||||||
December 31, 2018 |
$ | 45,671 | $ | 1,059 | $ | (5,587 | ) | $ | 41,143 |
16
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The table below presents the portion of unrealized gains and losses in the Companys consolidated statement of income for the periods related to equity securities still held.
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net gains recognized |
$ | 1,193 | $ | 1,134 | $ | 6,030 | $ | 70 | ||||||||
Exclude: Net realized (losses) gains recognized for securities sold |
(133 | ) | 2,691 | (589 | ) | 4,227 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net unrealized gains (losses) recognized |
$ | 1,326 | $ | (1,557 | ) | $ | 6,619 | $ | (4,157 | ) | ||||||
|
|
|
|
|
|
|
|
Sales of Equity Securities
Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three and six months ended June 30, 2019 and 2018 were as follows:
Proceeds |
Gross
Realized Gains |
Gross
Realized Losses |
||||||||||
Three months ended June 30, 2019 |
$ | 4,967 | $ | 113 | $ | (246 | ) | |||||
|
|
|
|
|
|
|||||||
Three months ended June 30, 2018 |
$ | 16,003 | $ | 2,794 | $ | (103 | ) | |||||
|
|
|
|
|
|
|||||||
Six months ended June 30, 2019 |
$ | 32,841 | $ | 2,187 | $ | (2,776 | ) | |||||
|
|
|
|
|
|
|||||||
Six months ended June 30, 2018 |
$ | 40,436 | $ | 4,971 | $ | (744 | ) | |||||
|
|
|
|
|
|
c) Short-Term Investments
Short-term investments consist of the following at June 30, 2019 and December 31, 2018.
June 30,
2019 |
December 31,
2018 |
|||||||
Certificates of deposit |
$ | 508 | $ | 56,519 | ||||
Zero-coupon commercial paper |
| 9,960 | ||||||
|
|
|
|
|||||
Total |
$ | 508 | $ | 66,479 | ||||
|
|
|
|
17
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
d) Limited Partnership Investments
The Company has interests in limited partnerships that are not registered or readily tradeable on a securities exchange. These partnerships are private equity funds managed by general partners who make decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships. The following table provides information related to the Companys investments in limited partnerships:
June 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
Investment Strategy |
Carrying
Value |
Unfunded
Balance |
(%) (a) |
Carrying
Value |
Unfunded
Balance |
(%) (a) | ||||||||||||||||||
Primarily in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. (b)(c)(e) |
$ | 10,088 | $ | 2,085 | 15.37 | $ | 10,169 | $ | 2,577 | 15.37 | ||||||||||||||
Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e) |
7,240 | | 1.76 | 9,219 | | 1.76 | ||||||||||||||||||
High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(f)(g) |
9,039 | 1,567 | 0.18 | 9,023 | 2,329 | 0.18 | ||||||||||||||||||
Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(h)(i) |
1,462 | 3,270 | 0.47 | 1,156 | 3,706 | 0.47 | ||||||||||||||||||
Value-oriented investments in mature real estate private equity funds and portfolio globally. (b)(j) |
2,961 | 7,630 | 2.24 | 2,726 | 7,692 | 3.28 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 30,790 | $ | 14,552 | $ | 32,293 | $ | 16,304 | ||||||||||||||||
|
|
|
|
|
|
|
|
(a) |
Represents the Companys percentage investment in the fund at each balance sheet date. |
(b) |
Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated. |
(c) |
Expected to have a ten-year term and the capital commitment is expected to expire on September 3, 2019. |
(d) |
Expected to have a three-year term from June 30, 2018. Although the capital commitment period already ended, the general partner could still request an additional funding of approximately $843 under certain circumstances. |
(e) |
At the fund managers discretion, the term of the fund may be extended for up to two additional one-year periods. |
(f) |
Expected to have a ten-year term and the capital commitment is expected to expire on June 30, 2020. |
(g) |
With the consent of a supermajority of partners, the term of the fund may be extended for up to three additional one-year periods. |
(h) |
Expected to have a six-year term from the commencement date, which can be extended for up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners. |
(i) |
Unless extended or terminated for reasons specified in the agreement, the capital commitment is expected to expire on December 1, 2019. |
(j) |
Expected to have an eight-year term after the final fund closing date, which has yet to be determined. |
18
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The following is the summary of aggregated unaudited financial information of limited partnerships included in the investment strategy table above, which in certain cases is presented on a three-month lag due to the unavailability of information at the Companys respective balance sheet dates. In applying the equity method of accounting, the Company uses the most recently available financial information provided by the general partner of each of these partnerships. The financial statements of these limited partnerships are audited annually.
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Operating results: |
||||||||||||||||
Total income |
$ | 338,414 | $ | 51,074 | $ | 247,901 | $ | 209,030 | ||||||||
Total expenses |
(32,140 | ) | (27,951 | ) | (81,173 | ) | (85,695 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 306,274 | $ | 23,123 | $ | 166,728 | $ | 123,335 | ||||||||
|
|
|
|
|
|
|
|
June 30,
2019 |
December 31,
2018 |
|||||||
Balance Sheet: |
||||||||
Total assets |
$ | 7,381,073 | $ | 6,689,792 | ||||
Total liabilities |
$ | 580,840 | $ | 394,029 |
For the three and six months ended June 30, 2019, the Company recognized net investment income of $1,043 and $832, respectively, for these investments. During the three and six months ended June 30, 2019, the Company received total cash distributions of $3,073 and $4,086, respectively. Cash distributions representing return on investment were $2,603 and $3,616 for the three and six months ended June 30, 2019, respectively.
For the three and six months ended June 30, 2018, the Company recognized net investment income of $247 and $852, respectively. During the three months ended June 30, 2018, the Company received total cash distributions of $595, representing $114 of returned capital and $481 of return on investment. During the six months ended June 30, 2018, the Company received total cash distributions of $723, representing $114 of returned capital and $609 of return on investment. At June 30, 2019 and December 31, 2018, the Companys cumulative contributed capital to the partnerships at each respective balance sheet date totaled $30,106 and $28,354, respectively, and the Companys maximum exposure to loss aggregated $30,790 and $32,293, respectively.
e) Investment in Unconsolidated Joint Venture
Melbourne FMA, LLC, a wholly owned subsidiary, currently has an equity investment in FMKT Mel JV, a Florida limited liability company treated as a joint venture under U.S. GAAP. At June 30, 2019 and December 31, 2018, the Companys maximum exposure to loss relating to the variable interest entity was $791 and $845, respectively, representing the carrying value of the investment. There was no cash distribution during the six months ended June 30, 2019 and 2018. At June 30, 2019 and December 31, 2018, there was no undistributed income from this equity method investment. The following tables provide FMJVs summarized unaudited financial results and the unaudited financial positions:
19
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Operating results: |
||||||||||||||||
Total revenues and gain |
$ | | $ | 438 | $ | 2 | $ | 438 | ||||||||
Total expenses |
(24 | ) | (14 | ) | (62 | ) | (71 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (loss) income |
$ | (24 | ) | $ | 424 | $ | (60 | ) | $ | 367 | ||||||
|
|
|
|
|
|
|
|
|||||||||
The Companys share of net (loss) income* |
$ | (21 | ) | $ | 381 | $ | (54 | ) | $ | 330 |
* |
Included in net investment income in the Companys consolidated statements of income. |
June 30,
2019 |
December 31,
2018 |
|||||||
Balance Sheet: |
||||||||
Property and equipment, net |
$ | 763 | $ | 787 | ||||
Cash |
124 | 149 | ||||||
Other |
| 5 | ||||||
|
|
|
|
|||||
Total assets |
$ | 887 | $ | 941 | ||||
|
|
|
|
|||||
Other liabilities |
$ | 9 | $ | 3 | ||||
Members capital |
878 | 938 | ||||||
|
|
|
|
|||||
Total liabilities and members capital |
$ | 887 | $ | 941 | ||||
|
|
|
|
|||||
Investment in unconsolidated joint venture, at equity** |
$ | 791 | $ | 845 |
** |
Includes the 90% share of FMKT Mel JVs operating results. |
f) Real Estate Investments
Real estate investments consist of the following as of June 30, 2019 and December 31, 2018.
June 30,
2019 |
December 31,
2018 |
|||||||
Land |
$ | 32,384 | $ | 23,884 | ||||
Land improvements |
10,249 | 8,717 | ||||||
Buildings |
19,207 | 19,201 | ||||||
Tenant and leasehold improvements |
1,379 | 1,261 | ||||||
Other |
4,602 | 5,266 | ||||||
|
|
|
|
|||||
Total, at cost |
67,821 | 58,329 | ||||||
Less: accumulated depreciation and amortization |
(4,593 | ) | (3,839 | ) | ||||
|
|
|
|
|||||
Real estate investments |
$ | 63,228 | $ | 54,490 | ||||
|
|
|
|
On February 27, 2019, the Company acquired approximately nine acres of undeveloped land located near its current headquarters in Tampa, Florida for a purchase price of $8,500, which was primarily financed by the Companys revolving credit facility. The transaction was accounted for as an asset acquisition. As such, all acquisition-related costs were capitalized.
20
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Depreciation and amortization expense related to real estate investments was $422 and $402 for the three months ended June 30, 2019 and 2018, respectively, and $754 and $796 for the six months ended June 30, 2019 and 2018, respectively.
g) Net Investment Income
Net investment income (loss), by source, is summarized as follows:
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Available-for-sale fixed-maturity securities |
$ | 1,622 | $ | 1,119 | $ | 3,157 | $ | 2,258 | ||||||||
Equity securities |
293 | 534 | 674 | 1,155 | ||||||||||||
Investment expense |
(106 | ) | (140 | ) | (235 | ) | (310 | ) | ||||||||
Limited partnership investments |
1,043 | 247 | 832 | 852 | ||||||||||||
Real estate investments |
(105 | ) | 14 | 201 | 217 | |||||||||||
Loss (income) from unconsolidated joint venture |
(21 | ) | 381 | (54 | ) | 330 | ||||||||||
Cash and cash equivalents |
1,495 | 818 | 2,571 | 1,642 | ||||||||||||
Short-term investments |
5 | 426 | 358 | 473 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net investment income |
$ | 4,226 | $ | 3,399 | $ | 7,504 | $ | 6,617 | ||||||||
|
|
|
|
|
|
|
|
Note 5 Comprehensive Income (Loss)
Comprehensive income (loss) includes net income and other comprehensive income or loss, which for the Company includes changes in unrealized gains or losses of investments carried at fair value and changes in the unrealized other-than-temporary impairment losses related to these investments. Reclassification adjustments for realized (gains) losses are reflected in net realized investment gains (losses) on the consolidated statements of income. The components of other comprehensive income or loss and the related tax effects allocated to each component were as follows:
Three Months Ended
June 30, 2019 |
Three Months Ended
June 30, 2018 |
|||||||||||||||||||||||
Income Tax | Income Tax | |||||||||||||||||||||||
Before
Tax |
Expense
(Benefit) |
Net of
Tax |
Before
Tax |
Expense
(Benefit) |
Net of
Tax |
|||||||||||||||||||
Unrealized gain (loss) arising during the period |
$ | 1,626 | $ | 413 | $ | 1,213 | $ | (65 | ) | $ | (16 | ) | $ | (49 | ) | |||||||||
Other-than-temporary impairment loss |
| | | 40 | 10 | 30 | ||||||||||||||||||
Call and repayment losses charged to investment income |
1 | | 1 | 3 | 1 | 2 | ||||||||||||||||||
Reclassification adjustment for realized losses |
| | | 35 | 8 | 27 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive gain (loss) |
$ | 1,627 | $ | 413 | $ | 1,214 | $ | 13 | $ | 3 | $ | 10 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
21
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Six Months Ended
June 30, 2019 |
Six Months Ended
June 30, 2018 |
|||||||||||||||||||||||
Income Tax | Income Tax | |||||||||||||||||||||||
Before
Tax |
Expense
(Benefit) |
Net of
Tax |
Before
Tax |
Expense
(Benefit) |
Net of
Tax |
|||||||||||||||||||
Unrealized gain (loss) arising during the period |
$ | 4,330 | $ | 1,098 | $ | 3,232 | $ | (2,693 | ) | $ | (682 | ) | $ | (2,011 | ) | |||||||||
Other-than-temporary impairment loss |
| | | 80 | 20 | 60 | ||||||||||||||||||
Call and repayment losses charged to investment income |
1 | | 1 | 4 | 1 | 3 | ||||||||||||||||||
Reclassification adjustment for realized losses |
(33 | ) | (8 | ) | (25 | ) | (661 | ) | (168 | ) | (493 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive gain (loss) |
$ | 4,298 | $ | 1,090 | $ | 3,208 | $ | (3,270 | ) | $ | (829 | ) | $ | (2,441 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Fair Value Measurements
The Company records and discloses certain financial assets at their estimated fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1 | | Unadjusted quoted prices in active markets for identical assets or liabilities. | ||
Level 2 | | Other inputs that are observable for the asset, either directly or indirectly such as quoted prices for identical assets that are not observable throughout the full term of the asset. | ||
Level 3 | | Inputs that are unobservable. |
Valuation Methodology
Cash and cash equivalents
Cash and cash equivalents primarily consist of money-market funds and certificates of deposit maturing within 90 days. Their carrying value approximates fair value due to the short maturity and high liquidity of these funds.
Short-term investments
Short-term investments consist of certificates of deposit and zero-coupon commercial paper with maturities of 91 to 365 days. Due to their short maturity, the carrying value approximates fair value.
Fixed-maturity and equity securities
Estimated fair values of the Companys fixed-maturity and equity securities are determined in accordance with U.S. GAAP, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not
22
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Companys own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.
The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers, which are level 2 inputs. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values.
Limited Partnership Investments
As described in Note 4 Investments under Limited Partnership Investments , the Company has interests in limited partnerships which are private equity funds. Pursuant to U.S. GAAP, these funds are required to use fair value accounting; therefore, the estimated fair value approximates the carrying value of these funds.
Revolving Credit Facility
The Companys revolving credit facility is a variable-rate loan. The interest rate is periodically adjusted based on the London Interbank Offered Rate plus a spread. As a result, its carrying value approximates fair value.
Long-term debt
The following table summarizes components of the Companys long-term debt and methods used in estimating their fair values:
Maturity
Date |
Valuation Methodology | |||
3.875% Convertible senior notes |
2019 | Quoted price | ||
4.25% Convertible senior notes |
2037 | Quoted price | ||
3.95% Promissory note |
2020 | Discounted cash flow method/Level 3 inputs | ||
4% Promissory note |
2031 | Discounted cash flow method/Level 3 inputs | ||
3.75% Callable promissory note |
2036 | Discounted cash flow method/Level 3 inputs | ||
4.55% Promissory note |
2036 | Discounted cash flow method/Level 3 inputs |
23
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Assets Measured at Estimated Fair Value on a Recurring Basis
The following table presents information about the Companys financial assets measured at estimated fair value on a recurring basis. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of June 30, 2019 and December 31, 2018:
Fair Value Measurements Using | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
As of June 30, 2019 |
||||||||||||||||
Financial Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 217,153 | $ | | $ | | $ | 217,153 | ||||||||
Restricted cash |
$ | 700 | $ | | $ | | $ | 700 | ||||||||
Short-term investments |
$ | 508 | | | 508 | |||||||||||
Fixed-maturity securities: |
||||||||||||||||
U.S. Treasury and U.S. government agencies |
$ | 25,151 | $ | 1,501 | $ | | $ | 26,652 | ||||||||
Corporate bonds |
164,273 | | | 164,273 | ||||||||||||
State, municipalities, and political subdivisions |
| 10,200 | | 10,200 | ||||||||||||
Exchange-traded debt |
8,667 | | | 8,667 | ||||||||||||
Redeemable preferred stock |
122 | | | 122 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total available-for-sale securities |
198,213 | 11,701 | | 209,914 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Equity securities |
$ | 29,861 | $ | | $ | | $ | 29,861 |
Fair Value Measurements Using | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
As of December 31, 2018 |
||||||||||||||||
Financial Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 239,458 | $ | | $ | | $ | 239,458 | ||||||||
Restricted cash |
$ | 700 | $ | | $ | | $ | 700 | ||||||||
Short-term investments |
$ | 66,479 | $ | | $ | | $ | 66,479 | ||||||||
Fixed-maturity securities: |
||||||||||||||||
U.S. Treasury and U.S. government agencies |
$ | 60,297 | $ | 1,500 | $ | | $ | 61,797 | ||||||||
Corporate bonds |
101,905 | | | 101,905 | ||||||||||||
State, municipalities, and political subdivisions |
| 10,662 | | 10,662 | ||||||||||||
Exchange-traded debt |
8,247 | | | 8,247 | ||||||||||||
Redeemable preferred stock |
112 | | | 112 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total available-for-sale securities |
$ | 170,561 | $ | 12,162 | $ | | $ | 182,723 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Equity securities |
$ | 41,143 | $ | | $ | | $ | 41,143 |
24
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Assets and Liabilities Carried at Other Than Estimated Fair Value
The following tables present fair value information for assets and liabilities that are carried on the balance sheet at amounts other than fair value as of June 30, 2019 and December 31, 2018:
Carrying
Value |
Fair Value Measurements Using |
Estimated
Fair Value |
||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||
As of June 30, 2019 |
||||||||||||||||||||
Financial Assets: |
||||||||||||||||||||
Limited partnership investments |
$ | 30,790 | $ | | $ | | $ | 30,790 | $ | 30,790 | ||||||||||
Financial Liabilities: |
||||||||||||||||||||
Revolving credit facility |
$ | 9,500 | $ | 9,500 | $ | | $ | | $ | 9,500 | ||||||||||
Long-term debt: |
||||||||||||||||||||
4.25% Convertible senior notes |
$ | 132,060 | $ | | $ | 141,953 | $ | | $ | 141,953 | ||||||||||
3.95% Promissory note |
8,977 | | | 9,013 | 9,013 | |||||||||||||||
4% Promissory note |
7,487 | | | 7,582 | 7,582 | |||||||||||||||
3.75% Callable promissory note |
8,000 | | | 7,788 | 7,788 | |||||||||||||||
4.55% Promissory note |
5,719 | | | 5,825 | 5,825 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total long-term debt |
$ | 162,243 | $ | | $ | 141,953 | $ | 30,208 | $ | 172,161 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Carrying
Value |
Fair Value Measurements Using |
Estimated
Fair Value |
||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||
As of December 31, 2018 |
||||||||||||||||||||
Financial Assets: |
||||||||||||||||||||
Limited partnership investments |
$ | 32,293 | $ | | $ | | $ | 32,293 | $ | 32,293 | ||||||||||
Financial Liabilities: |
||||||||||||||||||||
Long-term debt: |
||||||||||||||||||||
3.875% Convertible senior notes |
$ | 89,181 | $ | | $ | 89,824 | $ | | $ | 89,824 | ||||||||||
4.25% Convertible senior notes |
130,120 | | 145,617 | | 145,617 | |||||||||||||||
3.95% Promissory note |
9,077 | | | 9,128 | 9,128 | |||||||||||||||
4% Promissory note |
7,732 | | | 7,788 | 7,788 | |||||||||||||||
3.75% Callable promissory note |
8,159 | | | 8,001 | 8,001 | |||||||||||||||
4.55% Promissory note |
5,826 | | | 6,025 | 6,025 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total long-term debt |
$ | 250,095 | $ | | $ | 235,441 | $ | 30,942 | $ | 266,383 | ||||||||||
|
|
|
|
|
|
|
|
|
|
25
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 7 Other Assets
The following table summarizes the Companys other assets.
June 30,
2019 |
December 31,
2018 |
|||||||
Benefits receivable related to retrospective reinsurance contract |
$ | 4,440 | $ | 3,136 | ||||
Prepaid expenses |
2,361 | 2,069 | ||||||
Deposits |
1,431 | 1,413 | ||||||
Lease acquisition costs, net |
570 | 620 | ||||||
Right-of-use assets operating leases |
629 | | ||||||
Other |
3,303 | 1,766 | ||||||
|
|
|
|
|||||
Total other assets |
$ | 12,734 | $ | 9,004 | ||||
|
|
|
|
Note 8 Revolving Credit Facility
In February 2019, the Company borrowed $8,000 to fund the purchase of the undeveloped land as described in Note 4 Investments under Real Estate Investments . The Company incurred and capitalized $459 of issuance costs in other assets. During the second quarter of 2019, the Company borrowed an additional amount of $1,500 for general corporate purposes. For the three months ended June 30, 2019, interest expense was $127 including $40 of amortization of issuance costs. For the six months ended June 30, 2019, interest expense totaled $196, which included $79 of amortized issuance costs. At June 30, 2019, the Company was in compliance with all required covenants, and there were $9,500 of borrowings outstanding.
Note 9 Long-Term Debt
The following table summarizes the Companys long-term debt.
June 30,
2019 |
December 31,
2018 |
|||||||
3.875% Convertible senior notes, due March 15, 2019 |
$ | | $ | 89,990 | ||||
4.25% Convertible senior notes, due March 1, 2037 |
143,750 | 143,750 | ||||||
3.95% Promissory note, due through February 17, 2020 |
9,004 | 9,125 | ||||||
4% Promissory note, due through February 1, 2031 |
7,603 | 7,857 | ||||||
3.75% Callable promissory note, due through September 1, 2036 |
8,124 | 8,290 | ||||||
4.55% Promissory note, due through August 1, 2036 |
5,817 | 5,928 | ||||||
Finance lease liability, due through August 15, 2023 |
50 | 55 | ||||||
|
|
|
|
|||||
Total principal amount |
174,348 | 264,995 | ||||||
Less: unamortized discount and issuance costs |
(12,055 | ) | (14,845 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
$ | 162,293 | $ | 250,150 | ||||
|
|
|
|
26
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The following table summarizes future maturities of long-term debt as of June 30, 2019, which takes into consideration the assumption that the 4.25% Convertible Senior Notes are repurchased at the earliest call date.
Due in 12 months following June 30, 2019 |
$ | 10,107 | ||
2020 |
1,149 | |||
2021 |
144,946 | |||
2022 |
1,245 | |||
2023 |
1,287 | |||
Thereafter |
15,614 | |||
|
|
|||
Total |
$ | 174,348 | ||
|
|
Information with respect to interest expense related to long-term debt is as follows:
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Interest Expense: |
||||||||||||||||
Contractual interest |
$ | 1,837 | $ | 2,653 | $ | 4,394 | $ | 5,307 | ||||||||
Non-cash expense (a) |
999 | 1,852 | 2,789 | 3,668 | ||||||||||||
Capitalized interest (b) |
(79 | ) | | (158 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 2,757 | $ | 4,505 | $ | 7,025 | $ | 8,975 | |||||||||
|
|
|
|
|
|
|
|
(a) |
Includes amortization of debt discount and issuance costs. |
(b) |
Interest was capitalized for a construction project. |
Convertible Senior Notes
On March 15, 2019, the Company repaid the remaining principal balance of its 3.875% Convertible Notes totaling $89,990 plus accrued interest of $1,744. Prior to the repayment, the conversion rate of the 3.875% Convertible Notes was 16.4074 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $60.95 per share.
4.25% Convertible Notes . Since May 2018, the Companys cash dividends on common stock have exceeded $0.35 per share, resulting in adjustments to the conversion rate of the 4.25% Convertible Notes. Accordingly, as of June 30, 2019, the conversion rate of the Companys 4.25% Convertible Notes was 16.3280 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $61.24 per share.
As of June 30, 2019, the remaining amortization period of the debt discount for 4.25% Convertible Notes was expected to be 2.75 years.
Note 10 Reinsurance
The Company cedes a portion of its insurance exposure to other entities under catastrophe excess of loss reinsurance contracts and one quota share reinsurance agreement. The Company remains liable for claims payments in the event that any reinsurer is unable to meet its obligations under the reinsurance agreements. Failure of reinsurers to honor their obligations could result in losses to the
27
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company contracts with a number of reinsurers to secure its annual reinsurance coverage, which generally becomes effective June 1st each year. The Company purchases reinsurance each year taking into consideration probable maximum losses and reinsurance market conditions.
The impact of the reinsurance contracts on premiums written and earned is as follows:
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Premiums Written: |
||||||||||||||||
Direct |
$ | 133,441 | $ | 132,391 | $ | 201,053 | $ | 202,616 | ||||||||
Assumed |
| (19 | ) | (2 | ) | (97 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross written |
133,441 | 132,372 | 201,051 | 202,519 | ||||||||||||
Ceded |
(31,317 | ) | (32,954 | ) | (62,730 | ) | (65,204 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net premiums written |
$ | 102,124 | $ | 99,418 | $ | 138,321 | $ | 137,315 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Premiums Earned: |
||||||||||||||||
Direct |
$ | 83,315 | $ | 85,207 | $ | 165,914 | $ | 170,036 | ||||||||
Assumed |
| 712 | (2 | ) | 1,655 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross earned |
83,315 | 85,919 | 165,912 | 171,691 | ||||||||||||
Ceded |
(31,317 | ) | (32,954 | ) | (62,730 | ) | (65,204 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net premiums earned |
$ | 51,998 | $ | 52,965 | $ | 103,182 | $ | 106,487 | ||||||||
|
|
|
|
|
|
|
|
There were no ceded losses recognized during the three and six months ended June 30, 2019. During the three and six months ended June 30, 2018, ceded losses of $58,671 and $58,466, respectively, were recognized as a reduction in losses and losses adjustment expenses. At June 30, 2019 and December 31, 2018, there were 31 and 38 reinsurers, respectively, participating in the Companys reinsurance program. Total amounts recoverable and receivable from reinsurers at June 30, 2019 and December 31, 2018 were $78,080 and $123,911, respectively. Approximately 36.0% of the reinsurance recoverable balance at June 30, 2019 was concentrated in five reinsurers. Based on the insurance ratings, the payment history and the financial strength of the reinsurers, management believes there was no significant credit risk associated with its reinsurers obligations to perform on any prepaid reinsurance contract and to fund any reinsurance recoverable balance as of June 30, 2019.
One of the reinsurance contracts includes retrospective provisions that adjust premiums in the event losses are minimal or zero. For the three and six months ended June 30, 2019, the Company recognized reductions in premiums ceded of $1,226 and $1,738, respectively, related to these adjustments. In contrast, these adjustments were reflected in the consolidated statements of income as net increases in ceded premiums of $378 and $715 for the three and six months ended June 30, 2018, respectively, of which $400 and $448 related to the Companys contract with Oxbridge Reinsurance Limited, a related party, which was terminated effective June 1, 2018.
In addition, adjustments related to retrospective provisions are reflected in other assets. At June 30, 2019 and December 31, 2018, other assets included $4,440 and $3,136, respectively. Management believes the credit risk associated with the collectability of these accrued benefits is minimal as the amount receivable is concentrated with one reinsurer and the Company monitors the creditworthiness of this reinsurer based on available information about the reinsurers financial condition.
28
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 11 Losses and Loss Adjustment Expenses
The liability for losses and loss adjustment expenses is determined on an individual case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and losses incurred, but not reported.
The Company primarily writes insurance in the state of Florida, which could be exposed to hurricanes or other natural catastrophes. The occurrence of a major catastrophe could have a significant effect on the Companys quarterly results and cause a temporary disruption of the normal operations of the Company. However, the Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.
Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net balance, beginning of period* |
$ | 98,453 | $ | 91,403 | $ | 94,826 | $ | 97,818 | ||||||||
Incurred, net of reinsurance, related to: |
||||||||||||||||
Current period |
21,416 | 20,917 | 45,737 | 40,407 | ||||||||||||
Prior period |
2,877 | 886 | 5,552 | 1,051 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total incurred, net of reinsurance |
24,293 | 21,803 | 51,289 | 41,458 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Paid, net of reinsurance, related to: |
||||||||||||||||
Current period |
(13,778 | ) | (9,710 | ) | (17,708 | ) | (14,157 | ) | ||||||||
Prior period |
(13,623 | ) | (14,107 | ) | (33,062 | ) | (35,730 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total paid, net of reinsurance |
(27,401 | ) | (23,817 | ) | (50,770 | ) | (49,887 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net balance, end of period |
95,345 | 89,389 | 95,345 | 89,389 | ||||||||||||
Add: reinsurance recoverable |
58,897 | 82,998 | 58,897 | 82,998 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross balance, end of period |
$ | 154,242 | $ | 172,387 | $ | 154,242 | $ | 172,387 | ||||||||
|
|
|
|
|
|
|
|
* |
Net balance represents beginning-of-period liability for unpaid losses and loss adjustment expenses less beginning-of-period reinsurance recoverable for unpaid losses and loss adjustment expenses. |
The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as these estimates are subject to the outcome of future events. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such estimates are adjusted. During the three and six months ended June 30, 2019, the Company recognized losses related to prior periods of $2,877 and $5,552, respectively, which were primarily attributable to unfavorable development resulting from litigation. Included in adverse development for the three and six months ended June 30, 2019 were losses related to Hurricane Matthew of $242 and $1,052, respectively. Losses for the 2019 loss year included estimated losses of $5,250 related to one severe storm event during the first quarter.
29
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 12 Segment Information
The Company identifies its operating divisions based on organizational structure and revenue source. Currently, the Company has three reportable segments: insurance operations, real estate operations, and corporate and other. Due to their economic characteristics, the Companys property and casualty insurance division and reinsurance division are grouped together into one reportable segment under insurance operations. The real estate operations segment includes companies engaged in operating commercial properties the Company owns for investment purposes or for use in its own operations. The corporate and other segment represents the activities of the holding companies, the information technology division, and other companies that do not meet the quantitative and qualitative thresholds for a reportable segment. The determination of segments may change over time due to changes in operational emphasis, revenues, and results of operations. The Companys chief executive officer, who serves as the Companys chief operating decision maker, evaluates each divisions financial and operating performance based on revenue and operating income.
For the three months ended June 30, 2019 and 2018, revenues from the Companys insurance operations before intracompany elimination represented 95.2% and 95.6%, respectively, of total revenues of all operating segments. For the six months ended June 30, 2019 and 2018, revenues from the Companys insurance operations before intracompany elimination represented 94.9% and 95.2%, respectively, of total revenues of all operating segments. At June 30, 2019 and December 31, 2018, insurance operations total assets represented 84.6% and 85.9%, respectively, of the combined assets of all operating segments. The following tables present segment information reconciled to the Companys consolidated statements of income. Intersegment transactions are not eliminated from segment results. However, intracompany transactions are eliminated in segment results below.
30
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
For Three Months Ended June 30, 2019 |
Insurance
Operations |
Real
Estate(a) |
Corporate/
Other(b) |
Reclassification/
Elimination |
Consolidated | |||||||||||||||
Revenue: |
||||||||||||||||||||
Net premiums earned |
$ | 51,998 | $ | | $ | | $ | | $ | 51,998 | ||||||||||
Net investment income |
3,388 | | 1,096 | (258 | ) | 4,226 | ||||||||||||||
Net realized investment losses |
(132 | ) | | (1 | ) | | (133 | ) | ||||||||||||
Net unrealized investment gains |
1,108 | | 218 | | 1,326 | |||||||||||||||
Policy fee income |
800 | | | | 800 | |||||||||||||||
Other |
162 | 2,380 | 1,698 | (3,827 | ) | 413 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue |
57,324 | 2,380 | 3,011 | (4,085 | ) | 58,630 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Expenses: |
||||||||||||||||||||
Losses and loss adjustment expenses |
24,293 | | | | 24,293 | |||||||||||||||
Amortization of deferred policy acquisition costs |
8,770 | | | | 8,770 | |||||||||||||||
Interest expense |
| 382 | 2,632 | (130 | ) | 2,884 | ||||||||||||||
Depreciation and amortization |
26 | 668 | 262 | (572 | ) | 384 | ||||||||||||||
Other |
7,774 | 1,466 | 6,127 | (3,383 | ) | 11,984 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total expenses |
40,863 | 2,516 | 9,021 | (4,085 | ) | 48,315 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
$ | 16,461 | $ | (136 | ) | $ | (6,010 | ) | $ | | $ | 10,315 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue from non-affiliates(c) |
$ | 57,324 | $ | 1,974 | $ | 2,562 |
(a) |
Other revenue under real estate primarily consisted of rental income from investment properties. |
(b) |
Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses. |
(c) |
Represents amounts before reclassification to conform with an insurance companys presentation. |
31
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
For Three Months Ended June 30, 2018 |
Insurance
Operations |
Real
Estate(a) |
Corporate/
Other(b) |
Reclassification/
Elimination |
Consolidated | |||||||||||||||
Revenue: |
||||||||||||||||||||
Net premiums earned |
$ | 52,965 | $ | | $ | | $ | | $ | 52,965 | ||||||||||
Net investment income |
2,386 | | 737 | 276 | 3,399 | |||||||||||||||
Net realized investment gains |
1,550 | | 1,112 | | 2,662 | |||||||||||||||
Net unrealized investment losses |
(1,096 | ) | | (461 | ) | | (1,557 | ) | ||||||||||||
Net other-than-temporary impairment losses |
| | (40 | ) | | (40 | ) | |||||||||||||
Policy fee income |
855 | | | | 855 | |||||||||||||||
Other |
173 | 2,345 | 1,456 | (3,445 | ) | 529 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue |
56,833 | 2,345 | 2,804 | (3,169 | ) | 58,813 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Expenses: |
||||||||||||||||||||
Losses and loss adjustment expenses |
21,803 | | | | 21,803 | |||||||||||||||
Amortization of deferred policy acquisition costs |
8,696 | | | | 8,696 | |||||||||||||||
Interest expense |
| 391 | 4,233 | (119 | ) | 4,505 | ||||||||||||||
Depreciation and amortization |
32 | 606 | 250 | (553 | ) | 335 | ||||||||||||||
Other |
7,643 | 915 | 5,893 | (2,497 | ) | 11,954 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total expenses |
38,174 | 1,912 | 10,376 | (3,169 | ) | 47,293 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
$ | 18,659 | $ | 433 | $ | (7,572 | ) | $ | | $ | 11,520 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue from non-affiliates(c) |
$ | 56,833 | $ | 1,963 | $ | 2,519 |
(a) |
Other revenue under real estate primarily consisted of rental income from investment properties. |
(b) |
Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses. |
(c) |
Represents amounts before reclassification to conform with an insurance companys presentation. |
32
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
For Six Months Ended June 30, 2019 |
Insurance
Operations |
Real
Estate(a) |
Corporate/
Other(b) |
Reclassification/
Elimination |
Consolidated | |||||||||||||||
Revenue: |
||||||||||||||||||||
Net premiums earned |
$ | 103,182 | $ | | $ | | $ | | $ | 103,182 | ||||||||||
Net investment income |
6,016 | | 1,603 | (115 | ) | 7,504 | ||||||||||||||
Net realized investment gains (losses) |
66 | | (571 | ) | | (505 | ) | |||||||||||||
Net unrealized investment gains |
5,418 | | 1,201 | | 6,619 | |||||||||||||||
Policy fee income |
1,595 | | | | 1,595 | |||||||||||||||
Other |
338 | 4,692 | 3,249 | (7,410 | ) | 869 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue |
116,615 | 4,692 | 5,482 | (7,525 | ) | 119,264 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Expenses: |
||||||||||||||||||||
Losses and loss adjustment expenses |
51,289 | | | | 51,289 | |||||||||||||||
Amortization of deferred policy acquisition costs |
17,426 | | | | 17,426 | |||||||||||||||
Interest expense |
1 | 765 | 6,715 | (260 | ) | 7,221 | ||||||||||||||
Depreciation and amortization |
53 | 1,251 | 530 | (1,056 | ) | 778 | ||||||||||||||
Other |
14,864 | 2,574 | 11,723 | (6,209 | ) | 22,952 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total expenses |
83,633 | 4,590 | 18,968 | (7,525 | ) | 99,666 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
$ | 32,982 | $ | 102 | $ | (13,486 | ) | $ | | $ | 19,598 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue from non-affiliates(c) |
$ | 116,615 | $ | 3,877 | $ | 4,622 |
(a) |
Other revenue under real estate primarily consisted of rental income from investment properties. |
(b) |
Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses. |
(c) |
Represents amounts before reclassification to conform with an insurance companys presentation. |
33
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
For Six Months Ended June 30, 2018 |
Insurance
Operations |
Real
Estate(a) |
Corporate/
Other(b) |
Reclassification/
Elimination |
Consolidated | |||||||||||||||
Revenue: |
||||||||||||||||||||
Net premiums earned |
$ | 106,487 | $ | | $ | | $ | | $ | 106,487 | ||||||||||
Net investment income |
4,743 | 1 | 1,564 | 309 | 6,617 | |||||||||||||||
Net realized investment gains |
3,755 | | 1,139 | | 4,894 | |||||||||||||||
Net unrealized investment losses |
(3,507 | ) | | (650 | ) | | (4,157 | ) | ||||||||||||
Net other-than-temporary impairment losses |
| | (80 | ) | | (80 | ) | |||||||||||||
Policy fee income |
1,720 | | | | 1,720 | |||||||||||||||
Other |
372 | 4,647 | 2,734 | (6,682 | ) | 1,071 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue |
113,570 | 4,648 | 4,707 | (6,373 | ) | 116,552 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Expenses: |
||||||||||||||||||||
Losses and loss adjustment expenses |
41,458 | | | | 41,458 | |||||||||||||||
Amortization of deferred policy acquisition costs |
17,510 | | | | 17,510 | |||||||||||||||
Interest expense |
| 783 | 8,430 | (238 | ) | 8,975 | ||||||||||||||
Depreciation and amortization |
66 | 1,196 | 509 | (1,098 | ) | 673 | ||||||||||||||
Other |
13,948 | 2,036 | 10,665 | (5,037 | ) | 21,612 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total expenses |
72,982 | 4,015 | 19,604 | (6,373 | ) | 90,228 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
$ | 40,588 | $ | 633 | $ | (14,897 | ) | $ | | $ | 26,324 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue from non-affiliates(c) |
$ | 113,570 | $ | 3,883 | $ | 4,139 |
(a) |
Other revenue under real estate primarily consisted of rental income from investment properties. |
(b) |
Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses. |
(c) |
Represents amounts before reclassification to conform with an insurance companys presentation. |
34
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The following table presents segment assets reconciled to the Companys total assets in the consolidated balance sheets.
June 30,
2019 |
December 31,
2018 |
|||||||
Segment: |
||||||||
Insurance Operations |
$ | 607,135 | $ | 615,983 | ||||
Real Estate Operations |
92,938 | 83,828 | ||||||
Corporate and Other |
67,969 | 146,651 | ||||||
Consolidation and Elimination |
(15,902 | ) | (13,599 | ) | ||||
|
|
|
|
|||||
Total assets |
$ | 752,140 | $ | 832,863 | ||||
|
|
|
|
Note 13 Leases
At June 30, 2019, the Company had operating leases ROU assets and corresponding liabilities of $629 and $672, respectively. In addition, the Company had one finance lease with a ROU asset of $61 and a corresponding lease liability of $50 at June 30, 2019. The following table summarizes the Companys operating and finance leases in which the Company is a lessee:
Class of Assets |
Initial Term | Renewal Option |
Other Terms and
Conditions |
|||||||||
Operating lease: |
||||||||||||
Office equipment |
1 to 63 months | Yes | (a), (b) | |||||||||
Storage units |
2 years | Yes | (b) | |||||||||
Office space |
3 to 10 years | Yes | (b), (c) | |||||||||
Finance lease: |
||||||||||||
Office equipment |
5 years | Not applicable | (d) |
(a) |
At the end of the lease term, the Company can purchase the equipment at fair market value. |
(b) |
There are no variable lease payments. |
(c) |
Rent escalation provisions exist. |
(d) |
There is a bargain purchase option. |
As of June 30, 2019, maturities of lease liabilities were as follows:
Leases | ||||||||
Operating | Finance | |||||||
Due in 12 months following June 30, |
||||||||
2019 |
$ | 336 | $ | 13 | ||||
2020 |
289 | 13 | ||||||
2021 |
93 | 13 | ||||||
2022 |
| 12 | ||||||
2023 |
| 3 | ||||||
|
|
|
|
|||||
Total lease payments |
718 | 54 | ||||||
Less: interest and foreign taxes |
46 | 4 | ||||||
|
|
|
|
|||||
Total lease obligations |
$ | 672 | $ | 50 | ||||
|
|
|
|
35
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The following table provides quantitative information with regard to the Companys operating and finance leases.
Three Months Ended | Six Months Ended | |||||||
June 30, 2019 | June 30, 2019 | |||||||
Lease costs: |
||||||||
Finance lease costs: |
||||||||
Amortization ROU assets* |
$ | 3 | $ | 6 | ||||
Interest expense |
| 1 | ||||||
Operating lease costs* |
73 | 154 | ||||||
Short-term lease costs* |
59 | 104 | ||||||
|
|
|
|
|||||
Total lease costs |
$ | 135 | $ | 265 | ||||
|
|
|
|
|||||
Cash paid for amounts included in the measurement of lease liabilities: |
||||||||
Operating cash flows finance leases |
$ | | $ | 1 | ||||
Operating cash flows operating leases |
$ | 81 | $ | 159 | ||||
Financing cash flows finance leases |
$ | 3 | $ | 5 | ||||
June 30, 2019 | ||||||||
Weighted-average remaining lease term: |
||||||||
Finance leases (in years) |
3.1 | |||||||
Operating leases (in years) |
2.2 | |||||||
Weighted-average discount rate: |
||||||||
Finance leases |
3.8 | % | ||||||
Operating leases |
4.0 | % |
* |
Included in other operating expenses of the consolidated statement of income. |
The following table summarizes the Companys operating leases in which the Company is a lessor:
Class of Assets |
Initial Term |
Renewal
Option |
Other Terms and
Conditions |
|||||||||
Operating lease: |
||||||||||||
Office space |
1 to 3 years | Yes | (e) | |||||||||
Retail space |
3 to 20 years | Yes | (e) | |||||||||
Boat docks/wet slips |
1 to 12 months | Yes | (e) |
(e) |
There are no purchase options. |
36
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 14 Income Taxes
During the three months ended June 30, 2019 and 2018, the Company recorded approximately $2,762 and $5,117 respectively, of income taxes, which resulted in effective tax rates of 26.8% and 44.4%, respectively. The decrease in the effective tax rate was primarily attributable to the derecognition of deferred tax assets of $1,620 for restricted stock awards with market-based vesting conditions that would not vest and the disallowance of the deductibility of the $1,727 expense representing dividends cumulatively paid on such restricted stock awards, both of which occurred in the second quarter of 2018 (see Restricted Stock Awards in Note 17 Stock-Based Compensation). During the six months ended June 30, 2019 and 2018, the Company recorded approximately $5,307 and $9,130, respectively, of income taxes, which resulted in effective tax rates of 27.1% and 34.7%, respectively. The decrease in the effective tax rate in 2019 as compared with the corresponding period in the prior year was primarily attributable to the negative effect of the aforementioned derecognition of deferred tax assets and the nondeductible expense related to reclassified dividends. The Companys estimated annual effective tax rate differs from the statutory federal tax rate due to state and foreign income taxes as well as certain nondeductible and tax-exempt items.
Note 15 Earnings Per Share
U.S. GAAP requires the Company to use the two-class method in computing basic earnings per share since holders of the Companys restricted stock have the right to share in dividends, if declared, equally with common stockholders. These participating securities affect the computation of both basic and diluted earnings per share during periods of net income or loss.
A summary of the numerator and denominator of the basic and diluted earnings per common share is presented below.
Three Months Ended
June 30, 2019 |
Three Months Ended
June 30, 2018 |
|||||||||||||||||||||||
Income
(Numerator) |
Shares
(Denominator) |
Per Share
Amount |
Income
(Numerator) |
Shares
(Denominator) |
Per Share
Amount |
|||||||||||||||||||
Net income |
$ | 7,553 | $ | 6,403 | ||||||||||||||||||||
Less: (Income) loss attributable to participating securities* |
(405 | ) | 1,202 | |||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Basic Earnings Per Share: |
||||||||||||||||||||||||
Income allocated to common stockholders |
7,148 | 7,666 | $ | 0.93 | 7,605 | 7,923 | $ | 0.96 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Effect of Dilutive Securities: |
||||||||||||||||||||||||
Stock options |
| 15 | | 17 | ||||||||||||||||||||
Convertible senior notes |
1,871 | 2,346 | 3,160 | 3,803 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Diluted Earnings Per Share: |
||||||||||||||||||||||||
Income available to common stockholders and assumed conversions |
$ | 9,019 | 10,027 | $ | 0.90 | $ | 10,765 | 11,743 | $ | 0.92 | ||||||||||||||
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37
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Six Months Ended
June 30, 2019 |
Six Months Ended
June 30, 2018 |
|||||||||||||||||||||||
Income
(Numerator) |
Shares
(Denominator) |
Per Share
Amount |
Income
(Numerator) |
Shares
(Denominator) |
Per Share
Amount |
|||||||||||||||||||
Net income |
$ | 14,291 | $ | 17,194 | ||||||||||||||||||||
Less: (Income) loss attributable to participating securities* |
(821 | ) | 501 | |||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Basic Earnings Per Share: |
||||||||||||||||||||||||
Income allocated to common stockholders |
13,470 | 7,701 | $ | 1.75 | 17,695 | 8,002 | $ | 2.21 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Effect of Dilutive Securities: |
||||||||||||||||||||||||
Stock options |
| 16 | | 17 | ||||||||||||||||||||
Convertible senior notes |
4,868 | 2,947 | 6,294 | 3,801 | ||||||||||||||||||||
|
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|
|
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|
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|
|||||||||||||||||
Diluted Earnings Per Share: |
||||||||||||||||||||||||
Income available to common stockholders and assumed conversions |
$ | 18,338 | 10,664 | $ | 1.72 | $ | 23,989 | 11,820 | $ | 2.03 | ||||||||||||||
|
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|
* |
Loss attributable to participating securities for the three and six months ended June 30, 2018 included the reclassification of cumulative dividends paid on certain restricted stock with market-based vesting conditions from retained income to expense. See Restricted Stock Awards in Note 17 Stock-Based Compensation for additional information. |
Note 16 Stockholders Equity
Common Stock
In December 2018, the Companys Board of Directors authorized a plan to repurchase up to $20,000 of the Companys common shares before commissions and fees. During the three months ended June 30, 2019, the Company repurchased and retired a total of 160,787 shares at a weighted average price per share of $41.44 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended June 30, 2019 was $6,668 or $41.47 per share. During the six months ended June 30, 2019, the Company repurchased and retired a total of 192,576 shares at a weighted average price per share of $41.54 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the six months ended June 30, 2019 was $8,006, or $41.57 per share.
In December 2017, the Companys Board of Directors authorized a plan to repurchase up to $20,000 of the Companys common shares before commissions and fees. During the three months ended June 30, 2018, the Company repurchased and retired a total of 174,951 shares at a weighted average price per share of $40.97 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended June 30, 2018 was $7,174, or $41.00 per share. During the six months ended June 30, 2018, the Company repurchased and retired a total of 359,522 shares at a weighted average price per share of $38.11. The total cost of shares repurchased, inclusive of fees and commissions, during the six months ended June 30, 2018 was $13,711, or $38.14 per share.
38
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
On April 8, 2019, the Companys Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends were paid on June 21, 2019 to stockholders of record on May 17, 2019.
Note 17 Stock-Based Compensation
Incentive Plans
The Company currently has outstanding stock-based awards granted under the 2007 Stock Option and Incentive Plan and the 2012 Omnibus Incentive Plan. Only the 2012 Plan is active and available for future grants. At June 30, 2019, there were 1,738,164 shares available for grant.
Stock Options
Stock options granted and outstanding under the incentive plans vest over periods ranging from immediately vested to five years and are exercisable over the contractual term of ten years.
A summary of the stock option activity for the three and six months ended June 30, 2019 and 2018 is as follows (option amounts not in thousands):
Number of
Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term |
Aggregate
Intrinsic Value |
|||||||||||
Outstanding at January 1, 2019 |
240,000 | $ | 37.19 | 8.8 years | $ | 3,278 | ||||||||
Granted |
110,000 | $ | 53.00 | |||||||||||
|
|
|||||||||||||
Outstanding at March 31, 2019 |
350,000 | $ | 42.16 | 8.5 years | $ | 1,329 | ||||||||
|
|
|||||||||||||
Exercised |
10,000 | $ | 6.30 | |||||||||||
|
|
|||||||||||||
Outstanding at June 30, 2019 |
340,000 | $ | 43.21 | 8.4 years | $ | 445 | ||||||||
|
|
|||||||||||||
Exercisable at June 30, 2019 |
92,500 | $ | 36.36 | 7.3 years | $ | 380 | ||||||||
|
|
|||||||||||||
Outstanding at January 1, 2018 |
130,000 | $ | 34.82 | 8.2 years | $ | 472 | ||||||||
Granted |
110,000 | $ | 40.00 | |||||||||||
|
|
|||||||||||||
Outstanding at March 31, 2018 |
240,000 | $ | 37.19 | 8.8 years | $ | 637 | ||||||||
|
|
|||||||||||||
Outstanding at June 30, 2018 |
240,000 | $ | 37.19 | 8.6 years | $ | 749 | ||||||||
|
|
|||||||||||||
Exercisable at June 30, 2018 |
47,500 | $ | 25.81 | 6.3 years | $ | 749 | ||||||||
|
|
There were 10,000 options exercised during the three and six months ended June 30, 2019. Tax benefits realized for the exercise of common stock options totaled $88 for the three and six months ended June 30, 2019. For the three months ended June 30, 2019 and 2018, the Company recognized $200 and $136, respectively, of compensation expense which was included in general and administrative personnel expenses. For the six months ended June 30, 2019 and 2018, the Company recognized $425 and $246, respectively, of compensation expense. Deferred tax benefits related to stock options were $20 for each of the three months ended June 30, 2019 and 2018, and $39 for each of the six months ended June 30, 2019 and 2018. At June 30, 2019 and December 31, 2018, there was $2,280 and $1,359, respectively, of unrecognized compensation expense related to nonvested stock options. The Company expects to recognize the remaining compensation expense over a weighted-average period of 2.9 years.
39
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The following table provides assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the stock options granted during the six months ended June 30, 2019 and 2018:
2019 | 2018 | |||||||
Expected dividend yield |
3.34 | % | 4.00 | % | ||||
Expected volatility |
40.17 | % | 42.22 | % | ||||
Risk-free interest rate |
2.53 | % | 2.57 | % | ||||
Expected life (in years) |
5 | 5 |
Restricted Stock Awards
From time to time, the Company has granted and may grant restricted stock awards to its executive officers, other employees and nonemployee directors in connection with their service to the Company. The terms of the Companys outstanding restricted stock grants may include service, performance and market-based conditions. The fair value of the awards with market-based conditions is determined using a Monte Carlo simulation method, which calculates many potential outcomes for an award and then establishes fair value based on the most likely outcome. The determination of fair value with respect to the awards containing only performance or service-based conditions is based on the market value of the Companys common stock on the grant date.
Information with respect to the activity of unvested restricted stock awards during the three and six months ended June 30, 2019 and 2018 is as follows:
Number of
Restricted Stock Awards |
Weighted
Average Grant Date Fair Value |
|||||||
Nonvested at January 1, 2019 |
632,296 | $ | 33.33 | |||||
Granted |
40,000 | $ | 47.94 | |||||
Vested |
(21,250 | ) | $ | 37.69 | ||||
Forfeited |
(4,681 | ) | $ | 42.79 | ||||
|
|
|||||||
Nonvested at March 31, 2019 |
646,365 | $ | 34.03 | |||||
|
|
|||||||
Granted |
133,160 | $ | 41.30 | |||||
Vested |
(84,914 | ) | $ | 41.58 | ||||
Forfeited |
(264,211 | ) | $ | 23.81 | ||||
|
|
|||||||
Nonvested at June 30, 2019 |
430,400 | $ | 41.06 | |||||
|
|
|||||||
Nonvested at January 1, 2018 |
597,690 | $ | 32.82 | |||||
Granted |
40,000 | $ | 34.92 | |||||
Vested |
(28,643 | ) | $ | 45.17 | ||||
Forfeited |
(17,905 | ) | $ | 38.55 | ||||
|
|
|||||||
Nonvested at March 31, 2018 |
591,142 | $ | 31.53 | |||||
|
|
|||||||
Granted |
143,360 | $ | 43.83 | |||||
Vested |
(59,974 | ) | $ | 40.09 | ||||
Forfeited |
(27,115 | ) | $ | 32.76 | ||||
|
|
|||||||
Nonvested at June 30, 2018 |
647,413 | $ | 33.41 | |||||
|
|
The Company recognized compensation expense related to restricted stock, which is included
40
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
in general and administrative personnel expenses, of $1,269 and $897 for the three months ended June 30, 2019 and 2018, respectively, and $2,523 and $1,659 for the six months ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, there was approximately $15,712 and $11,199, respectively, of total unrecognized compensation expense related to nonvested restricted stock arrangements. The Company expects to recognize the remaining compensation expense over a weighted-average period of 2.9 years. The following table summarizes information about deferred tax benefits recognized and tax benefits realized related to restricted stock awards and paid dividends, and the fair value of vested restricted stock for the three and six months ended June 30, 2019 and 2018.
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Deferred tax benefits recognized |
$ | 244 | $ | 180 | $ | 490 | $ | 336 | ||||||||
Tax benefits realized for restricted stock and paid dividends |
$ | 924 | $ | 652 | $ | 985 | $ | 848 | ||||||||
Fair value of vested restricted stock |
$ | 3,530 | $ | 2,404 | $ | 4,331 | $ | 3,698 |
In May 2019, 260,000 shares of the Companys restricted stock awards granted to employee and nonemployee directors were forfeited for not meeting their market-based vesting conditions. For the same reason, the Company expects another 24,000 shares of restricted stock awards with similar vesting conditions to be forfeited in November 2019. Any dividend payment associated with these awards was expensed when declared. As a result, for the three months ended June 30, 2019, the Company recognized dividends of $113 related to these awards in general and administrative personnel expenses for $85 and in other operating expenses for $28. For the six months ended June 30, 2019, the Company recognized dividends of $227 in general and administrative personnel expenses for $170 and in other operating expenses for $57. In May 2018, the Company reclassified from retained income dividends of $1,727 cumulatively paid on unvested restricted stock awards with market-based vesting conditions to general and administrative personnel expenses for $1,346 and to other operating expenses for $381.
Note 18 Commitments and Contingencies
Obligations under Multi-Year Reinsurance Contract
As of June 30, 2019, the Company has a contractual obligation related to one multi-year reinsurance contract. This contract may be cancelled only with the other partys consent. The table below presents the future minimum aggregate premium amounts payable to the reinsurer.
Due in 12 months following June 30, 2019* |
$ | 3,759 |
* |
Premiums payable after September 30, 2019 are estimated. |
Capital Commitment
As described in Note 4 Investments under Limited Partnership Investments , the Company is contractually committed to capital contributions for four limited partnership interests. At June 30, 2019, there was an aggregate unfunded balance of $14,552.
41
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
On July 2, 2019, the Companys Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on September 20, 2019 to stockholders of record on August 16, 2019.
42
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion under this Item 2 in conjunction with our consolidated financial statements and related notes and information included elsewhere in this quarterly report on Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission (SEC) on March 8, 2019. Unless the context requires otherwise, as used in this Form 10-Q, the terms HCI, we, us, our, the Company, our company, and similar references refer to HCI Group, Inc., a Florida corporation incorporated in 2006, and its subsidiaries. All dollar amounts in this Managements Discussion and Analysis of Financial Condition and Results of Operations are in whole dollars unless specified otherwise.
Forward-Looking Statements
In addition to historical information, this quarterly report contains forward-looking statements as defined under federal securities laws. Such statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. Typically, forward-looking statements can be identified by terminology such as anticipate, estimate, plan, project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar expressions. The important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effects of governmental regulation; changes in insurance regulations; the frequency and extent of claims; uncertainties inherent in reserve estimates; catastrophic events; changes in the demand for, pricing of, availability of or collectability of reinsurance; restrictions on our ability to change premium rates; increased rate pressure on premiums; and other risks and uncertainties detailed herein and from time to time in our SEC reports.
OVERVIEW General
HCI Group, Inc. is a Florida-based company that, through its subsidiaries, is engaged in property and casualty insurance, reinsurance, real estate and information technology. Based on our organizational structure, revenue sources, and evaluation of financial and operating performances by management, we manage the following operations:
a) |
Insurance Operations |
|
Property and casualty insurance |
|
Reinsurance |
b) |
Real Estate Operations |
c) |
Other Operations |
|
Information technology |
|
Other auxiliary operations |
43
For the three months ended June 30, 2019 and 2018, revenues from insurance operations before intracompany elimination represented 95.2% and 95.6%, respectively, of total revenues of all operating segments. For the six months ended June 30, 2019 and 2018, revenues from insurance operations before intracompany elimination represented 94.9% and 95.2%, respectively, of total revenues of all operating segments. At June 30, 2019 and December 31, 2018, insurance operations total assets represented 84.6% and 85.9%, respectively, of the combined assets of all operating segments. See Note 12 Segment Information to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.
Insurance Operations
Property and Casualty Insurance
Our insurance business is operated through two insurance subsidiaries: Homeowners Choice Property & Casualty Insurance Company, Inc. (HCPCI), our principal operating subsidiary, and TypTap Insurance Company (TypTap). We provide various forms of residential insurance products such as homeowners insurance, fire insurance, flood insurance and wind-only insurance. We are authorized to write residential property and casualty insurance in the states of Arkansas, California, Florida, Maryland, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina and Texas. Currently, Florida is our primary market.
Since the beginning of 2019, TypTap business has expanded rapidly. We expect this expansion to continue and contribute to our future growth.
Reinsurance
We have a Bermuda domiciled wholly-owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd. We selectively retain risk in Claddaugh, reducing the cost of third party reinsurance. Claddaugh fully collateralizes its exposure to our insurance subsidiaries by depositing funds into a trust account. Claddaugh may mitigate a portion of its risk through retrocession contracts. Currently, Claddaugh does not provide reinsurance to non-affiliates.
Real Estate Operations
Our real estate operations consist of properties we own and use for our own operations and multiple properties we own and operate for investment purposes. Properties used in operations consist of our Tampa headquarters building and a secondary insurance operations site in Ocala, Florida. Our investment properties include one full-service restaurant, retail shopping centers, one office building, two marinas, and undeveloped land near our headquarters in Tampa, Florida which we acquired in February 2019. See Note 4 Investments under Real Estate Investments to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.
44
Other Operations
Information Technology
Our information technology operations include a team of experienced software developers with extensive knowledge in developing web-based products and applications for mobile devices. The operations, which are in Tampa, Florida and Noida, India, are focused on developing cloud-based, innovative products or services that support in-house operations as well as our third party relationships with our agency partners and claim vendors. These products include TypTap TM , SAMS TM , Harmony , CasaClue TM , Exzeo ® , and Atlas Viewer TM .
Recent Events
On July 2, 2019, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on September 20, 2019 to stockholders of record on August 16, 2019.
45
RESULTS OF OPERATIONS
The following table summarizes our results of operations for the three and six months ended June 30, 2019 and 2018 (dollar amounts in thousands, except per share amounts):
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Operating Revenue |
||||||||||||||||
Gross premiums earned |
$ | 83,315 | $ | 85,919 | $ | 165,912 | $ | 171,691 | ||||||||
Premiums ceded |
(31,317 | ) | (32,954 | ) | (62,730 | ) | (65,204 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net premiums earned |
51,998 | 52,965 | 103,182 | 106,487 | ||||||||||||
Net investment income |
4,226 | 3,399 | 7,504 | 6,617 | ||||||||||||
Net realized investment (losses) gains |
(133 | ) | 2,662 | (505 | ) | 4,894 | ||||||||||
Net unrealized investment gains (losses) |
1,326 | (1,557 | ) | 6,619 | (4,157 | ) | ||||||||||
Net other-than-temporary impairment losses |
| (40 | ) | | (80 | ) | ||||||||||
Policy fee income |
800 | 855 | 1,595 | 1,720 | ||||||||||||
Other income |
413 | 529 | 869 | 1,071 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating revenue |
58,630 | 58,813 | 119,264 | 116,552 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating Expenses |
||||||||||||||||
Losses and loss adjustment expenses |
24,293 | 21,803 | 51,289 | 41,458 | ||||||||||||
Policy acquisition and other underwriting expenses |
10,077 | 9,959 | 19,750 | 19,319 | ||||||||||||
General and administrative personnel expenses |
7,998 | 7,840 | 15,362 | 14,123 | ||||||||||||
Interest expense |
2,884 | 4,505 | 7,221 | 8,975 | ||||||||||||
Other operating expenses |
3,063 | 3,186 | 6,044 | 6,353 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
48,315 | 47,293 | 99,666 | 90,228 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
10,315 | 11,520 | 19,598 | 26,324 | ||||||||||||
Income tax expense |
2,762 | 5,117 | 5,307 | 9,130 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 7,553 | $ | 6,403 | $ | 14,291 | $ | 17,194 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ratios to Net Premiums Earned: |
||||||||||||||||
Loss Ratio |
46.72 | % | 41.16 | % | 49.71 | % | 38.93 | % | ||||||||
Expense Ratio |
46.20 | % | 48.13 | % | 46.88 | % | 45.80 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Combined Ratio |
92.92 | % | 89.29 | % | 96.59 | % | 84.73 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ratios to Gross Premiums Earned: |
||||||||||||||||
Loss Ratio |
29.16 | % | 25.38 | % | 30.91 | % | 24.15 | % | ||||||||
Expense Ratio |
28.83 | % | 29.66 | % | 29.16 | % | 28.40 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Combined Ratio |
57.99 | % | 55.04 | % | 60.07 | % | 52.55 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings Per Share Data: |
||||||||||||||||
Basic |
$ | 0.93 | $ | 0.96 | $ | 1.75 | $ | 2.21 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.90 | $ | 0.92 | $ | 1.72 | $ | 2.03 | ||||||||
|
|
|
|
|
|
|
|
46
Comparison of the Three Months ended June 30, 2019 to the Three Months ended June 30, 2018
Our results of operations for the three months ended June 30, 2019 reflect income available to common stockholders of approximately $7,553,000, or $0.90 earnings per diluted common share, compared with approximately $6,403,000, or $0.92 earnings per diluted common share, for the three months ended June 30, 2018. The quarter-over-quarter increase in net income was primarily due to a decrease in income tax expense of approximately $2,355,000, a $1,621,000 decrease in interest expense, and a net increase in income from our investment portfolio of $955,000, offset by a $967,000 decrease in net premiums earned and an increase in losses and loss adjustment expenses of $2,490,000. Our income tax expense in 2018 was negatively impacted by the derecognition of deferred tax assets and the nondeductible expense associated with reclassified dividends as described in Note 14 Income Taxes to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
Revenue
Gross Premiums Earned for the three months ended June 30, 2019 and 2018 were approximately $83,315,000 and $85,919,000, respectively. The $2,604,000 decrease in 2019 was primarily attributable to a net decrease in policies in force.
Premiums Ceded for the three months ended June 30, 2019 and 2018 were approximately $31,317,000 and $32,954,000, respectively, representing 37.6% and 38.4%, respectively, of gross premiums earned. The $1,637,000 decrease was primarily attributable to a reduction in premiums ceded attributable to retrospective provisions under one reinsurance contract as opposed to a net increase in premiums ceded in the corresponding period in 2018. The decrease was offset in part by an increase in premiums ceded attributable to a lower retention level effective June 1, 2018. In addition, we incurred additional premiums ceded of approximately $1,222,000 resulting from the termination of our contract with Oxbridge Reinsurance Limited, a related party, during the second quarter of 2018.
Our premiums ceded represent costs of reinsurance to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance contracts or to assume a proportional share of losses as defined in a quota share agreement. The rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned. For the three months ended June 30, 2019, premiums ceded included a decrease of approximately $1,226,000 related to retrospective provisions. For the three months ended June 30, 2018, premiums ceded reflected a net increase of approximately $378,000. See Economic Impact of Reinsurance Contracts with Retrospective Provisions under Critical Accounting Policies and Estimates.
Net Premiums Written for the three months ended June 30, 2019 and 2018 totaled approximately $102,124,000 and $99,418,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The increase in 2019 resulted from the decrease in premiums ceded as described above combined with an increase in gross premiums written during the period. We had approximately 124,000 policies in force at June 30, 2019 as compared with approximately 132,000 policies in force at June 30, 2018.
Net Premiums Earned for the three months ended June 30, 2019 and 2018 were approximately $51,998,000 and $52,965,000, respectively, and reflect the gross premiums earned less reinsurance costs as described above.
47
The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the three months ended June 30, 2019 and 2018 (amounts in thousands):
Three Months Ended
June 30, |
||||||||
2019 | 2018 | |||||||
Net Premiums Written |
$ | 102,124 | $ | 99,418 | ||||
Increase in Unearned Premiums |
(50,126 | ) | (46,453 | ) | ||||
|
|
|
|
|||||
Net Premiums Earned |
$ | 51,998 | $ | 52,965 | ||||
|
|
|
|
Net Realized Investment Losses for the three months ended June 30, 2019 were approximately $133,000 versus approximately $2,662,000 of net realized investment gains for the three months ended June 30, 2018. The gains in 2018 resulted primarily from sales intended to rebalance our investment portfolio.
Net Unrealized Investment Gains for the three months ended June 30, 2019 were approximately $1,326,000 in contrast to approximately $1,557,000 of net unrealized investment losses for the three months ended June 30, 2018, reflecting a net favorable change in the fair value of equity securities.
Expenses
Our Losses and Loss Adjustment Expenses amounted to approximately $24,293,000 and $21,803,000 for the three months ended June 30, 2019 and 2018, respectively. The $2,490,000 increase primarily resulted from the strengthening of loss reserves pertaining to non-catastrophe claims in the prior loss years in response to an upward trend in litigation. See Reserves for Losses and Loss Adjustment Expenses under Critical Accounting Policies and Estimates.
Interest Expense for the three months ended June 30, 2019 and 2018 was approximately $2,884,000 and $4,505,000, respectively. The $1,621,000 decrease resulted from the repayment of our 3.875% Convertible Senior Notes in March 2019.
Income Tax Expense for the three months ended June 30, 2019 and 2018 was approximately $2,762,000 and $5,117,000, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 26.8% for 2019 and 44.4% for 2018. The decrease was primarily attributable to the derecognition of deferred tax assets and the disallowance of the deductibility of dividends reclassified to expense from retained income, which occurred in the second quarter of 2018. See Note 14 Income Taxes to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
Ratios:
The loss ratio applicable to the three months ended June 30, 2019 (losses and loss adjustment expenses incurred related to net premiums earned) was 46.7% compared with 41.2% for the three months ended June 30, 2018. The increase was primarily due to an increase in losses and loss adjustment expenses as described previously.
The expense ratio applicable to the three months ended June 30, 2019 (defined as underwriting expenses, general and administrative personnel expenses, interest and other operating expenses related to net premiums earned) was 46.2% compared with 48.1% for the three months ended June 30, 2018. The decrease in our expense ratio was primarily attributable to the decrease in interest expense.
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The combined ratio (total of all expenses in relation to net premiums earned) is the measure of overall underwriting profitability before other income. Our combined ratio for the three months ended June 30, 2019 was 92.9% compared with 89.3% for the three months ended June 30, 2018. The increase was attributable to the decrease in net premiums earned combined with a net increase in total expenses.
Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned for the three months ended June 30, 2019 was 58.0% compared with 55.0% for the three months ended June 30, 2018. The increase in 2019 was attributable to the factors described above.
Comparison of the Six Months ended June 30, 2019 to the Six Months ended June 30, 2018
Our results of operations for the six months ended June 30, 2019 reflect income available to common stockholders of approximately $14,291,000, or $1.72 earnings per diluted common share, compared with approximately $17,194,000, or $2.03 earnings per diluted common share, for the six months ended June 30, 2018. The period-over-period decrease was primarily due to a $3,305,000 decrease in net premiums earned and $9,831,000 increase in losses and loss adjustment expenses, offset by a net increase in income from our investment portfolio of $6,344,000, which contributed to a decrease in pre-tax income of $6,726,000. In addition, our income tax expense in 2018 was negatively impacted by the factors described previously.
Revenue
Gross Premiums Earned for the six months ended June 30, 2019 and 2018 were approximately $165,912,000 and $171,691,000, respectively. The decrease in 2019 compared with the corresponding period in 2018 was primarily attributable to a net decrease in policies in force.
Premiums Ceded for the six months ended June 30, 2019 and 2018 were approximately $62,730,000 and $65,204,000, respectively, representing 37.8% and 38.0%, respectively, of gross premiums earned. The $2,474,000 decrease was primarily attributable to a reduction in premiums ceded attributable to retrospective provisions under one reinsurance contract as opposed to a net increase of premiums ceded associated with retrospective provisions and the recognition of additional premiums ceded resulting from the termination of the reinsurance contract in the corresponding period in 2018 as described earlier.
For the six months ended June 30, 2019, premiums ceded included a reduction of approximately $1,738,000 related to retrospective provisions. For the six months ended June 30, 2018, premiums ceded included a net increase of approximately $715,000 related to retrospective provisions. See Economic Impact of Reinsurance Contracts with Retrospective Provisions under Critical Accounting Policies and Estimates.
Net Premiums Written for the six months ended June 30, 2019 and 2018 totaled approximately $138,321,000 and $137,315,000, respectively. The $1,006,000 increase in 2019 resulted primarily from the decrease in premiums ceded as described above offset by a decrease in gross premiums written during the period.
Net Premiums Earned for the six months ended June 30, 2019 and 2018 were approximately $103,182,000 and $106,487,000, respectively, and reflect gross premiums earned less reinsurance costs as described above.
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The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the six months ended June 30, 2019 and 2018 (amounts in thousands):
Six Months Ended
June 30, |
||||||||
2019 | 2018 | |||||||
Net Premiums Written |
$ | 138,321 | $ | 137,315 | ||||
Increase in Unearned Premiums |
(35,139 | ) | (30,828 | ) | ||||
|
|
|
|
|||||
Net Premiums Earned |
$ | 103,182 | $ | 106,487 | ||||
|
|
|
|
Net Realized Investment Losses for the six months ended June 30, 2019 were approximately $505,000 as opposed to approximately $4,894,000 of net realized investment gains for the six months ended June 30, 2018. The gains in 2018 resulted primarily from sales intended to rebalance our investment portfolio to mitigate the impact from a rising interest rate trend and to decrease our holdings in municipal bonds as they became less attractive in a low tax rate environment.
Net Unrealized Investment Gains for the six months ended June 30, 2019 were approximately $6,619,000 versus net unrealized investment losses of approximately $4,157,000 for the six months ended June 30, 2018, reflecting an improvement in the fair value of equity securities.
Expenses
Our Losses and Loss Adjustment Expenses amounted to approximately $51,289,000 and $41,458,000 for the six months ended June 30, 2019 and 2018, respectively. The increase in 2019 was primarily attributable to approximately $5,250,000 of losses related to a severe storm event in March 2019, the strengthening of loss reserves due to litigation arising from non-catastrophe claims in prior years, and additional losses pertaining to Hurricane Matthew. See Reserves for Losses and Loss Adjustment Expenses under Critical Accounting Policies and Estimates.
General and Administrative Personnel Expenses for the six months ended June 30, 2019 and 2018 were approximately $15,362,000 and $14,123,000, respectively. Our general and administrative personnel expenses include salaries, wages, payroll taxes, share-based compensation expenses, and employee benefit costs. Factors such as merit increases, changes in headcount, and periodic restricted stock grants, among others, cause fluctuations in this expense. In addition, our personnel expenses are decreased by the capitalization of payroll costs related to a project to develop software for internal use and the payroll costs associated with the processing and settlement of certain catastrophe claims which are recoverable from reinsurers under reinsurance contracts. The period-over-period increase of $1,239,000 was primarily attributable to higher share-based compensation expense and merit increases for non-executive employees effective in late March 2019 offset by capitalized and recoverable payroll costs.
Interest Expense for the six months ended June 30, 2019 and 2018 was approximately $7,221,000 and $8,975,000, respectively. The decrease resulted from the repayment of our 3.875% Convertible Senior Notes as described earlier.
Income Tax Expense for the six months ended June 30, 2019 and 2018 was approximately $5,307,000 and $9,130,000, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 27.1% for 2019 and 34.7% for 2018. The decrease was primarily attributable to the factors described previously.
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Ratios:
The loss ratio applicable to the six months ended June 30, 2019 was 49.7% compared with 38.9% for the six months ended June 30, 2018. The increase was primarily due to the decrease in net premiums earned and the increase in losses and loss adjustment expenses as described above.
The expense ratio applicable to the six months ended June 30, 2019 was 46.9% compared with 45.8% for the six months ended June 30, 2018. The increase in our expense ratio was primarily attributable to the decrease in net premiums earned.
The combined ratio is the measure of overall underwriting profitability before other income. Our combined ratio for the six months ended June 30, 2019 was 96.6% compared with 84.7% for the six months ended June 30, 2018. The increase was attributable to the decrease in net premiums earned and the increase in losses and loss adjustment expenses as described above.
Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned for the six months ended June 30, 2019 was 60.1% compared with 52.6% for the six months ended June 30, 2018. The increase in 2019 was primarily attributable to the decrease in gross premiums earned combined with the increase in losses and loss adjustment expenses.
Seasonality of Our Business
Our insurance business is seasonal as hurricanes and tropical storms affecting Florida typically occur during the period from June 1 through November 30 each year. Also, with our reinsurance treaty year typically effective June 1 each year, any variation in the cost of our reinsurance, whether due to changes in reinsurance rates or changes in the total insured value of our policy base, will occur and be reflected in our financial results beginning June 1 each year.
LIQUIDITY AND CAPITAL RESOURCES
Throughout our history, our liquidity requirements have been met through issuances of our common and preferred stock, debt offerings and funds from operations. We expect our future liquidity requirements will be met by funds from operations, primarily the cash received by insurance subsidiaries from premiums written and investment income. We may consider raising additional capital through debt and equity offerings to support our growth and future investment opportunities.
Our insurance subsidiary requires liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses. In addition, we attempt to maintain adequate levels of liquidity and surplus to manage any differences between the duration of our liabilities and invested assets. In the insurance industry, cash collected for premiums from policies written is invested, interest and dividends are earned thereon, and losses and loss adjustment expenses are paid out over a period of years. This period of time varies by the circumstances surrounding each claim. Substantially all of our losses and loss adjustment expenses are fully settled and paid within 100 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.
We believe that we maintain sufficient liquidity to pay claims and expenses, as well as to satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies. We maintain a comprehensive reinsurance program at levels management
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considers adequate to diversify risk and safeguard our financial position. In December 2018, we entered into a credit agreement with one financial institution for borrowing capacity of up to $65,000,000 to fund future operations and acquisitions. The credit facility had an unused balance of $55,500,000 at June 30, 2019.
In the future, we anticipate our primary use of funds will be to pay claims, reinsurance premiums, interest, and dividends and to fund operating expenses and real estate acquisitions.
Revolving Credit Facility, Senior Notes, and Promissory Notes
The following table summarizes the principal and interest payment obligations of our indebtedness at June 30, 2019:
Maturity Date |
Interest Payment Due Date |
|||
4.25% Convertible senior notes |
March 2037 | March 1 and September 1 | ||
4% Promissory note |
Through February 2031 | 1 st day of each month | ||
3.75% Callable promissory note |
Through September 2036 | 1 st day of each month | ||
3.95% Promissory note |
Through February 2020 | 17 th of each month | ||
4.55% Promissory note |
Through August 2036 | 1 st day of each month | ||
Finance lease |
Through August 2023 | February 15, May 15, August 15, November 15 | ||
Revolving credit facility |
Through December 2021 | January 1, April 1, July 1, October 1 |
See Note 9 Long-Term Debt to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
Limited Partnership Investments
Our limited partnership investments consist of four private equity funds managed by their general partners. These funds have unexpired capital commitments which are callable at the discretion of the funds general partner for funding new investments or expenses of the fund. At June 30, 2019, there was an aggregate unfunded capital balance of $14,552,000. See Limited Partnership Investments under Note 4 Investments to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.
Share Repurchase Plan
In December 2018, our Board of Directors approved a one-year plan to repurchase up to $20,000,000 of common shares under which we may purchase shares of common stock in open market purchases, block transactions and privately negotiated transactions in accordance with applicable federal securities laws. At June 30, 2019, there was approximately $12,000,000 available under the plan. See Note 16 Stockholders Equity to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
Sources and Uses of Cash
Cash Flows for the Six Months Ended June 30, 2019
Net cash provided by operating activities for the six months ended June 30, 2019 was approximately $28,834,000, which consisted primarily of cash received from net premiums written as well as reinsurance recoveries (of approximately $45,832,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided by investing activities of $45,836,000 was primarily due to the proceeds from sales of fixed-maturity and equity
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securities of $35,826,000, the proceeds from redemptions and maturities of fixed-maturity securities of $47,788,000, and the proceeds from sales and maturities of short-term and other investments of $66,897,000, offset by the purchases of fixed-maturity and equity securities of $91,505,000, the purchase of real estate investments of $9,892,000, limited partnership investments of $1,751,000, and the purchases of property and equipment of $1,313,000. Net cash used in financing activities totaled $97,000,000, which was primarily due to the repayments of long-term debt of $90,647,000, $6,428,000 of net cash dividend payments, and $9,029,000 used in our share repurchases, offset by $9,500,000 of borrowings from revolving credit facility.
Cash Flows for the Six Months Ended June 30, 2018
Net cash provided by operating activities for the six months ended June 30, 2018 was approximately $27,591,000, which consisted primarily of cash received from net premiums written and reinsurance recoveries less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $46,778,000 was primarily due to the purchases of fixed-maturity and equity securities of $71,808,000, the purchases of short-term and other investments of $125,001,000, the purchases of real estate investments of $6,520,000, and the limited partnership investments of $2,638,000, offset by the proceeds from sales of fixed-maturity and equity securities of $118,205,000, the proceeds from redemptions and maturities of fixed-maturity securities of $27,207,000, and the proceeds from sales and maturities of short-term and other investments of $15,117,000. Net cash used in financing activities totaled $20,132,000, which was primarily due to $14,652,000 used in our share repurchases and $4,421,000 of net cash dividend payments.
Investments
The main objective of our investment policy is to maximize our after-tax investment income with a reasonable level of risk given the current financial market. Our excess cash is invested primarily in money market accounts, certificates of deposit, and fixed-maturity and equity securities.
At June 30, 2019, we had $239,775,000 of fixed-maturity and equity investments, which are carried at fair value. Changes in the general interest rate environment affect the returns available on new fixed-maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing fixed-maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new fixed-maturity investments but increases the market value of existing fixed-maturity investments, creating the opportunity for realized investment gains on disposition.
In the future, we may alter our investment policy as to investments in federal, state and municipal obligations, preferred and common equity securities and real estate mortgages, as permitted by applicable law, including insurance regulations.
OFF-BALANCE SHEET ARRANGEMENTS
As of June 30, 2019, we had unexpired capital commitments for four limited partnerships in which we hold interests. Such commitments are not recognized in the financial statements but are required to be disclosed in the notes to the financial statements. See Note 18 Commitments and Contingencies to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q and Contractual Obligations and Commitment below for additional information.
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CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes our material contractual obligations and commitments as of June 30, 2019 (amounts in thousands):
Payment Due by Period | ||||||||||||||||||||
Total |
Less than
1 Year |
1-3 Years | 3-5 Years |
More than
5 Years |
||||||||||||||||
Operating leases(1) |
$ | 718 | $ | 336 | $ | 382 | $ | | $ | | ||||||||||
Service agreement(1) |
65 | 25 | 40 | | | |||||||||||||||
Reinsurance contracts(2) |
3,759 | 3,759 | | | | |||||||||||||||
Unfunded capital commitments(3) |
14,552 | 14,552 | | | | |||||||||||||||
Revolving credit facility |
9,500 | 9,500 | | | | |||||||||||||||
Long-term debt obligations(4) |
200,342 | 17,312 | 159,886 | 3,908 | 19,236 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 228,936 | $ | 45,484 | $ | 160,308 | $ | 3,908 | $ | 19,236 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
Represents a lease for office space in Miami Lakes, Florida, a lease and maintenance service agreement for office space in Noida, India, and leases for office equipment and storage space. Liabilities related to our India operations were converted from Indian rupees to U.S. dollars using the June 30, 2019 exchange rate. |
(2) |
Represents the minimum payment of reinsurance premiums under one multi-year reinsurance contract. Reinsurance premiums payable after September 30, 2019 are estimated and subject to subsequent revision as the premiums are determined on a quarterly basis based on the premiums associated with the applicable flood total insured value on the last day of the preceding quarter. |
(3) |
Represents the unfunded balance of capital commitments under the subscription agreements related to four limited partnerships in which we hold interests. |
(4) |
Amounts represent principal and interest payments over the lives of various long-term debt obligations. See Note 9 Long-Term Debt to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q. |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have prepared our consolidated financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements and related disclosures requires us to make judgments, assumptions and estimates to develop amounts reflected and disclosed in our consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. Actual results may differ from these estimates and such differences may be material.
We believe our critical accounting policies and estimates are those related to losses and loss adjustment expenses, reinsurance recoverable, reinsurance with retrospective provisions, deferred income taxes, and stock-based compensation expense. These policies are critical to the portrayal of our financial condition and operating results. They require management to make judgments and estimates about inherently uncertain matters. Material estimates that are particularly susceptible to significant change in the near term are related to our losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported and reinsurance contracts with retrospective provisions.
Reserves for Losses and Loss Adjustment Expenses
Our liability for losses and loss adjustment expense (Reserves) is specific to property insurance, which is our insurance divisions only line of business. The Reserves include both case reserves on reported claims and our reserves for incurred but not reported (IBNR) losses. At each
54
period end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses are adjusted.
The IBNR represents our estimate of the ultimate cost of all claims that have occurred but have not been reported to us, and in some cases may not yet be known to the insured, and future development of reported claims. Estimating the IBNR component of our Reserves involves considerable judgment on the part of management. At June 30, 2019, $111,417,000 of the total $154,242,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining $42,825,000 relates to known cases which have been reported but not yet fully settled in which case we have established a reserve based on currently available information and our best estimate of the cost to settle each claim. At June 30, 2019, $37,946,000 of the $42,825,000 in reserves for known cases relates to claims incurred during prior years.
Our Reserves decreased from $207,586,000 at December 31, 2018 to $154,242,000 at June 30, 2019. The $53,344,000 decrease is comprised of net reductions in our Reserves of $17,715,000 for 2018 and $63,658,000 for 2017 and prior loss years offset by $28,029,000 in reserves established for claims occurring in the 2019 loss year. The $28,029,000 in Reserves established for 2019 claims is primarily driven by an allowance for those claims that have been incurred but not reported to the company as of June 30, 2019. The decrease of $81,373,000 specific to our 2018 and prior loss-year reserves is due to settlement of claims related to those loss years.
Based on all information known to us, we consider our Reserves at June 30, 2019 to be adequate to cover our claims for losses that have occurred as of that date including losses yet to be reported to us. However, these estimates are continually reviewed by management as they are subject to significant variability and may be impacted by trends in claim severity and frequency or unusual exposures that have not yet been identified. As part of the process, we review historical data and consider various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and loss adjustment expenses. Adjustments are reflected in the results of operations in the period in which they are made and the liabilities may deviate substantially from prior estimates.
Economic Impact of Reinsurance Contracts with Retrospective Provisions
One of our reinsurance contracts includes retrospective provisions that adjust premiums in the event losses are minimal or zero. In accordance with accounting principles generally accepted in the United States of America, we will recognize an asset in the period in which the absence of loss experience obligates the reinsurer to pay cash or other consideration under the contract. In the event that a loss arises, we will derecognize such asset in the period in which a loss arises. Such adjustments to the asset, which accrue throughout the contract term, will negatively impact our operating results when a catastrophic loss event occurs during the contract term.
For the three months ended June 30, 2019, we recognized an increase in accrued benefits of $1,026,000 versus a decrease in accrued benefits of $243,000 for the three months ended June 30, 2018. We recognized a reduction in premiums ceded of $200,000 for the three months ended June 30, 2019, whereas we recognized additional premiums ceded of $135,000 for the three months ended June 30, 2018. In combination, for the three months ended June 30, 2019, we recognized a decrease in ceded premiums of $1,226,000 as opposed to an increase in ceded premiums of $378,000 for the three months ended June 30, 2018.
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For the six months ended June 30, 2019 and 2018, we accrued benefits of $1,304,000 and $186,000, respectively. We recognized a decrease in premiums ceded of $434,000 for the six months ended June 30, 2019. For the six months ended June 30, 2018, we recognized additional premiums ceded of $901,000. In combination, for the six months ended June 30, 2019, we recognized a decrease in ceded premiums of $1,738,000 as opposed to a net increase in ceded premiums of $715,000 for the six months ended June 30, 2018.
As of June 30, 2019, we had $4,440,000 of accrued benefits, the amount that would be charged to earnings in the event we experience a catastrophic loss that exceeds the coverage limit provided under such agreement. At December 31, 2018, we had $3,136,000 of accrued benefits related to these agreements.
We believe the credit risk associated with the collectability of these accrued benefits is minimal based on available information about the reinsurers financial position.
The above and other accounting estimates and their related risks that we consider to be our critical accounting estimates are more fully described in our Annual Report on Form 10-K, which we filed with the SEC on March 8, 2019. For the six months ended June 30, 2019, there have been no material changes with respect to any of our critical accounting policies.
RECENT ACCOUNTING PRONOUNCEMENTS
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2 to our Notes to Unaudited Consolidated Financial Statements.
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our investment portfolios at June 30, 2019 included fixed-maturity and equity securities, the purposes of which are not for speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet our obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Our investment securities are managed primarily by outside investment advisors and are overseen by the investment committee appointed by our board of directors. From time to time, our investment committee may decide to invest in low risk assets such as U.S. government bonds.
Our investment portfolios are exposed to interest rate risk, credit risk and equity price risk. Fiscal and economic uncertainties caused by any government action or inaction may exacerbate these risks and potentially have adverse impacts on the value of our investment portfolios.
We classify our fixed-maturity securities as available-for-sale and report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income within our stockholders equity. As such, any material temporary changes in their fair value can adversely impact the carrying value of our stockholders equity. In addition, we recognize any unrealized gains or losses related to our equity securities in our statement of income. As a result, our results of operations can be materially affected by the volatility in the equity market.
Interest Rate Risk
Our fixed-maturity securities are sensitive to potential losses resulting from unfavorable changes in interest rates. We manage the risk by analyzing anticipated movement in interest rates and considering our future capital needs.
The following table illustrates the impact of hypothetical changes in interest rates to the fair value of our fixed-maturity securities at June 30, 2019 (amounts in thousands):
Hypothetical Change in Interest Rates |
Estimated
Fair Value |
Change in
Estimated Fair Value |
Percentage
Increase (Decrease) in Estimated Fair Value |
|||||||||
300 basis point increase |
$ | 198,098 | $ | (11,816 | ) | (5.63 | )% | |||||
200 basis point increase |
202,035 | (7,879 | ) | (3.75 | )% | |||||||
100 basis point increase |
205,974 | (3,940 | ) | (1.88 | )% | |||||||
100 basis point decrease |
213,855 | 3,941 | 1.88 | % | ||||||||
200 basis point decrease |
217,717 | 7,803 | 3.72 | % | ||||||||
300 basis point decrease |
219,327 | 9,413 | 4.48 | % |
Credit Risk
Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuers of our fixed-maturity securities. We mitigate the risk by investing in fixed-maturity securities that are generally investment grade, by diversifying our investment portfolio to avoid concentrations in any single issuer or business sector, and by continually monitoring each individual security for declines in credit quality. While we emphasize credit quality in our investment selection process, significant downturns in the markets or general economy may impact the credit quality of our portfolio.
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The following table presents the composition of our fixed-maturity securities, by rating, at June 30, 2019 (amounts in thousands):
Comparable Rating |
Amortized
Cost |
% of
Total Amortized Cost |
Estimated
Fair Value |
% of
Total Estimated Fair Value |
||||||||||||
AA+, AA, AA- |
$ | 46,461 | 22.0 | $ | 46,756 | 22.0 | ||||||||||
A+, A, A- |
119,993 | 58.0 | 121,053 | 58.0 | ||||||||||||
BBB+, BBB, BBB- |
29,847 | 15.0 | 30,698 | 15.0 | ||||||||||||
BB+, BB, BB- |
4,928 | 2.0 | 5,120 | 2.0 | ||||||||||||
CCC+, CC and Not rated |
6,334 | 3.0 | 6,287 | 3.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 207,563 | 100.0 | $ | 209,914 | 100.0 | ||||||||||
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|
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Equity Price Risk
Our equity investment portfolio at June 30, 2019 included common stocks, perpetual preferred stocks, mutual funds and exchange traded funds. We may incur losses due to adverse changes in equity security prices. We manage the risk primarily through industry and issuer diversification and asset mix.
The following table illustrates the composition of our equity securities at June 30, 2019 (amounts in thousands):
% of | ||||||||
Total | ||||||||
Estimated | Estimated | |||||||
Fair Value | Fair Value | |||||||
Stocks by sector: |
||||||||
Financial |
$ | 14,343 | 48 | |||||
Consumer |
1,752 | 6 | ||||||
Energy |
1,661 | 6 | ||||||
Industrial |
1,897 | 6 | ||||||
Technology |
1,705 | 6 | ||||||
Other(1) |
2,115 | 7 | ||||||
|
|
|
|
|||||
23,473 | 79 | |||||||
|
|
|
|
|||||
Mutual funds and exchange traded funds by type: |
||||||||
Debt |
4,367 | 14 | ||||||
Equity |
2,021 | 7 | ||||||
|
|
|
|
|||||
Total |
$ | 29,861 | 100 | |||||
|
|
|
|
(1) |
Represents an aggregate of less than 5% sectors. |
Foreign Currency Exchange Risk
At June 30, 2019, we did not have any material exposure to foreign currency related risk.
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ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial and accounting officer), we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, our chief executive officer and our chief financial officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, implementation of possible controls and procedures depends on managements judgment in evaluating their benefits relative to costs.
PART II OTHER INFORMATION
The Company is a party to claims and legal actions arising routinely in the ordinary course of our business. Although we cannot predict with certainty the ultimate resolution of the claims and lawsuits asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
With the exception of the items described below, there have been no material changes from the risk factors previously disclosed in the section entitled Risk Factors in our Form 10-K, which was filed with the SEC on March 8, 2019.
Our credit agreement contains restrictions that can limit our flexibility in operating our business.
The agreement governing our revolving credit facility contains various covenants that limit our ability to engage in certain transactions. These covenants limit our and our subsidiaries ability to, among other things:
|
incur additional indebtedness; |
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declare or make any restricted payments; |
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create liens on any of our assets now owned or hereafter acquired; |
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consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets now owned or hereafter acquired; and |
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enter into certain transactions with our affiliates. |
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An increase in interest rates may negatively impact our operating results and financial condition.
Borrowings under our revolving credit facility have a variable rate of interest. An increase in interest rate would have a negative impact on our results of operations attributable to increased interest expense.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Sales of Unregistered Securities and Use of Proceeds
None
(b) Repurchases of Securities
The table below summarizes the number of common shares repurchased during the three months ended June 30, 2019 under the repurchase plan approved by our Board of Directors in December 2018 and also the number of shares of common stock surrendered by employees to satisfy their minimum federal income tax liability associated with the vesting of restricted shares in May 2019 (dollar amounts in thousands, except share and per share amounts):
For the Month Ended |
Total Number
of Shares Purchased |
Average
Price Paid Per Share |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Dollar
Value of Shares That May Yet Be Purchased Under The Plans or Programs (a) |
||||||||||||
April 30, 2019 |
49,980 | $ | 41.83 | 49,980 | $ | 16,572 | ||||||||||
May 31, 2019 |
78,234 | $ | 41.48 | 53,756 | $ | 14,333 | ||||||||||
June 30, 2019 |
57,051 | $ | 40.89 | 57,051 | $ | 12,000 | ||||||||||
|
|
|
|
|||||||||||||
185,265 | $ | 41.39 | 160,787 | |||||||||||||
|
|
|
|
(a) |
Represents the balances before commissions and fees at the end of each month. |
Working Capital Restrictions and Other Limitations on Payment of Dividends
We are not subject to working capital restrictions or other limitations on the payment of dividends. Our insurance subsidiaries, however, are subject to restrictions on the dividends they may pay. Those restrictions could impact HCIs ability to pay future dividends.
Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its stockholder except out of that part of its available and accumulated capital and surplus funds which is derived from realized net operating profits on its business and net realized capital gains. Additionally, a Florida domestic insurer may not make dividend payments or distributions to its stockholder without prior approval of the Florida Office of Insurance Regulation if the dividend or distribution would exceed the larger of (1) the lesser of (a) 10.0% of its capital surplus or (b) net income, not including realized capital gains, plus a two year carry forward, (2) 10.0% of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains or (3) the lesser of (a) 10.0% of capital surplus or (b) net investment income plus a three year carry forward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains.
60
Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the Florida Office of Insurance Regulation (1) if the dividend is equal to or less than the greater of (a) 10.0% of the insurers capital surplus as regards policyholders derived from realized net operating profits on its business and net realized capital gains or (b) the insurers entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, (2) the insurer will have policy holder capital surplus equal to or exceeding 115.0% of the minimum required statutory capital surplus after the dividend or distribution, (3) the insurer files a notice of the dividend or distribution with the Florida Office of Insurance Regulation at least ten business days prior to the dividend payment or distribution and (4) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory capital surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (1) subject to prior approval by the Florida Office of Insurance Regulation or (2) 30 days after the Florida Office of Insurance Regulation has received notice of such dividend or distribution and has not disapproved it within such time.
During the six months ended June 30, 2019, our insurance subsidiaries paid dividends of $14,000,000 to HCI.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 MINE SAFETY DISCLOSURES
None.
None.
61
The following documents are filed as part of this report:
62
63
64
65
66
67
68
** |
Management contract or compensatory plan. |
69
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, who has signed this report on behalf of the Company.
HCI GROUP, INC. | ||||||
August 7, 2019 | By: |
/s/ Paresh Patel |
||||
Paresh Patel | ||||||
Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
August 7, 2019 | By: |
/s/ James Mark Harmsworth |
||||
James Mark Harmsworth | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
70
PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
TABLE OF CONTENTS
Article |
Page | |||||
Preamble | 5 | |||||
1 |
Business Covered | 5 | ||||
2 |
Retention and Limit | 5 | ||||
3 |
Florida Hurricane Catastrophe Fund | 6 | ||||
4 |
Term | 7 | ||||
5 |
Special Termination | 8 | ||||
6 |
Territory | 9 | ||||
7 |
Exclusions | 9 | ||||
8 |
Special Acceptance | 11 | ||||
9 |
Premium | 11 | ||||
10 |
Reinstatement | 13 | ||||
11 |
Definitions | 13 | ||||
12 |
Extra Contractual Obligations/Excess of Policy Limits | 16 | ||||
13 |
Net Retained Liability | 17 | ||||
14 |
Other Reinsurance | 17 | ||||
15 |
Original Conditions | 18 | ||||
16 |
No Third Party Rights | 18 | ||||
17 |
Notice of Loss and Loss Settlements | 18 | ||||
18 |
Late Payments | 19 |
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Article (Contd) |
Page | |||||
19 |
Offset | 20 | ||||
20 |
Currency | 20 | ||||
21 |
Unauthorized Reinsurance | 20 | ||||
22 |
Taxes | 22 | ||||
23 |
Access to Records | 23 | ||||
24 |
Confidentiality | 24 | ||||
25 |
Indemnification and Errors and Omissions | 25 | ||||
26 |
Insolvency | 25 | ||||
27 |
Run-Off Reinsurer | 26 | ||||
28 |
Arbitration | 28 | ||||
29 |
Expedited Arbitration | 29 | ||||
30 |
Service of Suit | 29 | ||||
31 |
Governing Law | 30 | ||||
32 |
Entire Agreement | 30 | ||||
33 |
Non-Waiver | 31 | ||||
34 |
Agency | 31 | ||||
35 |
Intermediary | 31 | ||||
36 |
Mode of Execution | 31 |
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PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
TABLE OF CONTENTS
Articles
|
Page | |||||
Company Signing Block | 33 | |||||
Attachments |
||||||
Pools, Associations & Syndicates Exclusions Clause | 35 | |||||
Nuclear Incident Exclusion Clause Physical Damage Reinsurance U.S.A. | 38 | |||||
Terrorism Exclusion | 40 | |||||
Trust Agreement Requirements Clause | 41 |
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PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
(the Contract)
issued to
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
Tampa, Florida
and
TYPTAP INSURANCE COMPANY
Ocala, Florida
(collectively, the Company)
by
THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE
INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED TO
AND FORMING PART OF THIS CONTRACT
(the Reinsurer)
ARTICLE 1
This Contract is to indemnify the Company in respect of its net excess liability as a result of any loss or losses which may occur during the Term of this Contract under any Policies not covered by the Companys Flood Tower, in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, subject to the terms and conditions herein contained.
ARTICLE 2
A. |
For each Layer of reinsurance provided hereunder, the Reinsurer shall be liable in respect of each Loss Occurrence for the Ultimate Net Loss over and above the initial Ultimate Net Loss retention as set forth in the schedule below for the Loss Occurrence, subject to a limit of liability to the Reinsurer for each such Loss Occurrence, and subject further to a limit of liability for all Loss Occurrences commencing during the term of this Contract, as set forth below: |
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RETENTION AND LIMIT SCHEDULE |
||||||||||||
Layer |
Companys
Retention |
Reinsurers Limit of Liability | ||||||||||
Ultimate Net
Loss in respect of each Loss Occurrence |
Ultimate Net Loss in
respect of each Loss Occurrence |
Ultimate Net Loss in
respect of all Loss Occurrences during the term of this Contract |
||||||||||
First Layer |
$**** | $**** | $**** | |||||||||
Third Layer |
$**** | $**** | $**** | |||||||||
Fourth Layer |
$**** | $**** | $**** | |||||||||
Fifth Layer |
$**** | $**** | $**** |
B. |
In addition to reductions under the provisions of the Florida Hurricane Catastrophe Fund Article, recoveries hereunder shall always be made under the lowest Layer that is not entirely exhausted. If there is any amount of Ultimate Net Loss arising out of a Loss Occurrence in excess of the Companys retention under the lowest Layer that has not been recovered thereunder due to the exhaustion of the lowest Layer, such amount shall be recovered under the next or subsequent Layer or Layers, as appropriate. Recoveries as respects losses applicable to each Layer shall inure as follows: |
1. |
Recoveries under the Third Layer shall inure to the benefit of the Fourth Layer, whether or not recoverable; and |
2. |
Recoveries under the Third and Fourth Layers shall inure to the benefit of the Fifth Layer, whether or not recoverable. |
It is understood, however, that any fully exhausted Layer or the exhausted portion of any Layer shall no longer inure to the benefit of any subsequent Layer(s).
C. |
No Loss Occurrence shall be covered hereunder unless it involves two or more risks subject to this Contract. The Company shall be the sole judge of what constitutes one risk for purposes of this Contract. |
ARTICLE 3
FLORIDA HURRICANE CATASTROPHE FUND
A. |
As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following: |
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1. |
The full reimbursement amount due from the FHCF, based on statutory limits of coverage as of June 1, shall be deemed recovered by the Company, whether or not actually received from the FHCF and whether or not reduced because of the FHCFs inability to pay. |
2. |
For purposes of allocating recoveries from the FHCF with respect to each Loss Occurrence, only amounts recoverable by applying the pay-out and retention multiples for the FHCF prior to any reduction in retention due to multiple Loss Occurrences in the same annual period shall be included in calculating the deduction from Ultimate Net Loss. |
3. |
If the Companys aggregate limit of FHCF reimbursement coverage is exhausted from Loss Occurrences commencing during the term of this Contract, and the FHCF does not designate the portion of said limit allocable to each Loss Occurrence, the total FHCF reimbursement received shall be allocated to the each individual Loss Occurrence in the proportion that the Companys losses in that Loss Occurrence bear to the Companys total losses arising out of all Loss Occurrences to which the reimbursement applies. |
4. |
For purposes of loss recoveries under this Contract prior to the final determination of the Companys retention and limit under the FHCF, FHCF coverage shall be calculated using the Companys Projected Payout Multiple under the FHCF. Upon determination of the Companys retention and limit under the FHCF, losses will be adjusted, recognizing any adjustment to the Projected Payout Multiple caused by a change in the Aggregate Mandatory FHCF Premium but disregarding any change due to a decrease in the statutory limit. |
B. |
Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance. |
C. |
The Company has opted for a 45% coverage selection from the FHCF. |
ARTICLE 4
This Contract shall take effect at 12:01 a.m., Standard Time, June 1, 2019, and unless terminated prior to that time and date as provided in the Special Termination Article, shall remain in effect until 12:01 a.m., Standard Time, June 1, 2020, applying to Loss Occurrences commencing during the term of this Contract. For purposes of this Contract, Standard Time shall mean the time as described in the original Policy.
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ARTICLE 5
A. |
The Company may terminate a Subscribing Reinsurers percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances: |
1. |
The Subscribing Reinsurer ceases underwriting operations. |
2. |
A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision. |
3. |
The Subscribing Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations. |
4. |
The Subscribing Reinsurers policyholders surplus (or the equivalent under the Subscribing Reinsurers accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract). |
5. |
The Subscribing Reinsurer has merged with or has become acquired or controlled by any company, corporation, or individual(s) not controlling the Subscribing Reinsurers operations at the inception of this Contract. |
6. |
The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Companys prior written consent, except for retrocessions to members of the Subscribing Reinsurers holding company group. |
7. |
The Subscribing Reinsurer has been assigned an A.M. Bests rating of less than A- and/or an S&P rating of less than BBB+. However, as respects Underwriting Members of Lloyds, London, a Lloyds Market Rating of less than A- by A.M. Best and/or less than BBB+ by S&P shall apply. |
8. |
The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid. |
9. |
The Subscribing Reinsurer has in any other way assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
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Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (8) and (9) of this paragraph.
10. |
The Subscribing Reinsurer has failed to post or maintain required collateral to secure its obligations as required under this Contract, and has not cured such deficiency within 30 days following written notice thereof from the Company. |
B. |
Termination shall be effected on a cut-off basis and the Subscribing Reinsurer shall have no liability for Loss Occurrences commencing after the date of termination. The reinsurance premium due the Subscribing Reinsurer hereunder (including any minimum reinsurance premium) shall be prorated based on the period of the Subscribing Reinsurers participation hereon, and the Subscribing Reinsurer shall immediately return any excess reinsurance premium received. Reinstatement premium, if any, shall be calculated based on the Subscribing Reinsurers reinsurance premium earned during the period of the Subscribing Reinsurers participation hereon. |
C. |
Additionally, in the event of any of the circumstances listed in paragraph A of this Article, the Company shall have the option to commute the Subscribing Reinsurers liability for losses on Policies covered by this Contract. In the event the Company and the Subscribing Reinsurer cannot agree on the commutation amount, they shall appoint an actuary and/or appraiser to assess such amount and shall share equally any expense of the actuary and/or appraiser. If the Company and the Subscribing Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Subscribing Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Subscribing Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties in respect of liability arising from the Subscribing Reinsurers participation under this Contract. |
D. |
The Companys option to require commutation under paragraph C above shall survive the termination or expiration of this Contract. |
ARTICLE 6
The territorial limits of this Contract shall be identical with those of the Companys Policies.
ARTICLE 7
A. |
This Contract shall not apply to and specifically excludes: |
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1. |
Flood when written as such. |
2. |
Earthquake for standalone Policies where earthquake is the only named peril. |
3. |
Hail damage to an insureds growing or standing crops. |
4. |
Reinsurance assumed by the Company under obligatory reinsurance agreements, except intercompany reinsurance between the Company and its affiliates and agency reinsurance where the Policies involved are to be re-underwritten in accordance with the underwriting standards of the Company and reissued as Policies of the Company at the next anniversary or expiration date. |
5. |
Pools, Associations & Syndicates, per the attached exclusion. |
6. |
Liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any Insolvency Fund. Insolvency Fund includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, that provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, that has been declared by any competent authority to be insolvent, or that is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. |
7. |
Loss or damage occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, martial law, or confiscation by order of any government or public authority, but not excluding loss or damage that would be covered under a standard form of Policy containing a standard war exclusion clause. |
8. |
Losses excluded by the attached Nuclear Incident Exclusion Clause Physical Damage Reinsurance U.S.A. |
9. |
Terrorism as defined in the attached Terrorism Exclusion. |
10. |
Mold unless directly resulting from an otherwise covered peril. |
11. |
Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Companys property loss under the applicable original Policy. |
12. |
Financial guarantee and insolvency. |
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13. |
Loss or damage to overhead transmission and distribution lines, including supporting structures, of electrical companies, telephone companies, and cable companies. This exclusion shall not apply, however, to transmission and distribution lines and their supporting structures located on the property of any original insured or within 1,000 feet thereof. |
B. |
Except as respects exclusions A(7), A(8), A(9), and A(12), if the Company inadvertently issues a Policy falling within the scope of one or more of the exclusions, such Policy shall be covered hereunder, provided that the Company issues, or causes to be issued, the required notice of cancellation within 30 days after a member of the executive or managerial staff at the Companys home office having underwriting authority in the class of business involved becomes aware that the Policy applies to excluded classes, unless the Company is prevented from canceling said Policy within such period by applicable statute or regulation, in which case such Policy shall be covered hereunder until the earliest date on which the Company may cancel. |
ARTICLE 8
Business that is not within the scope of this Contract may be submitted to the Reinsurer for special acceptance hereunder, and such business, if accepted by the Reinsurer shall be covered hereunder, subject to the terms and conditions of this Contract, except as modified by the special acceptance. The Reinsurer shall be deemed to have accepted a risk, if it has not responded within five business days after receiving the underwriting information on such risk. Any renewal of a special acceptance agreed to for a predecessor contract to this Contract, shall automatically be covered hereunder.
ARTICLE 9
A. |
As respects the First layer, the Company shall pay the Reinsurer a flat premium of $**** for the term of this Contract. |
B. |
As respects the Third, Fourth and Fifth Layers, the Company shall pay the Reinsurer a deposit premium in accordance with the schedule set forth below. The Final Adjusted Premium to be paid to the Reinsurer for the reinsurance provided under each Layer shall be calculated at the rates set out below multiplied by the Companys final Total Insured Value, subject to the applicable minimum premium stated below: |
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PREMIUM SCHEDULE |
||||||||||||
Layer |
Final Adjusted
Premium Rate |
Deposit
Premium |
Minimum
Premium |
|||||||||
Third Layer |
**** | % | $**** | $**** | ||||||||
Fourth Layer |
**** | % | $**** | $**** | ||||||||
Fifth Layer |
**** | % | $**** | $**** |
C. 1. |
The deposit premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020. |
2. |
The deposit premiums set forth in paragraph B above shall be payable to the Reinsurer by the Company in installments as follows: |
DEPOSIT INSTALLMENT SCHEDULE |
||||||||||||||||
Layer |
June 1, 2019 | September 1, 2019 | January 1, 2020 | April 1, 2020 | ||||||||||||
Third Layer |
$**** | $**** | $**** | $**** | ||||||||||||
Fourth Layer |
$**** | $**** | $**** | $**** | ||||||||||||
Fifth Layer |
$**** | $**** | $**** | $**** |
D. |
Within 45 days following the expiration of this Contract, the Company shall provide the Reinsurer with a report showing the Companys final Total Insured Value. This final Total Insured Value shall be multiplied by the rate for each Layer as stated in paragraph B above. Should this amount be greater than or equal to ****% and less than or equal to ****% of the Deposit Premium as set forth above, there shall be no additional or return premium due. Should the amount so calculated exceed ****% of the Deposit Premium paid in accordance with paragraph A above, the Company shall immediately pay the Reinsurer the difference in excess of ****% of the Deposit Premium. Should the amount so calculated be less than ****% of the Deposit Premium paid in accordance with paragraph A of this Article, the Reinsurer shall immediately pay the Company the difference below ****% of the Deposit Premium, subject to the Minimum Premium as set forth above. |
E. |
Total Insured Value means the Companys aggregate wind exposures on September 30, 2019 for business covered on the Third, Fourth and Fifth Layers hereunder. |
F. |
The estimated Total Insured Value is $33,489,296,549. |
G. |
The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurers financial statements. |
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ARTICLE 10
A. |
Loss payments under any Layer of this Contract shall reduce the limit of coverage afforded by the amounts paid, but the limit of coverage shall be reinstated from the time of the occurrence of the loss, and for each amount so reinstated, the Company agrees to pay , simultaneously with the Reinsurers loss payment, an additional premium calculated at pro rata of the Reinsurers premium for the applicable layer(s) for the term of this Contract, being pro rata only as to the fraction of the Reinsurers limit of liability hereunder (i.e., the fraction of the Reinsurers limit of liability for each Loss Occurrence as set forth for the Layer in the Retention and Limit Article) so reinstated. Nevertheless, the Reinsurers liability under the applicable layer(s) shall not exceed such limit(s) in respect of any one Loss Occurrence, nor the applicable limit(s) in respect of all Loss Occurrences commencing during the term of this Contract, as set forth in the Retention and Limit Article. |
B. |
If at the time of a loss settlement hereon the reinsurance premium, as calculated in accordance with the Premium Article, is unknown, the above calculation of reinstatement premium shall be based upon the deposit premium, subject to adjustment when the reinsurance premium is finally established. |
ARTICLE 11
A. 1. |
Ultimate Net Loss means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 100% of any Extra Contractual Obligation and 100% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article. In no event, however, shall more than 25% of Ultimate Net Loss for any one Loss Occurrence be comprised of Extra Contractual Obligations and Loss in Excess of Policy Limits. |
2. |
Salvages and all recoveries (including amounts due from all reinsurances that inure to the benefit of this Contract, whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder. |
3. |
All salvages, recoveries or payments recovered or received subsequent to loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. |
4. |
The Company shall be deemed to be liable to pay a loss when a judgment has been rendered that the Company does not plan to appeal, and/or the Company has obtained a release, and/or the Company has accepted a proof of loss, and/or the Company has made a commitment to pay, and/or the Company has scheduled the payment of a loss. |
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5. |
Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Companys Ultimate Net Loss has been ascertained. |
B. |
Loss Adjustment Expense means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to: |
1. |
court costs; |
2. |
costs of supersedeas and appeal bonds; |
3. |
monitoring counsel expenses; |
4. |
legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions; |
5. |
post-judgment interest; |
6. |
pre-judgment interest, unless included as part of an award or judgment; |
7. |
a pro rata share of salaries and expenses of Company field employees, calculated in accordance with the time occupied in adjusting such loss, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract; and |
8. |
subrogation, salvage and recovery expenses. |
Loss Adjustment Expense does not include salaries and expenses of the Companys employees, except as provided in subparagraph (7) above, and office and other overhead expenses.
C. 1. |
Loss Occurrence means the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term Loss Occurrence shall be further defined as follows: |
a. |
As regards any Named Storm, all individual losses sustained by the Company arising out of and directly occasioned by such Named Storm, without regard to the limitations of duration and extent set forth above. Named Storm means any storm or storm system declared by the US National Hurricane Center, US Central Pacific Hurricane Center, US Weather Prediction Center, or their successor organizations, all being divisions of the US National Weather Service to be a tropical storm or hurricane, and any successors thereof. A storm or storm system |
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that merges with a Named Storm shall be considered part of that Named Storm, once it has merged. A Named Storm shall be deemed to begin at the effective time and date of the first watch, warning or other official advisory applicable to such tropical storm or hurricane issued by the above referenced governmental meteorological agencies. A Named Storm shall be deemed to end 72 hours after the cancellation of the last watch, warning or other official advisory applicable to such tropical storm, hurricane or successor, issued by the above referenced governmental meteorological agencies irrespective of the duration of the timing or spacing between such watches, warnings or other official advisories. If two or more storms are assigned different names by the above referenced governmental meteorological agencies, each of those storms shall constitute a separate event for purposes of this definition. |
b. |
As regards windstorm, hail, tornado, cyclone, including ensuing collapse and water damage other than Named Storm, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. |
c. |
As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses that occur beyond such 96 consecutive hours during the continued occupation of an assureds premises by strikers, provided such occupation commenced during the aforesaid period. |
d. |
As regards earthquake and fire following directly occasioned by the earthquake, those earthquake losses and individual fire losses that commence during the period of 168 consecutive hours may be included in the Companys Loss Occurrence. |
e. |
As regards any related weather conditions involving snow, sleet, freezing rain, freeze, ice, winter weather, and wind losses related to such conditions, all individual losses sustained by the Company, that occur during any period of 168 consecutive hours arising out of and directly occasioned by the same event. |
f. |
As regards firestorms, brush fires and other fires or series of fires, irrespective of origin (except for fires covered in subparagraphs (c) and (d) above) which spread through trees, grassland or other vegetation, all individual losses sustained by the Company occurring during any period of 168 consecutive hours within a 150-mile radius of any fixed point selected by the Company may be included in the Companys Loss Occurrence. However, an individual loss subject to this subparagraph cannot be included in more than one Loss Occurrence. |
2. |
Except as provided in subparagraph (1)(a) above: |
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a. |
The Company may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. |
b. |
Only one period of consecutive hours shall apply with respect to one event, except that, as respects those Loss Occurrences referred to in subparagraph (1)(c) above, if the disaster, accident or loss occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident or loss into two or more Loss Occurrences provided no two periods overlap and no individual loss is included in more than one such period and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. |
3. |
Losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one Loss Occurrence. Furthermore, all losses arising from an event involving a combination of losses described in subparagraphs (1)(a) and (1)(b) may be considered as having arisen from one Loss Occurrence. Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and, except as respects those Loss Occurrences involving a Named Storm referred to in subparagraph (1)(a) above, no single Loss Occurrence shall encompass a time period greater than 168 consecutive hours. |
D. |
Policy means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company. |
ARTICLE 12
EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS
A. |
This Contract shall cover Extra Contractual Obligations, as provided in the definition of Ultimate Net Loss. Extra Contractual Obligations shall be defined as those liabilities not covered under any other provision of this Contract and that arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the 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 reinsured or in the preparation or prosecution of an appeal consequent upon such action. |
B. |
This Contract shall cover Loss in Excess of Policy Limits, as provided in the definition of Ultimate Net Loss. Loss in Excess of Policy Limits shall be defined as Loss in excess of the Policy limit, having been incurred because of, but not limited to, failure by the Company to settle within the Policy limit or by reason of alleged or actual negligence, fraud or bad |
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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 reinsured or in the preparation or prosecution of an appeal consequent upon such action. |
C. |
An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Companys Policy, and shall constitute part of the original loss. |
D. |
For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word Loss shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy. |
E. |
Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense. |
F. |
However, this Article shall not apply where the loss has been incurred due to final legal adjudication of fraud of a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. |
G. |
In no event shall coverage be provided to the extent not permitted under law. |
ARTICLE 13
A. |
This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company). |
B. |
The amount of the Reinsurers liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts that may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. |
ARTICLE 14
The Company shall be permitted to carry in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.
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ARTICLE 15
All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the respective Policies of the Company. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.
ARTICLE 16
This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.
ARTICLE 17
NOTICE OF LOSS AND LOSS SETTLEMENTS
A. |
The Company shall advise the Reinsurer promptly if paid and estimated Ultimate Net Loss is in excess of 75% of the Companys retention, or if, in the opinion of the Company, such Ultimate Net Loss may result in a claim hereunder. Thereafter, the Company shall advise the Reinsurer, at least monthly, of all subsequent developments thereto that may materially affect the position of the Reinsurer. |
B. |
The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses. |
C. |
As respects losses subject to this Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, and any Extra Contractual Obligations and/or Loss in Excess of Policy Limits, shall be binding upon the Reinsurer. The Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of reasonable evidence of the amount paid by the Company or that the Company estimates it will pay within the next 14 days. Within 30 days after receipt of the Reinsurers payment, the Company shall report to the Reinsurer the Reinsurers payment, minus the Reinsurers share of losses subject to this Contract that the Company has paid, or become liable to pay, as of the date of the report. Any positive difference shall be remitted to the Reinsurer with the Companys report. |
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ARTICLE 18
A. |
In the event any payment due either party is not received by the Intermediary by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: |
1. |
The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times |
2. |
1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times |
3. |
The amount past due, including accrued interest. |
Interest |
shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. |
B. |
The due date shall, for purposes of this Article, be determined as follows: |
1. |
Payments from the Reinsurer to the Company shall be due on the date on which the demand for payment (including delivery of bordereaux or quarterly or monthly reports) is received by the Reinsurer, and shall be overdue 30 days thereafter. |
2. |
Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such reinstatement premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing. |
C. |
If the information contained in the Companys demand for payment is insufficient or not in accordance with the conditions of this Contract, then within 30 days the Reinsurer shall request from the Company all additional information necessary to validate its claim and the payment due date as defined in paragraph B shall be deemed to be the date upon which the Reinsurer received the requested additional information. This paragraph is only for the purpose of establishing when a payment is overdue, and shall not alter the provisions of the Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations. |
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D. |
In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein. |
E. |
Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving partys rights to other interest amounts due as a result of this Article. |
ARTICLE 19
Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any and all balances due from a party to the other arising under this Contract. In the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of any applicable law governing offset entitlement.
ARTICLE 20
A. |
Where the word Dollars and/or the sign $ appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars. |
B. |
For purposes of this Contract, where the Company receives premiums or pays losses in currencies other than United States Dollars, such premiums or losses shall be converted into United States Dollars at the actual rates of exchange at which these premiums or losses are entered in the Companys books. |
ARTICLE 21
A. |
This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Companys reserves. |
B. |
The Company agrees, in respect of its Policies or bonds falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The Reinsurers Obligations shall be defined as follows: |
1. |
unearned premium (if applicable); |
2. |
known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto; |
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3. |
losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer; |
4. |
losses incurred but not reported and Loss Adjustment Expense relating thereto; |
5. |
all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer. |
C. |
The Reinsurers Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves. |
D. |
When funding by Trust Agreement, the Reinsurer shall ensure that the Trust Agreement complies with the provisions of the Trust Agreement Requirements Clause attached hereto. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves in an amount equal to the Reinsurers Obligations. Such LOC shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (or such other time period as may be required by insurance regulatory authorities), prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period. |
E. |
The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company, for the following purposes, unless otherwise provided for in a separate Trust Agreement: |
1. |
to reimburse the Company for the Reinsurers Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid; |
2. |
to make refund of any sum that is in excess of the actual amount required to pay the Reinsurers Obligations under this Contract (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement); |
3. |
to fund an account with the Company for the Reinsurers Obligations. Such cash deposit shall be held in an interest bearing account separate from the Companys other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued interest shall be paid out of the assets in the account that are in excess of the Reinsurers Obligations (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid or reimbursed by the Reinsurer; |
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4. |
to pay the Reinsurers share of any other amounts the Company claims are due under this Contract. |
F. |
If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(4), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer. |
G. |
The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company. |
H. |
At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurers Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner: |
1. |
If the statement shows that the Reinsurers Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference. |
2. |
If, however, the statement shows that the Reinsurers Obligations are less than the balance of the LOC (or that 102% of the Reinsurers Obligations are less than the trust account balance if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess. |
ARTICLE 22
A. |
In consideration of the terms under which this Contract is issued, the Company undertakes not to claim any deduction of the premium hereon when making Canadian tax returns or when making tax returns, other than Income or Profits Tax returns, to any state or territory of the United States of America or to the District of Columbia. |
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B. 1. |
Each Subscribing Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax. |
2. |
In the event of any return of premium becoming due hereunder, the Subscribing Reinsurer shall deduct the applicable percentage of the premium 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 23
A. |
The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (Records) relating to business reinsured under this Contract during regular business hours after giving five working days prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company. |
B. |
Notwithstanding the above, the Company reserves the right to withhold from the Reinsurer any Privileged Documents. However, the Company shall permit and not object to the Reinsurers access to Privileged Documents in connection with the underlying claim reinsured hereunder following final settlement or final adjudication of the case or cases involving such claim, with prejudice against all claimants and all parties to such adjudications; the Company may defer release of such Privileged Documents if there are subrogation, contribution, or other third party actions with respect to that claim or case, and the Companys defense might be jeopardized by release of such Privileged Documents. In the event that the Company seeks to defer release of such Privileged Documents, it shall, in consultation with the Reinsurer, take other steps as reasonably necessary to provide the Reinsurer with the information it reasonably requires to indemnify the Company without causing a loss of such privileges or protections. The Reinsurer shall not have access to Privileged Documents relating to any dispute between the Company and the Reinsurer. |
C. |
For purposes of this Article: |
1. |
Privileged Documents means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents. |
2. |
Attorney-Client Privilege Documents means communications of a confidential nature between (a) the Company, or anyone retained by or at the direction of the Company, or its in-house or outside legal counsel, or anyone in the control of such legal counsel, and (b) any in-house or outside legal counsel, if such communications relate to legal advice being sought by the Company and/or contain legal advice being provided to the Company. |
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3. |
Work Product Privilege Documents means communications, written materials and tangible things prepared by or for in-house or outside counsel, or prepared by or for the Company, in anticipation of or in connection with litigation, arbitration, or other dispute resolution proceedings. |
ARTICLE 24
A. |
The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (Confidential Information) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show: |
1. |
are publicly known or have become publicly known through no unauthorized act of the Reinsurer; |
2. |
have been rightfully received from a third person without obligation of confidentiality; or |
3. |
were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality. |
B. |
Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except: |
1. |
when required by retrocessionaires as respects business ceded to this Contract; |
2. |
when required by regulators performing an audit of the Reinsurers records and/or financial condition; or |
3. |
when required by external auditors performing an audit of the Reinsurers records in the normal course of business. |
Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.
C. |
Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. |
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D. |
The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. |
ARTICLE 25
INDEMNIFICATION AND ERRORS AND OMISSIONS
A. |
The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to: |
1. |
what shall constitute a claim or loss covered under any Policy; |
2. |
the Companys liability thereunder; |
3. |
the amount or amounts that it shall be proper for the Company to pay thereunder. |
B. |
The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy. |
C. |
Any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay had not been made, provided such error, omission or delay is rectified immediately upon discovery. |
D. |
Nothing in this Article shall be construed to override any of the other terms and conditions of this Contract. |
ARTICLE 26
A. |
If more than one reinsured company is referenced within the definition of Company in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary states laws shall prevail. |
B. |
In the event of the insolvency of the Company, this reinsurance (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without |
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diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. |
C. |
Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company. |
D. |
As to all reinsurance made, ceded, renewed or otherwise becoming effective under this Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the Company or to its liquidator, receiver, conservator or statutory successor, (except as provided by Section 4118(a)(1)(A) of the New York Insurance Law, provided the conditions of 1114(c) of such law have been met, if New York law applies) or except (1) where the Contract specifically provides another payee in the event of the insolvency of the Company, or (2) where the Reinsurer, with the consent of the direct insured or insureds, has assumed such Policy obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Company to such payees. Then, and in that event only, the Company, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Financial Services of the State of New York, or with the prior approval of such other regulatory authority as may be applicable, is entirely released from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy. |
ARTICLE 27
A. |
Run-off Reinsurer means any Subscribing Reinsurer that: |
1. |
has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or |
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2. |
has ceased reinsurance underwriting operations; or |
3. |
has transferred its claims-paying authority to an unaffiliated entity; or |
4. |
engages in a process of Scheme of Arrangement or similar procedure related to this Contract, including but not limited to an insurance business transfer scheme pursuant to Part VII of the Financial Services and Markets Act 2000 (U.K.), as may be amended from time to time; or |
5. |
in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (3) and (5) of this paragraph.
B. |
Notwithstanding any other provision of this Contract, in the event that a Subscribing Reinsurer becomes a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurers participation hereunder: |
1. |
Should the Run-off Reinsurer fail to pay amounts due hereunder, the interest penalty specified in the Late Payments Article shall be increased by 0.5% for each 30 days that a payment is past due, subject to a maximum increase of 7.0%. |
2. |
The Run-off Reinsurers liability for losses for Policies covered by this Contract shall be commuted. In the event the Company and the Run-off Reinsurer cannot agree on the commutation amount of the Run-off Reinsurers liability under such Policies, they shall appoint an actuary and/or appraiser to assess such liability and shall share equally any expense of the actuary and/or appraiser. If the Company and the Run-off Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Run-off Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Run-off Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties under this Contract. |
3. |
The Run-off Reinsurer shall have no right of access to the Records of the Company if the Run-off Reinsurer has denied payment of any claim hereunder or there is a pending arbitration between the Company and the Run-off Reinsurer regarding any claim hereunder. A reservation of rights shall be considered a denial of a claim. Notwithstanding the above, the Run-off Reinsurer shall continue to have access to Records of the Company for any claim for which it has raised a query within 30 days of its receipt of a billing, but any inspection of Records must be completed within 90 days of receipt of billing or access will be deemed waived. |
4. |
The provisions of the Arbitration Article shall not apply. |
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C. |
The Companys waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date. |
ARTICLE 28
A. |
Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested. |
B. |
One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days prior notice by certified or registered mail of its intention to do so, may appoint the second arbitrator. |
C. |
If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue. |
D. |
Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings. |
E. |
The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Contract. The arbitration shall take place in Tampa, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate. |
F. |
The panel shall interpret this Contract as an honorable engagement rather than as merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible after the hearings. Judgment upon an award may be entered in any court having jurisdiction thereof. |
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G. |
Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The remaining costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including but not limited to attorneys fees, to the extent permitted by law. |
ARTICLE 29
A. |
Notwithstanding the provisions of the Arbitration Article, in the event an amount in dispute hereunder $1,000,000 or less, the parties will submit to an expedited arbitration process with the use of a single arbitrator. The arbitrator will be chosen in accordance with the procedures for selecting an arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration SocietyU.S. (ARIAS). |
B. |
Each partys case will be submitted to the arbitrator within 100 calendar days of the date of determination of the arbitrator. Discovery will be limited to exchanging only those documents directly relating to the issue in dispute, subject to a limit of two discovery depositions from each party, unless otherwise authorized by the arbitrator upon a showing of good cause. |
C. |
Within 120 calendar days of the date of determination of the arbitrator, the hearing will be completed and a written award will be issued by the arbitrator. As the parties agree that time is of the essence, the sole arbitrator does not have the authority to lengthen the schedule, absent agreement of both parties. The arbitrator will have all the powers conferred on the arbitration panel as provided in the Arbitration Article, and said Article will apply to all matters not specifically addressed above. |
ARTICLE 30
A. |
This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities. |
B. |
This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract. |
C. |
In the event of the failure of the Reinsurer to perform its obligations hereunder, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be |
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understood to constitute a waiver of the Reinsurers rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal. |
D. |
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit. |
E. |
Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof. |
ARTICLE 31
This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.
ARTICLE 32
This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. This Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties. However, this Article shall not be construed as limiting the admissibility of evidence regarding the formation, interpretation, purpose or intent of this Contract.
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ARTICLE 33
The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in this Contract nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such remedy in the future.
ARTICLE 34
For purposes of sending and receiving notices and payments required by this Contract, the reinsured company that is set forth first in the Preamble to this Contract shall be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, shall any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.
ARTICLE 35
Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements, premiums, return premiums, commissions, taxes, losses, Loss Adjustment Expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed payment to the Company only to the extent that such payments are actually received by the Company.
ARTICLE 36
A. |
This Contract may be executed by: |
1. |
an original written ink signature of paper documents; |
2. |
an exchange of facsimile copies showing the original written ink signature of paper documents; |
3. |
electronic signature technology employing computer software and a digital signature or digitizer pen pad to capture a persons handwritten signature in such a manner that the signature is unique to the person signing, is under the sole control of the person |
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signing, is capable of verification to authenticate the signature and is linked to the document signed in such a manner that if the data is changed, such signature is invalidated. |
B. |
The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. |
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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s), who also confirms the Companys review of and agreement to be bound by the terms and conditions of the Interests and Liabilities Agreements attached to and forming part of this Contract, this day of , in the year of 2019.
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
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POOLS, ASSOCIATIONS & SYNDICATES EXCLUSIONS CLAUSE
Section A:
This Contract excludes:
a. |
All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities. |
b. |
Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968 for the purpose of insuring property, whether on a country-wide basis or in respect of designated areas. This exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage. |
Section B:
1. |
This Contract excludes business written by the Company for the same perils, which is known at the time to be insured by, or in excess of underlying amounts placed in, any Pool, Association or Syndicate, whether by way of insurance or reinsurance, formed for the purpose of writing any of the following: |
Oil, Gas or Petro-Chemical Plants
Oil or Gas Drilling Rigs and/or
Aviation Risks
2. |
The exclusion under paragraph 1 of this Section B does not apply: |
a. |
Where the Total Insured Value over all interests of the risk in question is less than $250,000,000. |
b. |
To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis. |
c. |
To Contingent Business Interruption, except when the Company is aware that the key location is known at the time to be insured in any Pool, Association or Syndicate named above, other than as provided for under subparagraph (a). |
Section C:
1. |
Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom: |
a. |
So-called Beach and Windstorm Plans and so-called Coastal Pools; |
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b. |
All FAIR Plan and Rural Risk Plan business; |
c. |
Louisiana Citizens Property Insurance Corporation; |
d. |
California Earthquake Authority (CEA) or any similar entity. |
Notwithstanding the above, assessments related to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation (Florida) shall be excluded hereunder.
2. |
However, this reinsurance does not include any increase in such liability resulting from: |
a. |
The inability of any other participant in such Residual Market Mechanisms to meet its liability; |
b. |
Any claim against a Residual Market Mechanism or any participant therein, including the Company, whether by way of subrogation or otherwise, brought by or on behalf of any insolvency fund (as defined in the Exclusions Article); |
c. |
Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company; |
d. |
The Companys initial capital contribution to the CEA; |
e. |
Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above; |
f. |
Any expenditure to purchase or retire bonds. |
3. |
The Company may include in Ultimate Net Loss for any Loss Occurrence covered hereunder only the liability attributable to that Loss Occurrence. If the relevant entity does not specify what portion of an assessment is attributable to each Loss Occurrence, the Company may include in Ultimate Net Loss in respect of each Loss Occurrence a percentage of the Companys assessments from the relevant entity related to the calendar year in which the Loss Occurrence commenced, regardless of when assessed, such percentage to be determined by dividing the relevant entitys losses arising from the Loss Occurrence by its total losses for the calendar year. |
4. |
The Company will deduct from Ultimate Net Loss amounts received as recoupment of any assessment that has been included in the Ultimate Net Loss, provided the recoupment is directly allocable to the assessment (itemized recoupment). The Company shall use commercially reasonable efforts to recoup such assessment. Any amount received as an itemized recoupment of any assessment (whether under this Contract or any predecessor contract), and therefore deductible from Ultimate Net Loss, shall not be included in the subject premium of this Contract. |
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However, if a state levies assessments but does not allow itemized recoupment from policyholders, instead allowing the Company to file an overall increased rate, any such premium increased thereby shall not be deemed to be a recoupment that is deductible from Ultimate Net Loss. Any recoupment received as part of a general premium rate increase, not specifically itemized, shall be included as part of the subject premium of this Contract or a successor contract, as applicable.
NOTES: |
Wherever used herein the terms: |
Company |
shall be understood to mean Company, Reinsured, Reassured or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies. |
Contract |
shall be understood to mean Agreement, Contract, Policy or whatever other term is used to designate the attached reinsurance document. |
Reinsurer |
shall be understood to mean Reinsurer, Reinsurers, Underwriters or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers. |
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NUCLEAR INCIDENT EXCLUSION CLAUSE PHYSICAL DAMAGE REINSURANCE U.S.A.
1. |
This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. |
2. |
Without in any way restricting the operation of paragraph (1) of this clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: |
I. |
Nuclear reactor power plants including all auxiliary property on the site, or |
II. |
Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and critical facilities as such, or |
III. |
Installations for fabricating complete fuel elements or for processing substantial quantities of special nuclear material, and for reprocessing, salvaging, chemically separating, storing or disposing of spent nuclear fuel or waste materials, or |
IV. |
Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission. |
3. |
Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate |
(a) |
where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or |
(b) |
where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. |
4. |
Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. |
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5. |
It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. |
6. |
The term special nuclear material shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof. |
7. |
Reassured to be sole judge of what constitutes: |
(a) |
substantial quantities, and |
(b) |
the extent of installation, plant or site. |
Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that
(a) |
all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. |
(b) |
with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. |
12/12/57
NMA 1119
NOTES: |
Wherever used herein the terms: |
Reassured |
shall be understood to mean Company, Reinsured, Reassured or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies. |
Agreement |
shall be understood to mean Agreement, Contract, Policy or whatever other term is used to designate the attached reinsurance document. |
Reinsurers |
shall be understood to mean Reinsurers, Underwriters or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers. |
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A. |
Notwithstanding any provision to the contrary within this Contract or any endorsement thereto, it is agreed that this Contract excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any Act of Terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. |
B. |
An Act of Terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological, or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: |
a. |
involves violence against one or more persons; or |
b. |
involves damage to property; or |
c. |
endangers life other than that of the person committing the action; or |
d. |
creates a risk to health or safety of the public or a section of the public; or |
e. |
is designed to interfere with or to disrupt an electronic system. |
C. |
This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any Act of Terrorism. |
D. |
Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract shall pay actual loss or damage (but not related cost or expense) caused by any Act of Terrorism, provided such act is not directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with biological, chemical, radiological or nuclear pollution or contamination. |
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TRUST AGREEMENT REQUIREMENTS CLAUSE
A. |
Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover; |
2. |
Stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash (United States legal tender), and certificates of deposit (issued by a United States bank and payable in United States legal tender), or any combination of the two, provided that the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Reinsurer or the Company; |
3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate these assets without consent or signature from the Reinsurer or any other entity; |
4. |
Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and |
5. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer. |
B. |
If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in California Insurance Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above. |
2. |
Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed 5% of total investments. |
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3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity. |
4. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer. |
C. |
If there are multiple ceding insurers that collectively comprise the Company, regulatory authorities as referenced in subparagraph A(2) above, shall mean the individual ceding insurers domestic regulator. |
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|
EXHIBIT 10.32 |
PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
issued to
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
Tampa, Florida
and
TYPTAP INSURANCE COMPANY
Ocala, Florida
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PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
Article |
Page | |||||
Preamble | 5 | |||||
1 | Business Covered | 5 | ||||
2 | Retention and Limit | 5 | ||||
3 | Florida Hurricane Catastrophe Fund | 6 | ||||
4 | Term | 7 | ||||
5 | Special Termination | 7 | ||||
6 | Territory | 9 | ||||
7 | Exclusions | 9 | ||||
8 | Special Acceptance | 11 | ||||
9 | Premium | 11 | ||||
10 | Reinstatement | 12 | ||||
11 | Definitions | 13 | ||||
12 | Extra Contractual Obligations/Excess of Policy Limits | 16 | ||||
13 | Net Retained Liability | 17 | ||||
14 | Other Reinsurance | 17 | ||||
15 | Original Conditions | 17 | ||||
16 | No Third Party Rights | 17 | ||||
17 | Notice of Loss and Loss Settlements | 18 | ||||
18 | Late Payments | 18 |
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Article |
Page | |||||
19 | Offset | 19 | ||||
20 | Currency | 20 | ||||
21 | Unauthorized Reinsurance | 20 | ||||
22 | Taxes | 22 | ||||
23 | Access to Records | 23 | ||||
24 | Confidentiality | 24 | ||||
25 | Indemnification and Errors and Omissions | 25 | ||||
26 | Insolvency | 25 | ||||
27 | Run-Off Reinsurer | 26 | ||||
28 | Arbitration | 28 | ||||
29 | Expedited Arbitration | 29 | ||||
30 | Service of Suit | 29 | ||||
31 | Governing Law | 30 | ||||
32 | Entire Agreement | 30 | ||||
33 | Non-Waiver | 31 | ||||
34 | Agency | 31 | ||||
35 | Intermediary | 31 | ||||
36 | Mode of Execution | 31 | ||||
Company Signing Block | 33 |
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PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
TABLE OF CONTENTS
Attachments |
Page | |||||
Pools, Associations & Syndicates Exclusions Clause | 35 | |||||
Nuclear Incident Exclusion Clause Physical Damage Reinsurance U.S.A. | 38 | |||||
Terrorism Exclusion | 40 | |||||
Trust Agreement Requirements Clause | 41 |
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PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
(the Contract)
issued to
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
Tampa, Florida
and
TYPTAP INSURANCE COMPANY
Ocala, Florida
(collectively, the Company)
by
THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE
INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED TO
AND FORMING PART OF THIS CONTRACT
(the Reinsurer)
ARTICLE 1
This Contract is to indemnify the Company in respect of its net excess liability as a result of any loss or losses which may occur during the Term of this Contract under any Policies not covered by the Companys Flood Tower, in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, subject to the terms and conditions herein contained.
ARTICLE 2
A. |
For each Layer of reinsurance provided hereunder, the Reinsurer shall be liable in respect of each Loss Occurrence for the Ultimate Net Loss over and above the initial Ultimate Net Loss retention as set forth in the schedule below for the Loss Occurrence, subject to a limit of liability to the Reinsurer for each such Loss Occurrence, and subject further to a limit of liability for all Loss Occurrences commencing during the term of this Contract, as set forth below: |
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RETENTION AND LIMIT SCHEDULE |
||||||||||||
Layer |
Companys
Retention |
Reinsurers Limit of Liability | ||||||||||
Ultimate Net
Loss in respect of each Loss Occurrence |
Ultimate Net Loss in
respect of each Loss Occurrence |
Ultimate Net Loss in
respect of all Loss Occurrences during the term of this Contract |
||||||||||
Third Layer |
$ | **** | $ | **** | $ | **** | ||||||
Fourth Layer |
$ | **** | $ | **** | $ | **** | ||||||
Fifth Layer |
$ | **** | $ | **** | $ | **** |
B. |
In addition to reductions under the provisions of the Florida Hurricane Catastrophe Fund Article, recoveries hereunder shall always be made under the lowest Layer that is not entirely exhausted. If there is any amount of Ultimate Net Loss arising out of a Loss Occurrence in excess of the Companys retention under the lowest Layer that has not been recovered thereunder due to the exhaustion of the lowest Layer, such amount shall be recovered under the next or subsequent Layer or Layers, as appropriate. Recoveries as respects losses applicable to each Layer shall inure as follows: |
1. |
Recoveries under the Third Layer shall inure to the benefit of the Fourth Layer, whether or not recoverable; and |
2. |
Recoveries under the Third and Fourth Layers shall inure to the benefit of the Fifth Layer, whether or not recoverable. |
It is understood, however, that any fully exhausted Layer or the exhausted portion of any Layer shall no longer inure to the benefit of any subsequent Layer(s).
C. |
No Loss Occurrence shall be covered hereunder unless it involves two or more risks subject to this Contract. The Company shall be the sole judge of what constitutes one risk for purposes of this Contract. |
ARTICLE 3
FLORIDA HURRICANE CATASTROPHE FUND
A. |
As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following: |
1. |
The full reimbursement amount due from the FHCF, based on statutory limits of coverage as of June 1, shall be deemed recovered by the Company, whether or not actually received from the FHCF and whether or not reduced because of the FHCFs inability to pay. |
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2. |
For purposes of allocating recoveries from the FHCF with respect to each Loss Occurrence, only amounts recoverable by applying the pay-out and retention multiples for the FHCF prior to any reduction in retention due to multiple Loss Occurrences in the same annual period shall be included in calculating the deduction from Ultimate Net Loss. |
3. |
If the Companys aggregate limit of FHCF reimbursement coverage is exhausted from Loss Occurrences commencing during the term of this Contract, and the FHCF does not designate the portion of said limit allocable to each Loss Occurrence, the total FHCF reimbursement received shall be allocated to the each individual Loss Occurrence in the proportion that the Companys losses in that Loss Occurrence bear to the Companys total losses arising out of all Loss Occurrences to which the reimbursement applies. |
4. |
For purposes of loss recoveries under this Contract prior to the final determination of the Companys retention and limit under the FHCF, FHCF coverage shall be calculated using the Companys Projected Payout Multiple under the FHCF. Upon determination of the Companys retention and limit under the FHCF, losses will be adjusted, recognizing any adjustment to the Projected Payout Multiple caused by a change in the Aggregate Mandatory FHCF Premium but disregarding any change due to a decrease in the statutory limit. |
B. |
Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance. |
C. |
The Company has opted for a 45% coverage selection from the FHCF. |
ARTICLE 4
This Contract shall take effect at 12:01 a.m., Standard Time, June 1, 2019, and unless terminated prior to that time and date as provided in the Special Termination Article, shall remain in effect until 12:01 a.m., Standard Time, June 1, 2020, applying to Loss Occurrences commencing during the term of this Contract. For purposes of this Contract, Standard Time shall mean the time as described in the original Policy.
ARTICLE 5
A. |
The Company may terminate a Subscribing Reinsurers percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances: |
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1. |
The Subscribing Reinsurer ceases underwriting operations. |
2. |
A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision. |
3. |
The Subscribing Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations. |
4. |
The Subscribing Reinsurers policyholders surplus (or the equivalent under the Subscribing Reinsurers accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract). |
5. |
The Subscribing Reinsurer has merged with or has become acquired or controlled by any company, corporation, or individual(s) not controlling the Subscribing Reinsurers operations at the inception of this Contract. |
6. |
The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Companys prior written consent, except for retrocessions to members of the Subscribing Reinsurers holding company group. |
7. |
The Subscribing Reinsurer has been assigned an A.M. Bests rating of less than A- and/or an S&P rating of less than BBB+. However, as respects Underwriting Members of Lloyds, London, a Lloyds Market Rating of less than A- by A.M. Best and/or less than BBB+ by S&P shall apply. |
8. |
The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid. |
9. |
The Subscribing Reinsurer has in any other way assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (8) and (9) of this paragraph.
10. |
The Subscribing Reinsurer has failed to post or maintain required collateral to secure its obligations as required under this Contract, and has not cured such deficiency within 30 days following written notice thereof from the Company. |
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B. |
Termination shall be effected on a cut-off basis and the Subscribing Reinsurer shall have no liability for Loss Occurrences commencing after the date of termination. The reinsurance premium due the Subscribing Reinsurer hereunder (including any minimum reinsurance premium) shall be prorated based on the period of the Subscribing Reinsurers participation hereon, and the Subscribing Reinsurer shall immediately return any excess reinsurance premium received. Reinstatement premium, if any, shall be calculated based on the Subscribing Reinsurers reinsurance premium earned during the period of the Subscribing Reinsurers participation hereon. |
C. |
Additionally, in the event of any of the circumstances listed in paragraph A of this Article, the Company shall have the option to commute the Subscribing Reinsurers liability for losses on Policies covered by this Contract. In the event the Company and the Subscribing Reinsurer cannot agree on the commutation amount, they shall appoint an actuary and/or appraiser to assess such amount and shall share equally any expense of the actuary and/or appraiser. If the Company and the Subscribing Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Subscribing Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Subscribing Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties in respect of liability arising from the Subscribing Reinsurers participation under this Contract. |
D. |
The Companys option to require commutation under paragraph C above shall survive the termination or expiration of this Contract. |
ARTICLE 6
The territorial limits of this Contract shall be identical with those of the Companys Policies.
ARTICLE 7
A. |
This Contract shall not apply to and specifically excludes: |
1. |
Flood when written as such. |
2. |
Earthquake for standalone Policies where earthquake is the only named peril. |
3. |
Hail damage to an insureds growing or standing crops. |
4. |
Reinsurance assumed by the Company under obligatory reinsurance agreements, except intercompany reinsurance between the Company and its affiliates and agency reinsurance where the Policies involved are to be re-underwritten in accordance with the underwriting standards of the Company and reissued as Policies of the Company at the next anniversary or expiration date. |
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5. |
Pools, Associations & Syndicates, per the attached exclusion. |
6. |
Liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any Insolvency Fund. Insolvency Fund includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, that provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, that has been declared by any competent authority to be insolvent, or that is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. |
7. |
Loss or damage occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, martial law, or confiscation by order of any government or public authority, but not excluding loss or damage that would be covered under a standard form of Policy containing a standard war exclusion clause. |
8. |
Losses excluded by the attached Nuclear Incident Exclusion Clause Physical Damage Reinsurance U.S.A. |
9. |
Terrorism as defined in the attached Terrorism Exclusion. |
10. |
Mold unless directly resulting from an otherwise covered peril. |
11. |
Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Companys property loss under the applicable original Policy. |
12. |
Financial guarantee and insolvency. |
13. |
Loss or damage to overhead transmission and distribution lines, including supporting structures, of electrical companies, telephone companies, and cable companies. This exclusion shall not apply, however, to transmission and distribution lines and their supporting structures located on the property of any original insured or within 1,000 feet thereof. |
B. |
Except as respects exclusions A(7), A(8), A(9), and A(12), if the Company inadvertently issues a Policy falling within the scope of one or more of the exclusions, such Policy shall be covered hereunder, provided that the Company issues, or causes to be issued, the required notice of cancellation within 30 days after a member of the executive or managerial staff at |
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the Companys home office having underwriting authority in the class of business involved becomes aware that the Policy applies to excluded classes, unless the Company is prevented from canceling said Policy within such period by applicable statute or regulation, in which case such Policy shall be covered hereunder until the earliest date on which the Company may cancel. |
ARTICLE 8
Business that is not within the scope of this Contract may be submitted to the Reinsurer for special acceptance hereunder, and such business, if accepted by the Reinsurer shall be covered hereunder, subject to the terms and conditions of this Contract, except as modified by the special acceptance. The Reinsurer shall be deemed to have accepted a risk, if it has not responded within five business days after receiving the underwriting information on such risk. Any renewal of a special acceptance agreed to for a predecessor contract to this Contract, shall automatically be covered hereunder.
ARTICLE 9
A. |
As respects each Layer, the Company shall pay the Reinsurer a deposit premium in accordance with the schedule set forth below. The Final Adjusted Premium to be paid to the Reinsurer for the reinsurance provided under each Layer shall be calculated at the rates set out below multiplied by the Companys final Total Insured Value, subject to the applicable minimum premium stated below: |
PREMIUM SCHEDULE |
||||||||||||
Layer |
Final Adjusted
Premium Rate |
Deposit
Premium |
Minimum
Premium |
|||||||||
Third Layer |
**** | % | $ | **** | $ | **** | ||||||
Fourth Layer |
**** | % | $ | **** | $ | **** | ||||||
Fifth Layer |
**** | % | $ | **** | $ | **** |
B. |
The deposit premiums set forth in paragraph A above shall be payable to the Reinsurer by the Company in installments as follows: |
DEPOSIT INSTALLMENT SCHEDULE |
||||||||||||||||
Layer |
June 1, 2019 | September 1, 2019 | January 1, 2020 | April 1, 2020 | ||||||||||||
Third Layer |
$ | **** | $ | **** | $ | **** | $ | **** | ||||||||
Fourth Layer |
$ | **** | $ | **** | $ | **** | $ | **** | ||||||||
Fifth Layer |
$ | **** | $ | **** | $ | **** | $ | **** |
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C. |
Within 45 days following the expiration of this Contract, the Company shall provide the Reinsurer with a report showing the Companys final Total Insured Value. This final Total Insured Value shall be multiplied by the rate for each Layer as stated in paragraph A above. Should this amount be greater than or equal to ****% and less than or equal to ****% of the Deposit Premium as set forth above, there shall be no additional or return premium due. Should the amount so calculated exceed ****% of the Deposit Premium paid in accordance with paragraph A above, the Company shall immediately pay the Reinsurer the difference in excess of ****% of the Deposit Premium. Should the amount so calculated be less than ****% of the Deposit Premium paid in accordance with paragraph A of this Article, the Reinsurer shall immediately pay the Company the difference below ****% of the Deposit Premium, subject to the Minimum Premium as set forth above. |
D. |
Total Insured Value means the Companys aggregate wind exposures on September 30, 2019 for business covered hereunder. |
E. |
The estimated Total Insured Value is $33,489,296,549. |
F. |
The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurers financial statements. |
ARTICLE 10
A. |
Loss payments under any Layer of this Contract shall reduce the limit of coverage afforded by the amounts paid, but the limit of coverage shall be reinstated from the time of the occurrence of the loss, and for each amount so reinstated, the Company agrees to pay , simultaneously with the Reinsurers loss payment, an additional premium calculated at pro rata of the Reinsurers premium for the applicable layer(s) for the term of this Contract, being pro rata only as to the fraction of the Reinsurers limit of liability hereunder (i.e., the fraction of the Reinsurers limit of liability for each Loss Occurrence as set forth for the Layer in the Retention and Limit Article) so reinstated. Nevertheless, the Reinsurers liability under the applicable layer(s) shall not exceed such limit(s) in respect of any one Loss Occurrence, nor the applicable limit(s) in respect of all Loss Occurrences commencing during the term of this Contract, as set forth in the Retention and Limit Article. |
B. |
If at the time of a loss settlement hereon the reinsurance premium, as calculated in accordance with the Premium Article, is unknown, the above calculation of reinstatement premium shall be based upon the deposit premium, subject to adjustment when the reinsurance premium is finally established. |
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ARTICLE 11
A. |
1.Ultimate Net Loss means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 100% of any Extra Contractual Obligation and 100% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article. In no event, however, shall more than 25% of Ultimate Net Loss for any one Loss Occurrence be comprised of Extra Contractual Obligations and Loss in Excess of Policy Limits. |
2. |
Salvages and all recoveries (including amounts due from all reinsurances that inure to the benefit of this Contract, whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder. |
3. |
All salvages, recoveries or payments recovered or received subsequent to loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. |
4. |
The Company shall be deemed to be liable to pay a loss when a judgment has been rendered that the Company does not plan to appeal, and/or the Company has obtained a release, and/or the Company has accepted a proof of loss, and/or the Company has made a commitment to pay, and/or the Company has scheduled the payment of a loss. |
5. |
Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Companys Ultimate Net Loss has been ascertained. |
B. |
Loss Adjustment Expense means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to: |
1. |
court costs; |
2. |
costs of supersedeas and appeal bonds; |
3. |
monitoring counsel expenses; |
4. |
legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions; |
5. |
post-judgment interest; |
6. |
pre-judgment interest, unless included as part of an award or judgment; |
7. |
a pro rata share of salaries and expenses of Company field employees, calculated in accordance with the time occupied in adjusting such loss, and expenses of other |
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Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract; and |
8. |
subrogation, salvage and recovery expenses. |
Loss Adjustment Expense does not include salaries and expenses of the Companys employees, except as provided in subparagraph (7) above, and office and other overhead expenses.
C. 1. |
Loss Occurrence means the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term Loss Occurrence shall be further defined as follows: |
a. |
As regards any Named Storm, all individual losses sustained by the Company arising out of and directly occasioned by such Named Storm, without regard to the limitations of duration and extent set forth above. Named Storm means any storm or storm system declared by the US National Hurricane Center, US Central Pacific Hurricane Center, US Weather Prediction Center, or their successor organizations, all being divisions of the US National Weather Service to be a tropical storm or hurricane, and any successors thereof. A storm or storm system that merges with a Named Storm shall be considered part of that Named Storm, once it has merged. A Named Storm shall be deemed to begin at the effective time and date of the first watch, warning or other official advisory applicable to such tropical storm or hurricane issued by the above referenced governmental meteorological agencies. A Named Storm shall be deemed to end 72 hours after the cancellation of the last watch, warning or other official advisory applicable to such tropical storm, hurricane or successor, issued by the above referenced governmental meteorological agencies irrespective of the duration of the timing or spacing between such watches, warnings or other official advisories. If two or more storms are assigned different names by the above referenced governmental meteorological agencies, each of those storms shall constitute a separate event for purposes of this definition. |
b. |
As regards windstorm, hail, tornado, cyclone, including ensuing collapse and water damage other than Named Storm, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. |
c. |
As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same |
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event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses that occur beyond such 96 consecutive hours during the continued occupation of an assureds premises by strikers, provided such occupation commenced during the aforesaid period. |
d. |
As regards earthquake and fire following directly occasioned by the earthquake, those earthquake losses and individual fire losses that commence during the period of 168 consecutive hours may be included in the Companys Loss Occurrence. |
e. |
As regards any related weather conditions involving snow, sleet, freezing rain, freeze, ice, winter weather, and wind losses related to such conditions, all individual losses sustained by the Company, that occur during any period of 168 consecutive hours arising out of and directly occasioned by the same event. |
f. |
As regards firestorms, brush fires and other fires or series of fires, irrespective of origin (except for fires covered in subparagraphs (c) and (d) above) which spread through trees, grassland or other vegetation, all individual losses sustained by the Company occurring during any period of 168 consecutive hours within a 150-mile radius of any fixed point selected by the Company may be included in the Companys Loss Occurrence. However, an individual loss subject to this subparagraph cannot be included in more than one Loss Occurrence. |
2. |
Except as provided in subparagraph (1)(a) above: |
a. |
The Company may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. |
b. |
Only one period of consecutive hours shall apply with respect to one event, except that, as respects those Loss Occurrences referred to in subparagraph (1)(c) above, if the disaster, accident or loss occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident or loss into two or more Loss Occurrences provided no two periods overlap and no individual loss is included in more than one such period and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. |
3. |
Losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one Loss Occurrence. Furthermore, all losses arising from an event involving a combination of losses described in subparagraphs (1)(a) and (1)(b) may be considered as having arisen from one Loss Occurrence. Notwithstanding the foregoing, the hourly limitations as stated above |
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shall not be exceeded as respects the applicable perils, and, except as respects those Loss Occurrences involving a Named Storm referred to in subparagraph (1)(a) above, no single Loss Occurrence shall encompass a time period greater than 168 consecutive hours. |
D. |
Policy means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company. |
ARTICLE 12
EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS
A. |
This Contract shall cover Extra Contractual Obligations, as provided in the definition of Ultimate Net Loss. Extra Contractual Obligations shall be defined as those liabilities not covered under any other provision of this Contract and that arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the 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 reinsured or in the preparation or prosecution of an appeal consequent upon such action. |
B. |
This Contract shall cover Loss in Excess of Policy Limits, as provided in the definition of Ultimate Net Loss. Loss in Excess of Policy Limits shall be defined as Loss in excess of the Policy limit, having been incurred because of, but not limited to, failure by the 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 reinsured or in the preparation or prosecution of an appeal consequent upon such action. |
C. |
An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Companys Policy, and shall constitute part of the original loss. |
D. |
For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word Loss shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy. |
E. |
Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense. |
F. |
However, this Article shall not apply where the loss has been incurred due to final legal adjudication of fraud of a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. |
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G. |
In no event shall coverage be provided to the extent not permitted under law. |
ARTICLE 13
A. |
This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company). |
B. |
The amount of the Reinsurers liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts that may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. |
ARTICLE 14
The Company shall be permitted to carry in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.
ARTICLE 15
All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the respective Policies of the Company. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.
ARTICLE 16
This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.
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ARTICLE 17
NOTICE OF LOSS AND LOSS SETTLEMENTS
A. |
The Company shall advise the Reinsurer promptly if paid and estimated Ultimate Net Loss is in excess of 75% of the Companys retention, or if, in the opinion of the Company, such Ultimate Net Loss may result in a claim hereunder. Thereafter, the Company shall advise the Reinsurer, at least monthly, of all subsequent developments thereto that may materially affect the position of the Reinsurer. |
B. |
The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses. |
C. |
As respects losses subject to this Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, and any Extra Contractual Obligations and/or Loss in Excess of Policy Limits, shall be binding upon the Reinsurer. The Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of reasonable evidence of the amount paid by the Company or that the Company estimates it will pay within the next 14 days. Within 30 days after receipt of the Reinsurers payment, the Company shall report to the Reinsurer the Reinsurers payment, minus the Reinsurers share of losses subject to this Contract that the Company has paid, or become liable to pay, as of the date of the report. Any positive difference shall be remitted to the Reinsurer with the Companys report. |
ARTICLE 18
A. |
In the event any payment due either party is not received by the Intermediary by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: |
1. |
The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times |
2. |
1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times |
3. |
The amount past due, including accrued interest. |
Interest |
shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. |
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B. |
The due date shall, for purposes of this Article, be determined as follows: |
1. |
Payments from the Reinsurer to the Company shall be due on the date on which the demand for payment (including delivery of bordereaux or quarterly or monthly reports) is received by the Reinsurer, and shall be overdue 30 days thereafter. |
2. |
Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such reinstatement premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing. |
C. |
If the information contained in the Companys demand for payment is insufficient or not in accordance with the conditions of this Contract, then within 30 days the Reinsurer shall request from the Company all additional information necessary to validate its claim and the payment due date as defined in paragraph B shall be deemed to be the date upon which the Reinsurer received the requested additional information. This paragraph is only for the purpose of establishing when a payment is overdue, and shall not alter the provisions of the Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations. |
D. |
In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein. |
E. |
Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving partys rights to other interest amounts due as a result of this Article. |
ARTICLE 19
Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any and all balances due from a party to the other arising under this Contract. In the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of any applicable law governing offset entitlement.
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ARTICLE 20
A. |
Where the word Dollars and/or the sign $ appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars. |
B. |
For purposes of this Contract, where the Company receives premiums or pays losses in currencies other than United States Dollars, such premiums or losses shall be converted into United States Dollars at the actual rates of exchange at which these premiums or losses are entered in the Companys books. |
ARTICLE 21
A. |
This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Companys reserves. |
B. |
The Company agrees, in respect of its Policies or bonds falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The Reinsurers Obligations shall be defined as follows: |
1. |
unearned premium (if applicable); |
2. |
known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto; |
3. |
losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer; |
4. |
losses incurred but not reported and Loss Adjustment Expense relating thereto; |
5. |
all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer. |
C. |
The Reinsurers Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves. |
D. |
When funding by Trust Agreement, the Reinsurer shall ensure that the Trust Agreement complies with the provisions of the Trust Agreement Requirements Clause attached hereto. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to |
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the Company of a clean, irrevocable and unconditional LOC issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves in an amount equal to the Reinsurers Obligations. Such LOC shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (or such other time period as may be required by insurance regulatory authorities), prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period. |
E. |
The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company, for the following purposes, unless otherwise provided for in a separate Trust Agreement: |
1. |
to reimburse the Company for the Reinsurers Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid; |
2. |
to make refund of any sum that is in excess of the actual amount required to pay the Reinsurers Obligations under this Contract (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement); |
3. |
to fund an account with the Company for the Reinsurers Obligations. Such cash deposit shall be held in an interest bearing account separate from the Companys other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued interest shall be paid out of the assets in the account that are in excess of the Reinsurers Obligations (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid or reimbursed by the Reinsurer; |
4. |
to pay the Reinsurers share of any other amounts the Company claims are due under this Contract. |
F. |
If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(4), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer. |
G. |
The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company. |
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H. |
At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurers Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner: |
1. |
If the statement shows that the Reinsurers Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference. |
2. |
If, however, the statement shows that the Reinsurers Obligations are less than the balance of the LOC (or that 102% of the Reinsurers Obligations are less than the trust account balance if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess. |
ARTICLE 22
A. |
In consideration of the terms under which this Contract is issued, the Company undertakes not to claim any deduction of the premium hereon when making Canadian tax returns or when making tax returns, other than Income or Profits Tax returns, to any state or territory of the United States of America or to the District of Columbia. |
B. |
1.Each Subscribing Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax. |
2. |
In the event of any return of premium becoming due hereunder, the Subscribing Reinsurer shall deduct the applicable percentage of the premium from the amount of the return, and the Company or its agent should take steps to recover the Tax from the U.S. Government. |
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ARTICLE 23
A. |
The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (Records) relating to business reinsured under this Contract during regular business hours after giving five working days prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company. |
B. |
Notwithstanding the above, the Company reserves the right to withhold from the Reinsurer any Privileged Documents. However, the Company shall permit and not object to the Reinsurers access to Privileged Documents in connection with the underlying claim reinsured hereunder following final settlement or final adjudication of the case or cases involving such claim, with prejudice against all claimants and all parties to such adjudications; the Company may defer release of such Privileged Documents if there are subrogation, contribution, or other third party actions with respect to that claim or case, and the Companys defense might be jeopardized by release of such Privileged Documents. In the event that the Company seeks to defer release of such Privileged Documents, it shall, in consultation with the Reinsurer, take other steps as reasonably necessary to provide the Reinsurer with the information it reasonably requires to indemnify the Company without causing a loss of such privileges or protections. The Reinsurer shall not have access to Privileged Documents relating to any dispute between the Company and the Reinsurer. |
C. |
For purposes of this Article: |
1. |
Privileged Documents means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents. |
2. |
Attorney-Client Privilege Documents means communications of a confidential nature between (a) the Company, or anyone retained by or at the direction of the Company, or its in-house or outside legal counsel, or anyone in the control of such legal counsel, and (b) any in-house or outside legal counsel, if such communications relate to legal advice being sought by the Company and/or contain legal advice being provided to the Company. |
3. |
Work Product Privilege Documents means communications, written materials and tangible things prepared by or for in-house or outside counsel, or prepared by or for the Company, in anticipation of or in connection with litigation, arbitration, or other dispute resolution proceedings. |
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ARTICLE 24
A. |
The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (Confidential Information) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show: |
1. |
are publicly known or have become publicly known through no unauthorized act of the Reinsurer; |
2. |
have been rightfully received from a third person without obligation of confidentiality; or |
3. |
were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality. |
B. |
Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except: |
1. |
when required by retrocessionaires as respects business ceded to this Contract; |
2. |
when required by regulators performing an audit of the Reinsurers records and/or financial condition; or |
3. |
when required by external auditors performing an audit of the Reinsurers records in the normal course of business. |
Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.
C. |
Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. |
D. |
The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. |
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ARTICLE 25
INDEMNIFICATION AND ERRORS AND OMISSIONS
A. |
The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to: |
1. |
what shall constitute a claim or loss covered under any Policy; |
2. |
the Companys liability thereunder; |
3. |
the amount or amounts that it shall be proper for the Company to pay thereunder. |
B. |
The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy. |
C. |
Any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay had not been made, provided such error, omission or delay is rectified immediately upon discovery. |
D. |
Nothing in this Article shall be construed to override any of the other terms and conditions of this Contract. |
ARTICLE 26
A. |
If more than one reinsured company is referenced within the definition of Company in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary states laws shall prevail. |
B. |
In the event of the insolvency of the Company, this reinsurance (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the |
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conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. |
C. |
Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company. |
D. |
As to all reinsurance made, ceded, renewed or otherwise becoming effective under this Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the Company or to its liquidator, receiver, conservator or statutory successor, (except as provided by Section 4118(a)(1)(A) of the New York Insurance Law, provided the conditions of 1114(c) of such law have been met, if New York law applies) or except (1) where the Contract specifically provides another payee in the event of the insolvency of the Company, or (2) where the Reinsurer, with the consent of the direct insured or insureds, has assumed such Policy obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Company to such payees. Then, and in that event only, the Company, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Financial Services of the State of New York, or with the prior approval of such other regulatory authority as may be applicable, is entirely released from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy. |
ARTICLE 27
A. |
Run-off Reinsurer means any Subscribing Reinsurer that: |
1. |
has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or |
2. |
has ceased reinsurance underwriting operations; or |
3. |
has transferred its claims-paying authority to an unaffiliated entity; or |
4. |
engages in a process of Scheme of Arrangement or similar procedure related to this Contract, including but not limited to an insurance business transfer scheme pursuant to Part VII of the Financial Services and Markets Act 2000 (U.K.), as may be amended from time to time; or |
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5. |
in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (3) and (5) of this paragraph.
B. |
Notwithstanding any other provision of this Contract, in the event that a Subscribing Reinsurer becomes a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurers participation hereunder: |
1. |
Should the Run-off Reinsurer fail to pay amounts due hereunder, the interest penalty specified in the Late Payments Article shall be increased by 0.5% for each 30 days that a payment is past due, subject to a maximum increase of 7.0%. |
2. |
The Run-off Reinsurers liability for losses for Policies covered by this Contract shall be commuted. In the event the Company and the Run-off Reinsurer cannot agree on the commutation amount of the Run-off Reinsurers liability under such Policies, they shall appoint an actuary and/or appraiser to assess such liability and shall share equally any expense of the actuary and/or appraiser. If the Company and the Run-off Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Run-off Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Run-off Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties under this Contract. |
3. |
The Run-off Reinsurer shall have no right of access to the Records of the Company if the Run-off Reinsurer has denied payment of any claim hereunder or there is a pending arbitration between the Company and the Run-off Reinsurer regarding any claim hereunder. A reservation of rights shall be considered a denial of a claim. Notwithstanding the above, the Run-off Reinsurer shall continue to have access to Records of the Company for any claim for which it has raised a query within 30 days of its receipt of a billing, but any inspection of Records must be completed within 90 days of receipt of billing or access will be deemed waived. |
4. |
The provisions of the Arbitration Article shall not apply. |
C. |
The Companys waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date. |
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ARTICLE 28
A. |
Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested. |
B. |
One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days prior notice by certified or registered mail of its intention to do so, may appoint the second arbitrator. |
C. |
If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue. |
D. |
Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings. |
E. |
The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Contract. The arbitration shall take place in Tampa, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate. |
F. |
The panel shall interpret this Contract as an honorable engagement rather than as merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible after the hearings. Judgment upon an award may be entered in any court having jurisdiction thereof. |
G. |
Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The remaining costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including but not limited to attorneys fees, to the extent permitted by law. |
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ARTICLE 29
A. |
Notwithstanding the provisions of the Arbitration Article, in the event an amount in dispute hereunder $1,000,000 or less, the parties will submit to an expedited arbitration process with the use of a single arbitrator. The arbitrator will be chosen in accordance with the procedures for selecting an arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration SocietyU.S. (ARIAS). |
B. |
Each partys case will be submitted to the arbitrator within 100 calendar days of the date of determination of the arbitrator. Discovery will be limited to exchanging only those documents directly relating to the issue in dispute, subject to a limit of two discovery depositions from each party, unless otherwise authorized by the arbitrator upon a showing of good cause. |
C. |
Within 120 calendar days of the date of determination of the arbitrator, the hearing will be completed and a written award will be issued by the arbitrator. As the parties agree that time is of the essence, the sole arbitrator does not have the authority to lengthen the schedule, absent agreement of both parties. The arbitrator will have all the powers conferred on the arbitration panel as provided in the Arbitration Article, and said Article will apply to all matters not specifically addressed above. |
ARTICLE 30
A. |
This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities. |
B. |
This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract. |
C. |
In the event of the failure of the Reinsurer to perform its obligations hereunder, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurers rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the |
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United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal. |
D. |
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit. |
E. |
Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof. |
ARTICLE 31
This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.
ARTICLE 32
This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. This Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties. However, this Article shall not be construed as limiting the admissibility of evidence regarding the formation, interpretation, purpose or intent of this Contract.
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ARTICLE 33
The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in this Contract nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such remedy in the future.
ARTICLE 34
For purposes of sending and receiving notices and payments required by this Contract, the reinsured company that is set forth first in the Preamble to this Contract shall be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, shall any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.
ARTICLE 35
Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements, premiums, return premiums, commissions, taxes, losses, Loss Adjustment Expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed payment to the Company only to the extent that such payments are actually received by the Company.
ARTICLE 36
A. |
This Contract may be executed by: |
1. |
an original written ink signature of paper documents; |
2. |
an exchange of facsimile copies showing the original written ink signature of paper documents; |
3. |
electronic signature technology employing computer software and a digital signature or digitizer pen pad to capture a persons handwritten signature in such a manner that the signature is unique to the person signing, is under the sole control of the person |
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signing, is capable of verification to authenticate the signature and is linked to the document signed in such a manner that if the data is changed, such signature is invalidated. |
B. |
The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. |
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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s), who also confirms the Companys review of and agreement to be bound by the terms and conditions of the Interests and Liabilities Agreements attached to and forming part of this Contract, this day of , in the year of 2019.
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
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and on this day of , in the year 2019.
TYPTAP INSURANCE COMPANY
PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
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POOLS, ASSOCIATIONS & SYNDICATES EXCLUSIONS CLAUSE
Section A:
This Contract excludes:
a. |
All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities. |
b. |
Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968 for the purpose of insuring property, whether on a country-wide basis or in respect of designated areas. This exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage. |
Section B:
1. |
This Contract excludes business written by the Company for the same perils, which is known at the time to be insured by, or in excess of underlying amounts placed in, any Pool, Association or Syndicate, whether by way of insurance or reinsurance, formed for the purpose of writing any of the following: |
Oil, Gas or Petro-Chemical Plants
Oil or Gas Drilling Rigs and/or
Aviation Risks
2. |
The exclusion under paragraph 1 of this Section B does not apply: |
a. |
Where the Total Insured Value over all interests of the risk in question is less than $250,000,000. |
b. |
To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis. |
c. |
To Contingent Business Interruption, except when the Company is aware that the key location is known at the time to be insured in any Pool, Association or Syndicate named above, other than as provided for under subparagraph (a). |
Section C:
1. |
Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom: |
a. |
So-called Beach and Windstorm Plans and so-called Coastal Pools; |
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b. |
All FAIR Plan and Rural Risk Plan business; |
c. |
Louisiana Citizens Property Insurance Corporation; |
d. |
California Earthquake Authority (CEA) or any similar entity. |
Notwithstanding the above, assessments related to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation (Florida) shall be excluded hereunder.
2. |
However, this reinsurance does not include any increase in such liability resulting from: |
a. |
The inability of any other participant in such Residual Market Mechanisms to meet its liability; |
b. |
Any claim against a Residual Market Mechanism or any participant therein, including the Company, whether by way of subrogation or otherwise, brought by or on behalf of any insolvency fund (as defined in the Exclusions Article); |
c. |
Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company; |
d. |
The Companys initial capital contribution to the CEA; |
e. |
Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above; |
f. |
Any expenditure to purchase or retire bonds. |
3. |
The Company may include in Ultimate Net Loss for any Loss Occurrence covered hereunder only the liability attributable to that Loss Occurrence. If the relevant entity does not specify what portion of an assessment is attributable to each Loss Occurrence, the Company may include in Ultimate Net Loss in respect of each Loss Occurrence a percentage of the Companys assessments from the relevant entity related to the calendar year in which the Loss Occurrence commenced, regardless of when assessed, such percentage to be determined by dividing the relevant entitys losses arising from the Loss Occurrence by its total losses for the calendar year. |
4. |
The Company will deduct from Ultimate Net Loss amounts received as recoupment of any assessment that has been included in the Ultimate Net Loss, provided the recoupment is directly allocable to the assessment (itemized recoupment). The Company shall use commercially reasonable efforts to recoup such assessment. Any amount received as an itemized recoupment of any assessment (whether under this Contract or any predecessor contract), and therefore deductible from Ultimate Net Loss, shall not be included in the subject premium of this Contract. |
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However, if a state levies assessments but does not allow itemized recoupment from policyholders, instead allowing the Company to file an overall increased rate, any such premium increased thereby shall not be deemed to be a recoupment that is deductible from Ultimate Net Loss. Any recoupment received as part of a general premium rate increase, not specifically itemized, shall be included as part of the subject premium of this Contract or a successor contract, as applicable.
NOTES: |
Wherever used herein the terms: |
Company |
shall be understood to mean Company, Reinsured, Reassured or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies. |
Contract |
shall be understood to mean Agreement, Contract, Policy or whatever other term is used to designate the attached reinsurance document. |
Reinsurer |
shall be understood to mean Reinsurer, Reinsurers, Underwriters or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers. |
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NUCLEAR INCIDENT EXCLUSION CLAUSEPHYSICAL DAMAGEREINSURANCEU.S.A.
1. |
This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. |
2. |
Without in any way restricting the operation of paragraph (1) of this clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: |
I. |
Nuclear reactor power plants including all auxiliary property on the site, or |
II. |
Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and critical facilities as such, or |
III. |
Installations for fabricating complete fuel elements or for processing substantial quantities of special nuclear material, and for reprocessing, salvaging, chemically separating, storing or disposing of spent nuclear fuel or waste materials, or |
IV. |
Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission. |
3. |
Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate |
(a) |
where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or |
(b) |
where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. |
4. |
Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. |
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5. |
It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. |
6. |
The term special nuclear material shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof. |
7. |
Reassured to be sole judge of what constitutes: |
(a) |
substantial quantities, and |
(b) |
the extent of installation, plant or site. |
Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that
(a) |
all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. |
(b) |
with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. |
12/12/57
NMA 1119
NOTES: |
Wherever used herein the terms: |
Reassured |
shall be understood to mean Company, Reinsured, Reassured or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies. |
Agreement |
shall be understood to mean Agreement, Contract, Policy or whatever other term is used to designate the attached reinsurance document. |
Reinsurers |
shall be understood to mean Reinsurers, Underwriters or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers. |
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A. |
Notwithstanding any provision to the contrary within this Contract or any endorsement thereto, it is agreed that this Contract excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any Act of Terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. |
B. |
An Act of Terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological, or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: |
a. |
involves violence against one or more persons; or |
b. |
involves damage to property; or |
c. |
endangers life other than that of the person committing the action; or |
d. |
creates a risk to health or safety of the public or a section of the public; or |
e. |
is designed to interfere with or to disrupt an electronic system. |
C. |
This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any Act of Terrorism. |
D. |
Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract shall pay actual loss or damage (but not related cost or expense) caused by any Act of Terrorism, provided such act is not directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with biological, chemical, radiological or nuclear pollution or contamination. |
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TRUST AGREEMENT REQUIREMENTS CLAUSE
A. |
Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover; |
2. |
Stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash (United States legal tender), and certificates of deposit (issued by a United States bank and payable in United States legal tender), or any combination of the two, provided that the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Reinsurer or the Company; |
3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate these assets without consent or signature from the Reinsurer or any other entity; |
4. |
Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and |
5. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer. |
B. |
If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in California Insurance Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above. |
2. |
Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed 5% of total investments. |
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3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity. |
4. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer. |
C. |
If there are multiple ceding insurers that collectively comprise the Company, regulatory authorities as referenced in subparagraph A(2) above, shall mean the individual ceding insurers domestic regulator. |
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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT
TABLE OF CONTENTS
Article |
Page | |||||
Preamble | 5 | |||||
1 | Business Covered | 5 | ||||
2 | Retention and Limit | 5 | ||||
3 | Florida Hurricane Catastrophe Fund | 6 | ||||
4 | Term | 7 | ||||
5 | Special Termination | 7 | ||||
6 | Territory | 9 | ||||
7 | Exclusions | 9 | ||||
8 | Special Acceptance | 10 | ||||
9 | Premium | 10 | ||||
10 | Definitions | 11 | ||||
11 | Extra Contractual Obligations/Excess of Policy Limits | 14 | ||||
12 | Net Retained Liability | 15 | ||||
13 | Other Reinsurance | 15 | ||||
14 | Original Conditions | 15 | ||||
15 | No Third Party Rights | 16 | ||||
16 | Notice of Loss and Loss Settlements | 16 | ||||
17 | Late Payments | 16 | ||||
18 | Offset | 17 |
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Article |
Page | |||
19 | Currency | 18 | ||
20 | Unauthorized Reinsurance | 18 | ||
21 | Taxes | 20 | ||
22 | Access to Records | 21 | ||
23 | Confidentiality | 22 | ||
24 | Indemnification and Errors and Omissions | 23 | ||
25 | Insolvency | 23 | ||
26 | Run-Off Reinsurer | 24 | ||
27 | Arbitration | 26 | ||
28 | Expedited Arbitration | 27 | ||
29 | Service of Suit | 27 | ||
30 | Governing Law | 28 | ||
31 | Entire Agreement | 28 | ||
32 | Non-Waiver | 29 | ||
33 | Agency | 29 | ||
34 | Intermediary | 29 | ||
35 | Mode of Execution | 29 | ||
Company Signing Block | 31 |
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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT
TABLE OF CONTENTS
Attachments |
Page | |||||
Pools, Associations & Syndicates Exclusions Clause | 33 | |||||
Nuclear Incident Exclusion Clause Physical Damage Reinsurance U.S.A. | 36 | |||||
Terrorism Exclusion | 38 | |||||
Trust Agreement Requirements Clause | 39 |
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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT
(the Contract)
issued to
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
Tampa, Florida
and
TYPTAP INSURANCE COMPANY
Ocala, Florida
(collectively, the Company)
by
THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE
INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED TO
AND FORMING PART OF THIS CONTRACT
(the Reinsurer)
ARTICLE 1
This Contract is to indemnify the Company in respect of its net excess liability as a result of any loss or losses which may occur during the Term of this Contract under any Policies not covered by the Companys Flood Tower, in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, subject to the terms and conditions herein contained.
ARTICLE 2
A. |
The Reinsurer shall be liable in respect of each Loss Occurrence for the Ultimate Net Loss over and above the initial Ultimate Net Loss of $**** each Loss Occurrence, subject to a limit of liability to the Reinsurer of $**** each Loss Occurrence, and subject further to a limit of liability of $**** for all Loss Occurrences commencing during the term of this Contract. |
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B. |
No Loss Occurrence shall be covered hereunder unless it involves two or more risks subject to this Contract. The Company shall be the sole judge of what constitutes one risk for purposes of this Contract. |
ARTICLE 3
FLORIDA HURRICANE CATASTROPHE FUND
A. |
As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following: |
1. |
The full reimbursement amount due from the FHCF, based on statutory limits of coverage as of June 1, shall be deemed recovered by the Company, whether or not actually received from the FHCF and whether or not reduced because of the FHCFs inability to pay. |
2. |
For purposes of allocating recoveries from the FHCF with respect to each Loss Occurrence, only amounts recoverable by applying the pay-out and retention multiples for the FHCF prior to any reduction in retention due to multiple Loss Occurrences in the same annual period shall be included in calculating the deduction from Ultimate Net Loss. |
3. |
If the Companys aggregate limit of FHCF reimbursement coverage is exhausted from Loss Occurrences commencing during the term of this Contract, and the FHCF does not designate the portion of said limit allocable to each Loss Occurrence, the total FHCF reimbursement received shall be allocated to the each individual Loss Occurrence in the proportion that the Companys losses in that Loss Occurrence bear to the Companys total losses arising out of all Loss Occurrences to which the reimbursement applies. |
4. |
For purposes of loss recoveries under this Contract prior to the final determination of the Companys retention and limit under the FHCF, FHCF coverage shall be calculated using the Companys Projected Payout Multiple under the FHCF. Upon determination of the Companys retention and limit under the FHCF, losses will be adjusted, recognizing any adjustment to the Projected Payout Multiple caused by a change in the Aggregate Mandatory FHCF Premium but disregarding any change due to a decrease in the statutory limit. |
B. |
Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance. |
C. |
The Company has opted for a 45% coverage selection from the FHCF. |
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ARTICLE 4
This Contract shall take effect at 12:01 a.m., Standard Time, June 1, 2019, and unless terminated prior to that time and date as provided in the Special Termination Article, shall remain in effect until 12:01 a.m., Standard Time, June 1, 2020, applying to Loss Occurrences commencing during the term of this Contract. For purposes of this Contract, Standard Time shall mean the time as described in the original Policy.
ARTICLE 5
A. |
The Company may terminate a Subscribing Reinsurers percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances: |
1. |
The Subscribing Reinsurer ceases underwriting operations. |
2. |
A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision. |
3. |
The Subscribing Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations. |
4. |
The Subscribing Reinsurers policyholders surplus (or the equivalent under the Subscribing Reinsurers accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract). |
5. |
The Subscribing Reinsurer has merged with or has become acquired or controlled by any company, corporation, or individual(s) not controlling the Subscribing Reinsurers operations at the inception of this Contract. |
6. |
The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Companys prior written consent, except for retrocessions to members of the Subscribing Reinsurers holding company group. |
7. |
The Subscribing Reinsurer has been assigned an A.M. Bests rating of less than A- and/or an S&P rating of less than BBB+. However, as respects Underwriting Members of Lloyds, London, a Lloyds Market Rating of less than A- by A.M. Best and/or less than BBB+ by S&P shall apply. |
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8. |
The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid. |
9. |
The Subscribing Reinsurer has in any other way assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (8) and (9) of this paragraph.
10. |
The Subscribing Reinsurer has failed to post or maintain required collateral to secure its obligations as required under this Contract, and has not cured such deficiency within 30 days following written notice thereof from the Company. |
B. |
Termination shall be effected on a cut-off basis and the Subscribing Reinsurer shall have no liability for Loss Occurrences commencing after the date of termination. The reinsurance premium due the Subscribing Reinsurer hereunder (including any minimum reinsurance premium) shall be prorated based on the period of the Subscribing Reinsurers participation hereon, and the Subscribing Reinsurer shall immediately return any excess reinsurance premium received. Reinstatement premium, if any, shall be calculated based on the Subscribing Reinsurers reinsurance premium earned during the period of the Subscribing Reinsurers participation hereon. |
C. |
Additionally, in the event of any of the circumstances listed in paragraph A of this Article, the Company shall have the option to commute the Subscribing Reinsurers liability for losses on Policies covered by this Contract. In the event the Company and the Subscribing Reinsurer cannot agree on the commutation amount, they shall appoint an actuary and/or appraiser to assess such amount and shall share equally any expense of the actuary and/or appraiser. If the Company and the Subscribing Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Subscribing Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Subscribing Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties in respect of liability arising from the Subscribing Reinsurers participation under this Contract. |
D. |
The Companys option to require commutation under paragraph C above shall survive the termination or expiration of this Contract. |
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ARTICLE 6
The territorial limits of this Contract shall be identical with those of the Companys Policies.
ARTICLE 7
A. |
This Contract shall not apply to and specifically excludes: |
1. |
Flood when written as such. |
2. |
Earthquake for standalone Policies where earthquake is the only named peril. |
3. |
Hail damage to an insureds growing or standing crops. |
4. |
Reinsurance assumed by the Company under obligatory reinsurance agreements, except intercompany reinsurance between the Company and its affiliates and agency reinsurance where the Policies involved are to be re-underwritten in accordance with the underwriting standards of the Company and reissued as Policies of the Company at the next anniversary or expiration date. |
5. |
Pools, Associations & Syndicates, per the attached exclusion. |
6. |
Liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any Insolvency Fund. Insolvency Fund includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, that provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, that has been declared by any competent authority to be insolvent, or that is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. |
7. |
Loss or damage occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, martial law, or confiscation by order of any government or public authority, but not excluding loss or damage that would be covered under a standard form of Policy containing a standard war exclusion clause. |
8. |
Losses excluded by the attached Nuclear Incident Exclusion Clause Physical Damage Reinsurance U.S.A. |
9. |
Terrorism as defined in the attached Terrorism Exclusion. |
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10. |
Mold unless directly resulting from an otherwise covered peril. |
11. |
Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Companys property loss under the applicable original Policy. |
12. |
Financial guarantee and insolvency. |
13. |
Loss or damage to overhead transmission and distribution lines, including supporting structures, of electrical companies, telephone companies, and cable companies. This exclusion shall not apply, however, to transmission and distribution lines and their supporting structures located on the property of any original insured or within 1,000 feet thereof. |
B. |
Except as respects exclusions A(7), A(8), A(9), and A(12), if the Company inadvertently issues a Policy falling within the scope of one or more of the exclusions, such Policy shall be covered hereunder, provided that the Company issues, or causes to be issued, the required notice of cancellation within 30 days after a member of the executive or managerial staff at the Companys home office having underwriting authority in the class of business involved becomes aware that the Policy applies to excluded classes, unless the Company is prevented from canceling said Policy within such period by applicable statute or regulation, in which case such Policy shall be covered hereunder until the earliest date on which the Company may cancel. |
ARTICLE 8
Business that is not within the scope of this Contract may be submitted to the Reinsurer for special acceptance hereunder, and such business, if accepted by the Reinsurer shall be covered hereunder, subject to the terms and conditions of this Contract, except as modified by the special acceptance. The Reinsurer shall be deemed to have accepted a risk, if it has not responded within five business days after receiving the underwriting information on such risk. Any renewal of a special acceptance agreed to for a predecessor contract to this Contract, shall automatically be covered hereunder.
ARTICLE 9
A. |
The Company shall pay the Reinsurer a premium of $**** for the term of this Contract. |
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B. |
The premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020. |
C. |
The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurers financial statements. |
ARTICLE 10
A. 1. |
Ultimate Net Loss means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 100% of any Extra Contractual Obligation and 100% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article. In no event, however, shall more than 25% of Ultimate Net Loss for any one Loss Occurrence be comprised of Extra Contractual Obligations and Loss in Excess of Policy Limits. |
2. |
Salvages and all recoveries (including amounts due from all reinsurances that inure to the benefit of this Contract, whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder. |
3. |
All salvages, recoveries or payments recovered or received subsequent to loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. |
4. |
The Company shall be deemed to be liable to pay a loss when a judgment has been rendered that the Company does not plan to appeal, and/or the Company has obtained a release, and/or the Company has accepted a proof of loss, and/or the Company has made a commitment to pay, and/or the Company has scheduled the payment of a loss. |
5. |
Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Companys Ultimate Net Loss has been ascertained. |
B. |
Loss Adjustment Expense means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to: |
1. |
court costs; |
2. |
costs of supersedeas and appeal bonds; |
3. |
monitoring counsel expenses; |
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4. |
legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions; |
5. |
post-judgment interest; |
6. |
pre-judgment interest, unless included as part of an award or judgment; |
7. |
a pro rata share of salaries and expenses of Company field employees, calculated in accordance with the time occupied in adjusting such loss, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract; and |
8. |
subrogation, salvage and recovery expenses. |
Loss Adjustment Expense does not include salaries and expenses of the Companys employees, except as provided in subparagraph (7) above, and office and other overhead expenses.
C. 1. |
Loss Occurrence means the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term Loss Occurrence shall be further defined as follows: |
a. |
As regards any Named Storm, all individual losses sustained by the Company arising out of and directly occasioned by such Named Storm, without regard to the limitations of duration and extent set forth above. Named Storm means any storm or storm system declared by the US National Hurricane Center, US Central Pacific Hurricane Center, US Weather Prediction Center, or their successor organizations, all being divisions of the US National Weather Service to be a tropical storm or hurricane, and any successors thereof. A storm or storm system that merges with a Named Storm shall be considered part of that Named Storm, once it has merged. A Named Storm shall be deemed to begin at the effective time and date of the first watch, warning or other official advisory applicable to such tropical storm or hurricane issued by the above referenced governmental meteorological agencies. A Named Storm shall be deemed to end 72 hours after the cancellation of the last watch, warning or other official advisory applicable to such tropical storm, hurricane or successor, issued by the above referenced governmental meteorological agencies irrespective of the duration of the timing or spacing between such watches, warnings or other official advisories. If two or more storms are assigned different names by the above referenced governmental meteorological agencies, each of those storms shall constitute a separate event for purposes of this definition. |
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b. |
As regards windstorm, hail, tornado, cyclone, including ensuing collapse and water damage other than Named Storm, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. |
c. |
As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses that occur beyond such 96 consecutive hours during the continued occupation of an assureds premises by strikers, provided such occupation commenced during the aforesaid period. |
d. |
As regards earthquake and fire following directly occasioned by the earthquake, those earthquake losses and individual fire losses that commence during the period of 168 consecutive hours may be included in the Companys Loss Occurrence. |
e. |
As regards any related weather conditions involving snow, sleet, freezing rain, freeze, ice, winter weather, and wind losses related to such conditions, all individual losses sustained by the Company, that occur during any period of 168 consecutive hours arising out of and directly occasioned by the same event. |
f. |
As regards firestorms, brush fires and other fires or series of fires, irrespective of origin (except for fires covered in subparagraphs (c) and (d) above) which spread through trees, grassland or other vegetation, all individual losses sustained by the Company occurring during any period of 168 consecutive hours within a 150-mile radius of any fixed point selected by the Company may be included in the Companys Loss Occurrence. However, an individual loss subject to this subparagraph cannot be included in more than one Loss Occurrence. |
2. |
Except as provided in subparagraph (1)(a) above: |
a. |
The Company may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. |
b. |
Only one period of consecutive hours shall apply with respect to one event, except that, as respects those Loss Occurrences referred to in subparagraph (1)(c) above, if the disaster, accident or loss occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident or loss into two or more Loss Occurrences provided no two periods overlap and no individual loss is included in more than one such period and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. |
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3. |
Losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one Loss Occurrence. Furthermore, all losses arising from an event involving a combination of losses described in subparagraphs (1)(a) and (1)(b) may be considered as having arisen from one Loss Occurrence. Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and, except as respects those Loss Occurrences involving a Named Storm referred to in subparagraph (1)(a) above, no single Loss Occurrence shall encompass a time period greater than 168 consecutive hours. |
D. |
Policy means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company. |
ARTICLE 11
EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS
A. |
This Contract shall cover Extra Contractual Obligations, as provided in the definition of Ultimate Net Loss. Extra Contractual Obligations shall be defined as those liabilities not covered under any other provision of this Contract and that arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the 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 reinsured or in the preparation or prosecution of an appeal consequent upon such action. |
B. |
This Contract shall cover Loss in Excess of Policy Limits, as provided in the definition of Ultimate Net Loss. Loss in Excess of Policy Limits shall be defined as Loss in excess of the Policy limit, having been incurred because of, but not limited to, failure by the 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 reinsured or in the preparation or prosecution of an appeal consequent upon such action. |
C. |
An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Companys Policy, and shall constitute part of the original loss. |
D. |
For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word Loss shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy. |
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E. |
Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense. |
F. |
However, this Article shall not apply where the loss has been incurred due to final legal adjudication of fraud of a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. |
G. |
In no event shall coverage be provided to the extent not permitted under law. |
ARTICLE 12
A. |
This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company). |
B. |
The amount of the Reinsurers liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts that may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. |
ARTICLE 13
The Company shall be permitted to carry in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.
ARTICLE 14
All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the respective Policies of the Company. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.
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ARTICLE 15
This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.
ARTICLE 16
NOTICE OF LOSS AND LOSS SETTLEMENTS
A. |
The Company shall advise the Reinsurer promptly if paid and estimated Ultimate Net Loss is in excess of 75% of the Companys retention, or if, in the opinion of the Company, such Ultimate Net Loss may result in a claim hereunder. Thereafter, the Company shall advise the Reinsurer, at least monthly, of all subsequent developments thereto that may materially affect the position of the Reinsurer. |
B. |
The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses. |
C. |
As respects losses subject to this Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, and any Extra Contractual Obligations and/or Loss in Excess of Policy Limits, shall be binding upon the Reinsurer. The Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of reasonable evidence of the amount paid by the Company or that the Company estimates it will pay within the next 14 days. Within 30 days after receipt of the Reinsurers payment, the Company shall report to the Reinsurer the Reinsurers payment, minus the Reinsurers share of losses subject to this Contract that the Company has paid, or become liable to pay, as of the date of the report. Any positive difference shall be remitted to the Reinsurer with the Companys report. |
ARTICLE 17
A. |
In the event any payment due either party is not received by the Intermediary by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: |
1. |
The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times |
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2. |
1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times |
3. |
The amount past due, including accrued interest. |
Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.
B. |
The due date shall, for purposes of this Article, be determined as follows: |
1. |
Payments from the Reinsurer to the Company shall be due on the date on which the demand for payment (including delivery of bordereaux or quarterly or monthly reports) is received by the Reinsurer, and shall be overdue 30 days thereafter. |
2. |
Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such reinstatement premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing. |
C. |
If the information contained in the Companys demand for payment is insufficient or not in accordance with the conditions of this Contract, then within 30 days the Reinsurer shall request from the Company all additional information necessary to validate its claim and the payment due date as defined in paragraph B shall be deemed to be the date upon which the Reinsurer received the requested additional information. This paragraph is only for the purpose of establishing when a payment is overdue, and shall not alter the provisions of the Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations. |
D. |
In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein. |
E. |
Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving partys rights to other interest amounts due as a result of this Article. |
ARTICLE 18
Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any and all balances due from a party to the other arising under this Contract. In the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of any applicable law governing offset entitlement.
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ARTICLE 19
A. |
Where the word Dollars and/or the sign $ appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars. |
B. |
For purposes of this Contract, where the Company receives premiums or pays losses in currencies other than United States Dollars, such premiums or losses shall be converted into United States Dollars at the actual rates of exchange at which these premiums or losses are entered in the Companys books. |
ARTICLE 20
A. |
This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Companys reserves. |
B. |
The Company agrees, in respect of its Policies or bonds falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The Reinsurers Obligations shall be defined as follows: |
1. |
unearned premium (if applicable); |
2. |
known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto; |
3. |
losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer; |
4. |
losses incurred but not reported and Loss Adjustment Expense relating thereto; |
5. |
all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer. |
C. |
The Reinsurers Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves. |
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D. |
When funding by Trust Agreement, the Reinsurer shall ensure that the Trust Agreement complies with the provisions of the Trust Agreement Requirements Clause attached hereto. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves in an amount equal to the Reinsurers Obligations. Such LOC shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (or such other time period as may be required by insurance regulatory authorities), prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period. |
E. |
The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company, for the following purposes, unless otherwise provided for in a separate Trust Agreement: |
1. |
to reimburse the Company for the Reinsurers Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid; |
2. |
to make refund of any sum that is in excess of the actual amount required to pay the Reinsurers Obligations under this Contract (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement); |
3. |
to fund an account with the Company for the Reinsurers Obligations. Such cash deposit shall be held in an interest bearing account separate from the Companys other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued interest shall be paid out of the assets in the account that are in excess of the Reinsurers Obligations (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid or reimbursed by the Reinsurer; |
4. |
to pay the Reinsurers share of any other amounts the Company claims are due under this Contract. |
F. |
If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(4), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer. |
G. |
The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company. |
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H. |
At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurers Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner: |
1. |
If the statement shows that the Reinsurers Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference. |
2. |
If, however, the statement shows that the Reinsurers Obligations are less than the balance of the LOC (or that 102% of the Reinsurers Obligations are less than the trust account balance if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess. |
ARTICLE 21
A. |
In consideration of the terms under which this Contract is issued, the Company undertakes not to claim any deduction of the premium hereon when making Canadian tax returns or when making tax returns, other than Income or Profits Tax returns, to any state or territory of the United States of America or to the District of Columbia. |
B. 1. |
Each Subscribing Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax. |
2. |
In the event of any return of premium becoming due hereunder, the Subscribing Reinsurer shall deduct the applicable percentage of the premium from the amount of the return, and the Company or its agent should take steps to recover the Tax from the U.S. Government. |
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ARTICLE 22
A. |
The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (Records) relating to business reinsured under this Contract during regular business hours after giving five working days prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company. |
B. |
Notwithstanding the above, the Company reserves the right to withhold from the Reinsurer any Privileged Documents. However, the Company shall permit and not object to the Reinsurers access to Privileged Documents in connection with the underlying claim reinsured hereunder following final settlement or final adjudication of the case or cases involving such claim, with prejudice against all claimants and all parties to such adjudications; the Company may defer release of such Privileged Documents if there are subrogation, contribution, or other third party actions with respect to that claim or case, and the Companys defense might be jeopardized by release of such Privileged Documents. In the event that the Company seeks to defer release of such Privileged Documents, it shall, in consultation with the Reinsurer, take other steps as reasonably necessary to provide the Reinsurer with the information it reasonably requires to indemnify the Company without causing a loss of such privileges or protections. The Reinsurer shall not have access to Privileged Documents relating to any dispute between the Company and the Reinsurer. |
C. |
For purposes of this Article: |
1. |
Privileged Documents means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents. |
2. |
Attorney-Client Privilege Documents means communications of a confidential nature between (a) the Company, or anyone retained by or at the direction of the Company, or its in-house or outside legal counsel, or anyone in the control of such legal counsel, and (b) any in-house or outside legal counsel, if such communications relate to legal advice being sought by the Company and/or contain legal advice being provided to the Company. |
3. |
Work Product Privilege Documents means communications, written materials and tangible things prepared by or for in-house or outside counsel, or prepared by or for the Company, in anticipation of or in connection with litigation, arbitration, or other dispute resolution proceedings. |
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ARTICLE 23
A. |
The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (Confidential Information) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show: |
1. |
are publicly known or have become publicly known through no unauthorized act of the Reinsurer; |
2. |
have been rightfully received from a third person without obligation of confidentiality; or |
3. |
were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality. |
B. |
Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except: |
1. |
when required by retrocessionaires as respects business ceded to this Contract; |
2. |
when required by regulators performing an audit of the Reinsurers records and/or financial condition; or |
3. |
when required by external auditors performing an audit of the Reinsurers records in the normal course of business. |
Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.
C. |
Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. |
D. |
The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. |
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ARTICLE 24
INDEMNIFICATION AND ERRORS AND OMISSIONS
A. |
The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to: |
1. |
what shall constitute a claim or loss covered under any Policy; |
2. |
the Companys liability thereunder; |
3. |
the amount or amounts that it shall be proper for the Company to pay thereunder. |
B. |
The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy. |
C. |
Any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay had not been made, provided such error, omission or delay is rectified immediately upon discovery. |
D. |
Nothing in this Article shall be construed to override any of the other terms and conditions of this Contract. |
ARTICLE 25
A. |
If more than one reinsured company is referenced within the definition of Company in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary states laws shall prevail. |
B. |
In the event of the insolvency of the Company, this reinsurance (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the |
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conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. |
C. |
Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company. |
D. |
As to all reinsurance made, ceded, renewed or otherwise becoming effective under this Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the Company or to its liquidator, receiver, conservator or statutory successor, (except as provided by Section 4118(a)(1)(A) of the New York Insurance Law, provided the conditions of 1114(c) of such law have been met, if New York law applies) or except (1) where the Contract specifically provides another payee in the event of the insolvency of the Company, or (2) where the Reinsurer, with the consent of the direct insured or insureds, has assumed such Policy obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Company to such payees. Then, and in that event only, the Company, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Financial Services of the State of New York, or with the prior approval of such other regulatory authority as may be applicable, is entirely released from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy. |
ARTICLE 26
A. |
Run-off Reinsurer means any Subscribing Reinsurer that: |
1. |
has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or |
2. |
has ceased reinsurance underwriting operations; or |
3. |
has transferred its claims-paying authority to an unaffiliated entity; or |
4. |
engages in a process of Scheme of Arrangement or similar procedure related to this Contract, including but not limited to an insurance business transfer scheme pursuant to Part VII of the Financial Services and Markets Act 2000 (U.K.), as may be amended from time to time; or |
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5. |
in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (3) and (5) of this paragraph.
B. |
Notwithstanding any other provision of this Contract, in the event that a Subscribing Reinsurer becomes a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurers participation hereunder: |
1. |
Should the Run-off Reinsurer fail to pay amounts due hereunder, the interest penalty specified in the Late Payments Article shall be increased by 0.5% for each 30 days that a payment is past due, subject to a maximum increase of 7.0%. |
2. |
The Run-off Reinsurers liability for losses for Policies covered by this Contract shall be commuted. In the event the Company and the Run-off Reinsurer cannot agree on the commutation amount of the Run-off Reinsurers liability under such Policies, they shall appoint an actuary and/or appraiser to assess such liability and shall share equally any expense of the actuary and/or appraiser. If the Company and the Run-off Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Run-off Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Run-off Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties under this Contract. |
3. |
The Run-off Reinsurer shall have no right of access to the Records of the Company if the Run-off Reinsurer has denied payment of any claim hereunder or there is a pending arbitration between the Company and the Run-off Reinsurer regarding any claim hereunder. A reservation of rights shall be considered a denial of a claim. Notwithstanding the above, the Run-off Reinsurer shall continue to have access to Records of the Company for any claim for which it has raised a query within 30 days of its receipt of a billing, but any inspection of Records must be completed within 90 days of receipt of billing or access will be deemed waived. |
4. |
The provisions of the Arbitration Article shall not apply. |
C. |
The Companys waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date. |
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ARTICLE 27
A. |
Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested. |
B. |
One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days prior notice by certified or registered mail of its intention to do so, may appoint the second arbitrator. |
C. |
If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue. |
D. |
Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings. |
E. |
The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Contract. The arbitration shall take place in Tampa, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate. |
F. |
The panel shall interpret this Contract as an honorable engagement rather than as merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible after the hearings. Judgment upon an award may be entered in any court having jurisdiction thereof. |
G. |
Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The remaining costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including but not limited to attorneys fees, to the extent permitted by law. |
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ARTICLE 28
A. |
Notwithstanding the provisions of the Arbitration Article, in the event an amount in dispute hereunder $1,000,000 or less, the parties will submit to an expedited arbitration process with the use of a single arbitrator. The arbitrator will be chosen in accordance with the procedures for selecting an arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). |
B. |
Each partys case will be submitted to the arbitrator within 100 calendar days of the date of determination of the arbitrator. Discovery will be limited to exchanging only those documents directly relating to the issue in dispute, subject to a limit of two discovery depositions from each party, unless otherwise authorized by the arbitrator upon a showing of good cause. |
C. |
Within 120 calendar days of the date of determination of the arbitrator, the hearing will be completed and a written award will be issued by the arbitrator. As the parties agree that time is of the essence, the sole arbitrator does not have the authority to lengthen the schedule, absent agreement of both parties. The arbitrator will have all the powers conferred on the arbitration panel as provided in the Arbitration Article, and said Article will apply to all matters not specifically addressed above. |
ARTICLE 29
A. |
This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities. |
B. |
This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract. |
C. |
In the event of the failure of the Reinsurer to perform its obligations hereunder, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurers rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the |
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United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal. |
D. |
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit. |
E. |
Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof. |
ARTICLE 30
This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.
ARTICLE 31
This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. This Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties. However, this Article shall not be construed as limiting the admissibility of evidence regarding the formation, interpretation, purpose or intent of this Contract.
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ARTICLE 32
The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in this Contract nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such remedy in the future.
ARTICLE 33
For purposes of sending and receiving notices and payments required by this Contract, the reinsured company that is set forth first in the Preamble to this Contract shall be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, shall any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.
ARTICLE 34
Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements, premiums, return premiums, commissions, taxes, losses, Loss Adjustment Expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed payment to the Company only to the extent that such payments are actually received by the Company.
ARTICLE 35
A. |
This Contract may be executed by: |
1. |
an original written ink signature of paper documents; |
2. |
an exchange of facsimile copies showing the original written ink signature of paper documents; |
3. |
electronic signature technology employing computer software and a digital signature or digitizer pen pad to capture a persons handwritten signature in such a manner that the signature is unique to the person signing, is under the sole control of the person |
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signing, is capable of verification to authenticate the signature and is linked to the document signed in such a manner that if the data is changed, such signature is invalidated. |
B. |
The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. |
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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s), who also confirms the Companys review of and agreement to be bound by the terms and conditions of the Interests and Liabilities Agreements attached to and forming part of this Contract, this day of , in the year of 2019.
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
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POOLS, ASSOCIATIONS & SYNDICATES EXCLUSIONS CLAUSE
Section A:
This Contract excludes:
a. |
All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities. |
b. |
Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968 for the purpose of insuring property, whether on a country-wide basis or in respect of designated areas. This exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage. |
Section B:
1. |
This Contract excludes business written by the Company for the same perils, which is known at the time to be insured by, or in excess of underlying amounts placed in, any Pool, Association or Syndicate, whether by way of insurance or reinsurance, formed for the purpose of writing any of the following: |
Oil, Gas or Petro-Chemical Plants
Oil or Gas Drilling Rigs and/or
Aviation Risks
2. |
The exclusion under paragraph 1 of this Section B does not apply: |
a. |
Where the Total Insured Value over all interests of the risk in question is less than $250,000,000. |
b. |
To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis. |
c. |
To Contingent Business Interruption, except when the Company is aware that the key location is known at the time to be insured in any Pool, Association or Syndicate named above, other than as provided for under subparagraph (a). |
Section C:
1. |
Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom: |
a. |
So-called Beach and Windstorm Plans and so-called Coastal Pools; |
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b. |
All FAIR Plan and Rural Risk Plan business; |
c. |
Louisiana Citizens Property Insurance Corporation; |
d. |
California Earthquake Authority (CEA) or any similar entity. |
Notwithstanding the above, assessments related to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation (Florida) shall be excluded hereunder.
2. |
However, this reinsurance does not include any increase in such liability resulting from: |
a. |
The inability of any other participant in such Residual Market Mechanisms to meet its liability; |
b. |
Any claim against a Residual Market Mechanism or any participant therein, including the Company, whether by way of subrogation or otherwise, brought by or on behalf of any insolvency fund (as defined in the Exclusions Article); |
c. |
Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company; |
d. |
The Companys initial capital contribution to the CEA; |
e. |
Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above; |
f. |
Any expenditure to purchase or retire bonds. |
3. |
The Company may include in Ultimate Net Loss for any Loss Occurrence covered hereunder only the liability attributable to that Loss Occurrence. If the relevant entity does not specify what portion of an assessment is attributable to each Loss Occurrence, the Company may include in Ultimate Net Loss in respect of each Loss Occurrence a percentage of the Companys assessments from the relevant entity related to the calendar year in which the Loss Occurrence commenced, regardless of when assessed, such percentage to be determined by dividing the relevant entitys losses arising from the Loss Occurrence by its total losses for the calendar year. |
4. |
The Company will deduct from Ultimate Net Loss amounts received as recoupment of any assessment that has been included in the Ultimate Net Loss, provided the recoupment is directly allocable to the assessment (itemized recoupment). The Company shall use commercially reasonable efforts to recoup such assessment. Any amount received as an itemized recoupment of any assessment (whether under this Contract or any predecessor contract), and therefore deductible from Ultimate Net Loss, shall not be included in the subject premium of this Contract. |
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However, if a state levies assessments but does not allow itemized recoupment from policyholders, instead allowing the Company to file an overall increased rate, any such premium increased thereby shall not be deemed to be a recoupment that is deductible from Ultimate Net Loss. Any recoupment received as part of a general premium rate increase, not specifically itemized, shall be included as part of the subject premium of this Contract or a successor contract, as applicable.
NOTES: |
Wherever used herein the terms: |
Company |
shall be understood to mean Company, Reinsured, Reassured or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies. |
Contract |
shall be understood to mean Agreement, Contract, Policy or whatever other term is used to designate the attached reinsurance document. |
Reinsurer |
shall be understood to mean Reinsurer, Reinsurers, Underwriters or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers. |
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NUCLEAR INCIDENT EXCLUSION CLAUSE PHYSICAL DAMAGE REINSURANCE U.S.A.
1. |
This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. |
2. |
Without in any way restricting the operation of paragraph (1) of this clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: |
I. |
Nuclear reactor power plants including all auxiliary property on the site, or |
II. |
Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and critical facilities as such, or |
III. |
Installations for fabricating complete fuel elements or for processing substantial quantities of special nuclear material, and for reprocessing, salvaging, chemically separating, storing or disposing of spent nuclear fuel or waste materials, or |
IV. |
Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission. |
3. |
Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate |
(a) |
where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or |
(b) |
where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. |
4. |
Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. |
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5. |
It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. |
6. |
The term special nuclear material shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof. |
7. |
Reassured to be sole judge of what constitutes: |
(a) |
substantial quantities, and |
(b) |
the extent of installation, plant or site. |
Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that
(a) |
all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. |
(b) |
with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. |
12/12/57
NMA 1119
NOTES: |
Wherever used herein the terms: |
Reassured |
shall be understood to mean Company, Reinsured, Reassured or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies. |
Agreement |
shall be understood to mean Agreement, Contract, Policy or whatever other term is used to designate the attached reinsurance document. |
Reinsurers |
shall be understood to mean Reinsurers, Underwriters or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers. |
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A. |
Notwithstanding any provision to the contrary within this Contract or any endorsement thereto, it is agreed that this Contract excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any Act of Terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. |
B. |
An Act of Terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological, or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: |
a. |
involves violence against one or more persons; or |
b. |
involves damage to property; or |
c. |
endangers life other than that of the person committing the action; or |
d. |
creates a risk to health or safety of the public or a section of the public; or |
e. |
is designed to interfere with or to disrupt an electronic system. |
C. |
This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any Act of Terrorism. |
D. |
Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract shall pay actual loss or damage (but not related cost or expense) caused by any Act of Terrorism, provided such act is not directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with biological, chemical, radiological or nuclear pollution or contamination. |
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TRUST AGREEMENT REQUIREMENTS CLAUSE
A. |
Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover; |
2. |
Stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash (United States legal tender), and certificates of deposit (issued by a United States bank and payable in United States legal tender), or any combination of the two, provided that the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Reinsurer or the Company; |
3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate these assets without consent or signature from the Reinsurer or any other entity; |
4. |
Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and |
5. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer. |
B. |
If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in California Insurance Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above. |
2. |
Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed 5% of total investments. |
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3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity. |
4. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer. |
C. |
If there are multiple ceding insurers that collectively comprise the Company, regulatory authorities as referenced in subparagraph A(2) above, shall mean the individual ceding insurers domestic regulator. |
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TOP LAYER PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
TABLE OF CONTENTS
Article |
Page | |||||
Preamble | 5 | |||||
1 | Business Covered | 5 | ||||
2 | Retention and Limit | 6 | ||||
3 | Florida Hurricane Catastrophe Fund | 6 | ||||
4 | Term | 7 | ||||
5 | Special Termination | 8 | ||||
6 | Territory | 9 | ||||
7 | Exclusions | 9 | ||||
8 | Special Acceptance | 12 | ||||
9 | Premium | 12 | ||||
10 | Definitions | 13 | ||||
11 | Extra Contractual Obligations/Excess of Policy Limits | 16 | ||||
12 | Net Retained Liability | 17 | ||||
13 | Other Reinsurance | 18 | ||||
14 | Original Conditions | 18 | ||||
15 | No Third Party Rights | 18 | ||||
16 | Notice of Loss and Loss Settlements | 18 | ||||
17 | Late Payments | 19 | ||||
18 | Offset | 20 |
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Article |
Page | |||||
19 | Currency | 20 | ||||
20 | Unauthorized Reinsurance | 20 | ||||
21 | Taxes | 22 | ||||
22 | Access to Records | 23 | ||||
23 | Confidentiality | 24 | ||||
24 | Indemnification and Errors and Omissions | 25 | ||||
25 | Insolvency | 25 | ||||
26 | Run-Off Reinsurer | 26 | ||||
27 | Arbitration | 28 | ||||
28 | Expedited Arbitration | 29 | ||||
29 | Service of Suit | 29 | ||||
30 | Governing Law | 30 | ||||
31 | Entire Agreement | 30 | ||||
32 | Non-Waiver | 31 | ||||
33 | Agency | 31 | ||||
34 | Intermediary | 31 | ||||
35 | Mode of Execution | 31 | ||||
Company Signing Block | 33 |
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TOP LAYER PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
TABLE OF CONTENTS
Attachments |
Page | |||||
Pools, Associations & Syndicates Exclusions Clause | 35 | |||||
Nuclear Incident Exclusion ClausePhysical DamageReinsuranceU.S.A. | 38 | |||||
Terrorism Exclusion | 40 | |||||
Trust Agreement Requirements Clause | 41 |
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TOP LAYER PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
(the Contract)
issued to
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
Tampa, Florida
and
TYPTAP INSURANCE COMPANY
Ocala, Florida
(collectively, the Company)
by
THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE
INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED TO
AND FORMING PART OF THIS CONTRACT
(the Reinsurer)
ARTICLE 1
This Contract is to indemnify the Company in respect of its net excess liability as a result of any loss or losses which may occur during the Term of this Contract under any Policies, in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, subject to the terms and conditions herein contained. Notwithstanding the foregoing, the coverage afforded under Section A of the Retention and Limit Article shall apply to business further classified as standalone Flood Zone A or V, including Policies designated as Flood Zone A or V and subsequently reclassified as Flood Zone X until the next anniversary of such Policies.
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ARTICLE 2
A. |
Section A: Standalone Flood Business |
As respects losses arising from standalone Flood business, the Reinsurer shall be liable in respect of each Loss Occurrence for the Ultimate Net Loss over and above the initial Ultimate Net Loss of the Flood Retention for each Loss Occurrence, subject to a limit of liability to the Reinsurer of $**** each Loss Occurrence.
Flood Retention is defined as ****% of the Florida Flood TIV as established on the first day of each calendar quarter. The Flood Retention is subject to a minimum, any Loss Occurrence, of $****.
B. |
Section B: All Business Except Standalone Flood Business |
The Reinsurer shall be liable in respect of each Loss Occurrence for the Ultimate Net Loss over and above the initial Ultimate Net Loss of $**** each Loss Occurrence, subject to a limit of liability to the Reinsurer of $**** each Loss Occurrence. Whether a Loss Occurrence results in an Ultimate Net Loss under this Contract or one or more of the third, fourth and fifth excess layers under the Companys Property Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2019, the Companion Contract, the Companys retention under the combination of this Contract and the Companion Contract will not exceed the first $**** of Ultimate Net Loss arising out of such Loss Occurrence.
In addition to reductions under the provisions of the Florida Hurricane Catastrophe Fund Article, recoveries under the Companion Contract shall inure to the benefit of Section B of this Contract. If there is any amount of Ultimate Net Loss arising out of a Loss Occurrence in excess of the Companys retention under the Companion Contract that has not been recovered thereunder, such amount shall be subject to this Contract.
C. |
The liability of the Reinsurer hereunder as respects all Loss Occurrences commencing during the term of this Contract shall not exceed $****. |
D. |
No Loss Occurrence shall be covered hereunder unless it involves two or more risks subject to this Contract. The Company shall be the sole judge of what constitutes one risk for purposes of this Contract. |
ARTICLE 3
FLORIDA HURRICANE CATASTROPHE FUND
A. |
As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following: |
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1. |
The full reimbursement amount due from the FHCF, based on statutory limits of coverage as of June 1, shall be deemed recovered by the Company, whether or not actually received from the FHCF and whether or not reduced because of the FHCFs inability to pay. |
2. |
For purposes of allocating recoveries from the FHCF with respect to each Loss Occurrence, only amounts recoverable by applying the pay-out and retention multiples for the FHCF prior to any reduction in retention due to multiple Loss Occurrences in the same annual period shall be included in calculating the deduction from Ultimate Net Loss. |
3. |
If the Companys aggregate limit of FHCF reimbursement coverage is exhausted from Loss Occurrences commencing during the term of this Contract, and the FHCF does not designate the portion of said limit allocable to each Loss Occurrence, the total FHCF reimbursement received shall be allocated to the each individual Loss Occurrence in the proportion that the Companys losses in that Loss Occurrence bear to the Companys total losses arising out of all Loss Occurrences to which the reimbursement applies. |
4. |
For purposes of loss recoveries under this Contract prior to the final determination of the Companys retention and limit under the FHCF, FHCF coverage shall be calculated using the Companys Projected Payout Multiple under the FHCF. Upon determination of the Companys retention and limit under the FHCF, losses will be adjusted, recognizing any adjustment to the Projected Payout Multiple caused by a change in the Aggregate Mandatory FHCF Premium but disregarding any change due to a decrease in the statutory limit. |
B. |
Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance. |
C. |
The Company has opted for a 45% coverage selection from the FHCF. |
ARTICLE 4
This Contract shall take effect at 12:01 a.m., Standard Time, June 1, 2019, and unless terminated prior to that time and date as provided in the Special Termination Article, shall remain in effect until 12:01 a.m., Standard Time, June 1, 2020, applying to Loss Occurrences commencing during the term of this Contract. For purposes of this Contract, Standard Time shall mean the time as described in the original Policy.
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ARTICLE 5
A. |
The Company may terminate a Subscribing Reinsurers percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances: |
1. |
The Subscribing Reinsurer ceases underwriting operations. |
2. |
A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision. |
3. |
The Subscribing Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations. |
4. |
The Subscribing Reinsurers policyholders surplus (or the equivalent under the Subscribing Reinsurers accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract). |
5. |
The Subscribing Reinsurer has merged with or has become acquired or controlled by any company, corporation, or individual(s) not controlling the Subscribing Reinsurers operations at the inception of this Contract. |
6. |
The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Companys prior written consent, except for retrocessions to members of the Subscribing Reinsurers holding company group. |
7. |
The Subscribing Reinsurer has been assigned an A.M. Bests rating of less than A- and/or an S&P rating of less than BBB+. However, as respects Underwriting Members of Lloyds, London, a Lloyds Market Rating of less than A- by A.M. Best and/or less than BBB+ by S&P shall apply. |
8. |
The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid. |
9. |
The Subscribing Reinsurer has in any other way assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
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Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (8) and (9) of this paragraph.
10. |
The Subscribing Reinsurer has failed to post or maintain required collateral to secure its obligations as required under this Contract, and has not cured such deficiency within 30 days following written notice thereof from the Company. |
B. |
Termination shall be effected on a cut-off basis and the Subscribing Reinsurer shall have no liability for Loss Occurrences commencing after the date of termination. The reinsurance premium due the Subscribing Reinsurer hereunder (including any minimum reinsurance premium) shall be prorated based on the period of the Subscribing Reinsurers participation hereon, and the Subscribing Reinsurer shall immediately return any excess reinsurance premium received. Reinstatement premium, if any, shall be calculated based on the Subscribing Reinsurers reinsurance premium earned during the period of the Subscribing Reinsurers participation hereon. |
C. |
Additionally, in the event of any of the circumstances listed in paragraph A of this Article, the Company shall have the option to commute the Subscribing Reinsurers liability for losses on Policies covered by this Contract. In the event the Company and the Subscribing Reinsurer cannot agree on the commutation amount, they shall appoint an actuary and/or appraiser to assess such amount and shall share equally any expense of the actuary and/or appraiser. If the Company and the Subscribing Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Subscribing Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Subscribing Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties in respect of liability arising from the Subscribing Reinsurers participation under this Contract. |
D. |
The Companys option to require commutation under paragraph C above shall survive the termination or expiration of this Contract. |
ARTICLE 6
The territorial limits of this Contract shall be identical with those of the Companys Policies.
ARTICLE 7
This Contract shall not apply to and specifically excludes:
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A. |
As respects Sections A and B: |
1. |
Earthquake for standalone Policies where earthquake is the only named peril. |
2. |
Liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any Insolvency Fund. Insolvency Fund includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, that provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, that has been declared by any competent authority to be insolvent, or that is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. |
3. |
Loss or damage occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, martial law, or confiscation by order of any government or public authority, but not excluding loss or damage that would be covered under a standard form of Policy containing a standard war exclusion clause. |
4. |
Losses excluded by the attached Nuclear Incident Exclusion Clause Physical Damage Reinsurance U.S.A. |
5. |
Financial guarantee and insolvency. |
B. |
As respects Section A: |
1. |
All reinsurance assumed by the Company; provided that quota share reinsurance between the reinsured companies shall not be excluded. |
2. |
Insurance policies classified by the Company as Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers Compensation, and Credit business. |
3. |
Homeowners or any other property insurance policies written on an all risk basis and/or wind only basis. |
4. |
Loss or liability from any Pool, Association or Syndicate and any assessment or similar demand for payment related to the Florida Hurricane Catastrophe Fund, Citizens Property Insurance Corporation or any other regulatory assessment. |
5. |
Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to the limit of Companys property loss under the applicable original policy. |
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6. |
Loss, damage, cost or expense arising out of an act of terrorism involving the use of any biological, chemical, nuclear or radioactive agent, material, device or weapon. |
7. |
All liability arising out of mold, spores and/or fungus, but this exclusion shall not apply to those losses which follow as a direct result of a loss caused by a peril otherwise covered hereunder. |
C. |
As respects Section B: |
1. |
Flood when written as such. |
2. |
Hail damage to an insureds growing or standing crops. |
3. |
Reinsurance assumed by the Company under obligatory reinsurance agreements, except intercompany reinsurance between the Company and its affiliates and agency reinsurance where the Policies involved are to be re-underwritten in accordance with the underwriting standards of the Company and reissued as Policies of the Company at the next anniversary or expiration date. |
4. |
Pools, Associations & Syndicates, per the attached exclusion. |
5. |
Terrorism as defined in the attached Terrorism Exclusion. |
6. |
Mold unless directly resulting from an otherwise covered peril. |
7. |
Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Companys property loss under the applicable original Policy. |
8. |
Loss or damage to overhead transmission and distribution lines, including supporting structures, of electrical companies, telephone companies, and cable companies. This exclusion shall not apply, however, to transmission and distribution lines and their supporting structures located on the property of any original insured or within 1,000 feet thereof. |
D. |
With the exception of subparagraphs A(4), A(5), B(3), B(5) and B(6) above, should any judicial, regulatory or legislative entity having legal jurisdiction invalidate any exclusion on the Companys Policy, any amount of loss for which the Company is liable because of such invalidation will not be excluded hereunder. |
E. |
Except as respects exclusions A(4), A(5), A(6), and C(5), if the Company inadvertently issues a Policy falling within the scope of one or more of the exclusions, such Policy shall be covered hereunder, provided that the Company issues, or causes to be issued, the required notice of cancellation within 30 days after a member of the executive or managerial staff at |
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the Companys home office having underwriting authority in the class of business involved becomes aware that the Policy applies to excluded classes, unless the Company is prevented from canceling said Policy within such period by applicable statute or regulation, in which case such Policy shall be covered hereunder until the earliest date on which the Company may cancel. |
ARTICLE 8
Business that is not within the scope of this Contract may be submitted to the Reinsurer for special acceptance hereunder, and such business, if accepted by the Reinsurer shall be covered hereunder, subject to the terms and conditions of this Contract, except as modified by the special acceptance. The Reinsurer shall be deemed to have accepted a risk, if it has not responded within five business days after receiving the underwriting information on such risk. Any renewal of a special acceptance agreed to for a predecessor contract to this Contract, shall automatically be covered hereunder.
ARTICLE 9
A. |
Section AStandalone Flood Business |
As premium for the reinsurance provided under Section A, the Company shall pay the Reinsurer a flat premium of $****, payable in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020.
B. |
Section B All Business Except Standalone Flood Business |
Premium for the reinsurance provided under Section B shall be determined as follows:
1. |
The Company shall pay the Reinsurer a minimum and deposit premium of $**** for the term of this Contract. The Final Adjusted Premium to be paid to the Reinsurer shall be calculated at a rate of ****% multiplied by the Companys final Total Insured Value. |
2. |
The deposit premium in subparagraph B.1 above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020. |
3. |
Within 45 days following the expiration of this Contract, the Company shall provide the Reinsurer with a report showing the Companys final Total Insured Value. This final Total Insured Value shall be multiplied by the rate as stated in subparagraph B.1 above. Should this amount be greater than or equal to ****% and less than or equal to ****% of the deposit premium as set forth above, there shall be no additional or return premium due. Should the amount so calculated exceed ****% of the deposit premium |
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paid in accordance with subparagraph B.1 above, the Company shall immediately pay the Reinsurer the difference in excess of ****% of the deposit premium. Should the amount so calculated be less than ****% of the deposit premium paid in accordance with subparagraph B.1 of this Article, the Reinsurer shall immediately pay the Company the difference below ****% of the deposit premium. |
4. |
Total Insured Value means the Companys aggregate wind exposures on September 30, 2019 for business covered hereunder. |
5. |
The estimated Total Insured Value is $33,489,296,549. |
C. |
The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurers financial statements. |
ARTICLE 10
A. 1. |
Ultimate Net Loss means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 100% of any Extra Contractual Obligation and 100% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article. In no event, however, shall more than 25% of Ultimate Net Loss for any one Loss Occurrence be comprised of Extra Contractual Obligations and Loss in Excess of Policy Limits. |
2. |
Salvages and all recoveries (including amounts due from all reinsurances that inure to the benefit of this Contract, whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder. |
3. |
All salvages, recoveries or payments recovered or received subsequent to loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. |
4. |
The Company shall be deemed to be liable to pay a loss when a judgment has been rendered that the Company does not plan to appeal, and/or the Company has obtained a release, and/or the Company has accepted a proof of loss, and/or the Company has made a commitment to pay, and/or the Company has scheduled the payment of a loss. |
5. |
Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Companys Ultimate Net Loss has been ascertained. |
B. |
Loss Adjustment Expense means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to: |
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1. |
court costs; |
2. |
costs of supersedeas and appeal bonds; |
3. |
monitoring counsel expenses; |
4. |
legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions; |
5. |
post-judgment interest; |
6. |
pre-judgment interest, unless included as part of an award or judgment; |
7. |
a pro rata share of salaries and expenses of Company field employees, calculated in accordance with the time occupied in adjusting such loss, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract; and |
8. |
subrogation, salvage and recovery expenses. |
Loss Adjustment Expense does not include salaries and expenses of the Companys employees, except as provided in subparagraph (7) above, and office and other overhead expenses.
C. |
As respects Section A Peril of Flood, Loss Occurrence means the sum of all related individual losses caused by a flood in accordance with subject Policies, arising out of one event. However, the duration and extent of any one Loss Occurrence as respects Section A shall be limited to all individual losses sustained by the Company occurring during any period of 504 consecutive hours arising out of and directly occasioned by the same event, subject to the following: |
1. |
The Company may choose the date and time when any such period of 504 consecutive hours commences. Only one period of 504 consecutive hours shall apply with respect to one event. |
2. |
If more than one event occurs during the above period of 504 consecutive hours, each event shall be considered a separate Loss Occurrence. |
D. |
1.As respects Section B Perils Other Than Flood, Loss Occurrence means the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term Loss Occurrence shall be further defined as follows: |
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a. |
As regards any Named Storm, all individual losses sustained by the Company arising out of and directly occasioned by such Named Storm, without regard to the limitations of duration and extent set forth above. Named Storm means any storm or storm system declared by the US National Hurricane Center, US Central Pacific Hurricane Center, US Weather Prediction Center, or their successor organizations, all being divisions of the US National Weather Service to be a tropical storm or hurricane, and any successors thereof. A storm or storm system that merges with a Named Storm shall be considered part of that Named Storm, once it has merged. A Named Storm shall be deemed to begin at the effective time and date of the first watch, warning or other official advisory applicable to such tropical storm or hurricane issued by the above referenced governmental meteorological agencies. A Named Storm shall be deemed to end 72 hours after the cancellation of the last watch, warning or other official advisory applicable to such tropical storm, hurricane or successor, issued by the above referenced governmental meteorological agencies irrespective of the duration of the timing or spacing between such watches, warnings or other official advisories. If two or more storms are assigned different names by the above referenced governmental meteorological agencies, each of those storms shall constitute a separate event for purposes of this definition. |
b. |
As regards windstorm, hail, tornado, cyclone, including ensuing collapse and water damage other than Named Storm, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. |
c. |
As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses that occur beyond such 96 consecutive hours during the continued occupation of an assureds premises by strikers, provided such occupation commenced during the aforesaid period. |
d. |
As regards earthquake and fire following directly occasioned by the earthquake, those earthquake losses and individual fire losses that commence during the period of 168 consecutive hours may be included in the Companys Loss Occurrence. |
e. |
As regards any related weather conditions involving snow, sleet, freezing rain, freeze, ice, winter weather, and wind losses related to such conditions, all individual losses sustained by the Company, that occur during any period of 168 consecutive hours arising out of and directly occasioned by the same event. |
f. |
As regards firestorms, brush fires and other fires or series of fires, irrespective of origin (except for fires covered in subparagraphs (c) and (d) above) which spread |
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through trees, grassland or other vegetation, all individual losses sustained by the Company occurring during any period of 168 consecutive hours within a 150-mile radius of any fixed point selected by the Company may be included in the Companys Loss Occurrence. However, an individual loss subject to this subparagraph cannot be included in more than one Loss Occurrence. |
2. |
Except as provided in subparagraph (1)(a) above: |
a. |
The Company may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. |
b. |
Only one period of consecutive hours shall apply with respect to one event, except that, as respects those Loss Occurrences referred to in subparagraph (1)(c) above, if the disaster, accident or loss occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident or loss into two or more Loss Occurrences provided no two periods overlap and no individual loss is included in more than one such period and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. |
3. |
Losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one Loss Occurrence. Furthermore, all losses arising from an event involving a combination of losses described in subparagraphs (1)(a) and (1)(b) may be considered as having arisen from one Loss Occurrence. Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and, except as respects those Loss Occurrences involving a Named Storm referred to in subparagraph (1)(a) above, no single Loss Occurrence shall encompass a time period greater than 168 consecutive hours. |
E. |
Policy means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company. |
ARTICLE 11
EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS
A. |
This Contract shall cover Extra Contractual Obligations, as provided in the definition of Ultimate Net Loss. Extra Contractual Obligations shall be defined as those liabilities not covered under any other provision of this Contract and that arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the Company to settle within the Policy limit, or by reason of |
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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 reinsured or in the preparation or prosecution of an appeal consequent upon such action. |
B. |
This Contract shall cover Loss in Excess of Policy Limits, as provided in the definition of Ultimate Net Loss. Loss in Excess of Policy Limits shall be defined as Loss in excess of the Policy limit, having been incurred because of, but not limited to, failure by the 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 reinsured or in the preparation or prosecution of an appeal consequent upon such action. |
C. |
An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Companys Policy, and shall constitute part of the original loss. |
D. |
For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word Loss shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy. |
E. |
Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense. |
F. |
However, this Article shall not apply where the loss has been incurred due to final legal adjudication of fraud of a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. |
G. |
In no event shall coverage be provided to the extent not permitted under law. |
ARTICLE 12
A. |
This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company). |
B. |
The amount of the Reinsurers liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts that may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. |
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ARTICLE 13
The Company shall be permitted to carry in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.
ARTICLE 14
All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the respective Policies of the Company. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.
ARTICLE 15
This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.
ARTICLE 16
NOTICE OF LOSS AND LOSS SETTLEMENTS
A. |
The Company shall advise the Reinsurer promptly if paid and estimated Ultimate Net Loss is in excess of 75% of the Companys retention, or if, in the opinion of the Company, such Ultimate Net Loss may result in a claim hereunder. Thereafter, the Company shall advise the Reinsurer, at least monthly, of all subsequent developments thereto that may materially affect the position of the Reinsurer. |
B. |
The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses. |
C. |
As respects losses subject to this Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, and any Extra Contractual Obligations and/or Loss in Excess of Policy Limits, shall be binding upon the Reinsurer. The Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of reasonable evidence of the amount paid by the Company or that the Company estimates it will pay within the next 14 days. Within 30 days after receipt of the Reinsurers payment, the Company shall report to the Reinsurer the Reinsurers payment, minus the Reinsurers share of losses subject to this Contract that the Company has paid, or become liable to pay, as of the date of the report. Any positive difference shall be remitted to the Reinsurer with the Companys report. |
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ARTICLE 17
A. |
In the event any payment due either party is not received by the Intermediary by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: |
1. |
The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times |
2. |
1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times |
3. |
The amount past due, including accrued interest. |
Interest |
shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. |
B. |
The due date shall, for purposes of this Article, be determined as follows: |
1. |
Payments from the Reinsurer to the Company shall be due on the date on which the demand for payment (including delivery of bordereaux or quarterly or monthly reports) is received by the Reinsurer, and shall be overdue 30 days thereafter. |
2. |
Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such reinstatement premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing. |
C. |
If the information contained in the Companys demand for payment is insufficient or not in accordance with the conditions of this Contract, then within 30 days the Reinsurer shall request from the Company all additional information necessary to validate its claim and the payment due date as defined in paragraph B shall be deemed to be the date upon which the Reinsurer received the requested additional information. This paragraph is only for the purpose of establishing when a payment is overdue, and shall not alter the provisions of the Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations. |
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D. |
In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein. |
E. |
Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving partys rights to other interest amounts due as a result of this Article. |
ARTICLE 18
Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any and all balances due from a party to the other arising under this Contract. In the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of any applicable law governing offset entitlement.
ARTICLE 19
A. |
Where the word Dollars and/or the sign $ appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars. |
B. |
For purposes of this Contract, where the Company receives premiums or pays losses in currencies other than United States Dollars, such premiums or losses shall be converted into United States Dollars at the actual rates of exchange at which these premiums or losses are entered in the Companys books. |
ARTICLE 20
A. |
This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Companys reserves. |
B. |
The Company agrees, in respect of its Policies or bonds falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The Reinsurers Obligations shall be defined as follows: |
1. |
unearned premium (if applicable); |
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2. |
known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto; |
3. |
losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer; |
4. |
losses incurred but not reported and Loss Adjustment Expense relating thereto; |
5. |
all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer. |
C. |
The Reinsurers Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves. |
D. |
When funding by Trust Agreement, the Reinsurer shall ensure that the Trust Agreement complies with the provisions of the Trust Agreement Requirements Clause attached hereto. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves in an amount equal to the Reinsurers Obligations. Such LOC shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (or such other time period as may be required by insurance regulatory authorities), prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period. |
E. |
The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company, for the following purposes, unless otherwise provided for in a separate Trust Agreement: |
1. |
to reimburse the Company for the Reinsurers Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid; |
2. |
to make refund of any sum that is in excess of the actual amount required to pay the Reinsurers Obligations under this Contract (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement); |
3. |
to fund an account with the Company for the Reinsurers Obligations. Such cash deposit shall be held in an interest bearing account separate from the Companys other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued interest shall be paid out of the assets in |
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the account that are in excess of the Reinsurers Obligations (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid or reimbursed by the Reinsurer; |
4. |
to pay the Reinsurers share of any other amounts the Company claims are due under this Contract. |
F. |
If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(4), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer. |
G. |
The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company. |
H. |
At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurers Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner: |
1. |
If the statement shows that the Reinsurers Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference. |
2. |
If, however, the statement shows that the Reinsurers Obligations are less than the balance of the LOC (or that 102% of the Reinsurers Obligations are less than the trust account balance if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess. |
ARTICLE 21
A. |
In consideration of the terms under which this Contract is issued, the Company undertakes not to claim any deduction of the premium hereon when making Canadian tax returns or when making tax returns, other than Income or Profits Tax returns, to any state or territory of the United States of America or to the District of Columbia. |
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B. 1. |
Each Subscribing Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax. |
2. |
In the event of any return of premium becoming due hereunder, the Subscribing Reinsurer shall deduct the applicable percentage of the premium 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 22
A. |
The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (Records) relating to business reinsured under this Contract during regular business hours after giving five working days prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company. |
B. |
Notwithstanding the above, the Company reserves the right to withhold from the Reinsurer any Privileged Documents. However, the Company shall permit and not object to the Reinsurers access to Privileged Documents in connection with the underlying claim reinsured hereunder following final settlement or final adjudication of the case or cases involving such claim, with prejudice against all claimants and all parties to such adjudications; the Company may defer release of such Privileged Documents if there are subrogation, contribution, or other third party actions with respect to that claim or case, and the Companys defense might be jeopardized by release of such Privileged Documents. In the event that the Company seeks to defer release of such Privileged Documents, it shall, in consultation with the Reinsurer, take other steps as reasonably necessary to provide the Reinsurer with the information it reasonably requires to indemnify the Company without causing a loss of such privileges or protections. The Reinsurer shall not have access to Privileged Documents relating to any dispute between the Company and the Reinsurer. |
C. |
For purposes of this Article: |
1. |
Privileged Documents means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents. |
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2. |
Attorney-Client Privilege Documents means communications of a confidential nature between (a) the Company, or anyone retained by or at the direction of the Company, or its in-house or outside legal counsel, or anyone in the control of such legal counsel, and (b) any in-house or outside legal counsel, if such communications relate to legal advice being sought by the Company and/or contain legal advice being provided to the Company. |
3. |
Work Product Privilege Documents means communications, written materials and tangible things prepared by or for in-house or outside counsel, or prepared by or for the Company, in anticipation of or in connection with litigation, arbitration, or other dispute resolution proceedings. |
ARTICLE 23
A. |
The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (Confidential Information) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show: |
1. |
are publicly known or have become publicly known through no unauthorized act of the Reinsurer; |
2. |
have been rightfully received from a third person without obligation of confidentiality; or |
3. |
were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality. |
B. |
Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except: |
1. |
when required by retrocessionaires as respects business ceded to this Contract; |
2. |
when required by regulators performing an audit of the Reinsurers records and/or financial condition; or |
3. |
when required by external auditors performing an audit of the Reinsurers records in the normal course of business. |
Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.
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C. |
Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. |
D. |
The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. |
ARTICLE 24
INDEMNIFICATION AND ERRORS AND OMISSIONS
A. |
The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to: |
1. |
what shall constitute a claim or loss covered under any Policy; |
2. |
the Companys liability thereunder; |
3. |
the amount or amounts that it shall be proper for the Company to pay thereunder. |
B. |
The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy. |
C. |
Any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay had not been made, provided such error, omission or delay is rectified immediately upon discovery. |
D. |
Nothing in this Article shall be construed to override any of the other terms and conditions of this Contract. |
ARTICLE 25
A. |
If more than one reinsured company is referenced within the definition of Company in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary states laws shall prevail. |
B. |
In the event of the insolvency of the Company, this reinsurance (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly |
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to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. |
C. |
Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company. |
D. |
As to all reinsurance made, ceded, renewed or otherwise becoming effective under this Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the Company or to its liquidator, receiver, conservator or statutory successor, (except as provided by Section 4118(a)(1)(A) of the New York Insurance Law, provided the conditions of 1114(c) of such law have been met, if New York law applies) or except (1) where the Contract specifically provides another payee in the event of the insolvency of the Company, or (2) where the Reinsurer, with the consent of the direct insured or insureds, has assumed such Policy obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Company to such payees. Then, and in that event only, the Company, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Financial Services of the State of New York, or with the prior approval of such other regulatory authority as may be applicable, is entirely released from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy. |
ARTICLE 26
A. |
Run-off Reinsurer means any Subscribing Reinsurer that: |
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1. |
has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or |
2. |
has ceased reinsurance underwriting operations; or |
3. |
has transferred its claims-paying authority to an unaffiliated entity; or |
4. |
engages in a process of Scheme of Arrangement or similar procedure related to this Contract, including but not limited to an insurance business transfer scheme pursuant to Part VII of the Financial Services and Markets Act 2000 (U.K.), as may be amended from time to time; or |
5. |
in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (3) and (5) of this paragraph.
B. |
Notwithstanding any other provision of this Contract, in the event that a Subscribing Reinsurer becomes a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurers participation hereunder: |
1. |
Should the Run-off Reinsurer fail to pay amounts due hereunder, the interest penalty specified in the Late Payments Article shall be increased by 0.5% for each 30 days that a payment is past due, subject to a maximum increase of 7.0%. |
2. |
The Run-off Reinsurers liability for losses for Policies covered by this Contract shall be commuted. In the event the Company and the Run-off Reinsurer cannot agree on the commutation amount of the Run-off Reinsurers liability under such Policies, they shall appoint an actuary and/or appraiser to assess such liability and shall share equally any expense of the actuary and/or appraiser. If the Company and the Run-off Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Run-off Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Run-off Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties under this Contract. |
3. |
The Run-off Reinsurer shall have no right of access to the Records of the Company if the Run-off Reinsurer has denied payment of any claim hereunder or there is a pending arbitration between the Company and the Run-off Reinsurer regarding any claim hereunder. A reservation of rights shall be considered a denial of a claim. Notwithstanding the above, the Run-off Reinsurer shall continue to have access to Records of the Company for any claim for which it has raised a query within 30 days of its receipt of a billing, but any inspection of Records must be completed within 90 days of receipt of billing or access will be deemed waived. |
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4. |
The provisions of the Arbitration Article shall not apply. |
C. |
The Companys waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date. |
ARTICLE 27
A. |
Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested. |
B. |
One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days prior notice by certified or registered mail of its intention to do so, may appoint the second arbitrator. |
C. |
If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue. |
D. |
Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings. |
E. |
The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Contract. The arbitration shall take place in Tampa, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate. |
F. |
The panel shall interpret this Contract as an honorable engagement rather than as merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible after the hearings. Judgment upon an award may be entered in any court having jurisdiction thereof. |
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G. |
Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The remaining costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including but not limited to attorneys fees, to the extent permitted by law. |
ARTICLE 28
A. |
Notwithstanding the provisions of the Arbitration Article, in the event an amount in dispute hereunder $1,000,000 or less, the parties will submit to an expedited arbitration process with the use of a single arbitrator. The arbitrator will be chosen in accordance with the procedures for selecting an arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). |
B. |
Each partys case will be submitted to the arbitrator within 100 calendar days of the date of determination of the arbitrator. Discovery will be limited to exchanging only those documents directly relating to the issue in dispute, subject to a limit of two discovery depositions from each party, unless otherwise authorized by the arbitrator upon a showing of good cause. |
C. |
Within 120 calendar days of the date of determination of the arbitrator, the hearing will be completed and a written award will be issued by the arbitrator. As the parties agree that time is of the essence, the sole arbitrator does not have the authority to lengthen the schedule, absent agreement of both parties. The arbitrator will have all the powers conferred on the arbitration panel as provided in the Arbitration Article, and said Article will apply to all matters not specifically addressed above. |
ARTICLE 29
A. |
This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities. |
B. |
This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract. |
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C. |
In the event of the failure of the Reinsurer to perform its obligations hereunder, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurers rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal. |
D. |
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit. |
E. |
Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof. |
ARTICLE 30
This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.
ARTICLE 31
This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. This Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties. However, this Article shall not be construed as limiting the admissibility of evidence regarding the formation, interpretation, purpose or intent of this Contract.
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ARTICLE 32
The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in this Contract nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such remedy in the future.
ARTICLE 33
For purposes of sending and receiving notices and payments required by this Contract, the reinsured company that is set forth first in the Preamble to this Contract shall be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, shall any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.
ARTICLE 34
Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements, premiums, return premiums, commissions, taxes, losses, Loss Adjustment Expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed payment to the Company only to the extent that such payments are actually received by the Company.
ARTICLE 35
A. |
This Contract may be executed by: |
1. |
an original written ink signature of paper documents; |
2. |
an exchange of facsimile copies showing the original written ink signature of paper documents; |
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3. |
electronic signature technology employing computer software and a digital signature or digitizer pen pad to capture a persons handwritten signature in such a manner that the signature is unique to the person signing, is under the sole control of the person signing, is capable of verification to authenticate the signature and is linked to the document signed in such a manner that if the data is changed, such signature is invalidated. |
B. |
The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. |
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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s), who also confirms the Companys review of and agreement to be bound by the terms and conditions of the Interests and Liabilities Agreements attached to and forming part of this Contract, this day of , in the year of 2019.
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
TOP LAYER PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
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POOLS, ASSOCIATIONS & SYNDICATES EXCLUSIONS CLAUSE
Section A:
This Contract excludes:
a. |
All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities. |
b. |
Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968 for the purpose of insuring property, whether on a country-wide basis or in respect of designated areas. This exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage. |
Section B:
1. |
This Contract excludes business written by the Company for the same perils, which is known at the time to be insured by, or in excess of underlying amounts placed in, any Pool, Association or Syndicate, whether by way of insurance or reinsurance, formed for the purpose of writing any of the following: |
Oil, Gas or Petro-Chemical Plants
Oil or Gas Drilling Rigs and/or
Aviation Risks
2. |
The exclusion under paragraph 1 of this Section B does not apply: |
a. |
Where the Total Insured Value over all interests of the risk in question is less than $250,000,000. |
b. |
To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis. |
c. |
To Contingent Business Interruption, except when the Company is aware that the key location is known at the time to be insured in any Pool, Association or Syndicate named above, other than as provided for under subparagraph (a). |
Section C:
1. |
Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom: |
a. |
So-called Beach and Windstorm Plans and so-called Coastal Pools; |
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b. |
All FAIR Plan and Rural Risk Plan business; |
c. |
Louisiana Citizens Property Insurance Corporation; |
d. |
California Earthquake Authority (CEA) or any similar entity. |
Notwithstanding the above, assessments related to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation (Florida) shall be excluded hereunder.
2. |
However, this reinsurance does not include any increase in such liability resulting from: |
a. |
The inability of any other participant in such Residual Market Mechanisms to meet its liability; |
b. |
Any claim against a Residual Market Mechanism or any participant therein, including the Company, whether by way of subrogation or otherwise, brought by or on behalf of any insolvency fund (as defined in the Exclusions Article); |
c. |
Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company; |
d. |
The Companys initial capital contribution to the CEA; |
e. |
Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above; |
f. |
Any expenditure to purchase or retire bonds. |
3. |
The Company may include in Ultimate Net Loss for any Loss Occurrence covered hereunder only the liability attributable to that Loss Occurrence. If the relevant entity does not specify what portion of an assessment is attributable to each Loss Occurrence, the Company may include in Ultimate Net Loss in respect of each Loss Occurrence a percentage of the Companys assessments from the relevant entity related to the calendar year in which the Loss Occurrence commenced, regardless of when assessed, such percentage to be determined by dividing the relevant entitys losses arising from the Loss Occurrence by its total losses for the calendar year. |
4. |
The Company will deduct from Ultimate Net Loss amounts received as recoupment of any assessment that has been included in the Ultimate Net Loss, provided the recoupment is directly allocable to the assessment (itemized recoupment). The Company shall use commercially reasonable efforts to recoup such assessment. Any amount received as an itemized recoupment of any assessment (whether under this Contract or any predecessor contract), and therefore deductible from Ultimate Net Loss, shall not be included in the subject premium of this Contract. |
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However, if a state levies assessments but does not allow itemized recoupment from policyholders, instead allowing the Company to file an overall increased rate, any such premium increased thereby shall not be deemed to be a recoupment that is deductible from Ultimate Net Loss. Any recoupment received as part of a general premium rate increase, not specifically itemized, shall be included as part of the subject premium of this Contract or a successor contract, as applicable.
NOTES: |
Wherever used herein the terms: | |||
Company | shall be understood to mean Company, Reinsured, Reassured or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies. | |||
Contract | shall be understood to mean Agreement, Contract, Policy or whatever other term is used to designate the attached reinsurance document. | |||
Reinsurer | shall be understood to mean Reinsurer, Reinsurers, Underwriters or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers. |
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NUCLEAR INCIDENT EXCLUSION CLAUSE PHYSICAL DAMAGE REINSURANCE U.S.A.
1. |
This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. |
2. |
Without in any way restricting the operation of paragraph (1) of this clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: |
I. |
Nuclear reactor power plants including all auxiliary property on the site, or |
II. |
Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and critical facilities as such, or |
III. |
Installations for fabricating complete fuel elements or for processing substantial quantities of special nuclear material, and for reprocessing, salvaging, chemically separating, storing or disposing of spent nuclear fuel or waste materials, or |
IV. |
Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission. |
3. |
Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate |
(a) |
where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or |
(b) |
where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. |
4. |
Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. |
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5. |
It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. |
6. |
The term special nuclear material shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof. |
7. |
Reassured to be sole judge of what constitutes: |
(a) |
substantial quantities, and |
(b) |
the extent of installation, plant or site. |
Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that
(a) |
all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. |
(b) |
with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. |
12/12/57
NMA 1119
NOTES: |
Wherever used herein the terms: | |||
Reassured | shall be understood to mean Company, Reinsured, Reassured or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies. | |||
Agreement | shall be understood to mean Agreement, Contract, Policy or whatever other term is used to designate the attached reinsurance document. | |||
Reinsurers | shall be understood to mean Reinsurers, Underwriters or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers. |
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A. |
Notwithstanding any provision to the contrary within this Contract or any endorsement thereto, it is agreed that this Contract excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any Act of Terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. |
B. |
An Act of Terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological, or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: |
a. |
involves violence against one or more persons; or |
b. |
involves damage to property; or |
c. |
endangers life other than that of the person committing the action; or |
d. |
creates a risk to health or safety of the public or a section of the public; or |
e. |
is designed to interfere with or to disrupt an electronic system. |
C. |
This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any Act of Terrorism. |
D. |
Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract shall pay actual loss or damage (but not related cost or expense) caused by any Act of Terrorism, provided such act is not directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with biological, chemical, radiological or nuclear pollution or contamination. |
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TRUST AGREEMENT REQUIREMENTS CLAUSE
A. |
Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover; |
2. |
Stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash (United States legal tender), and certificates of deposit (issued by a United States bank and payable in United States legal tender), or any combination of the two, provided that the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Reinsurer or the Company; |
3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate these assets without consent or signature from the Reinsurer or any other entity; |
4. |
Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and |
5. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer. |
B. |
If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in California Insurance Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above. |
2. |
Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed 5% of total investments. |
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3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity. |
4. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer. |
C. |
If there are multiple ceding insurers that collectively comprise the Company, regulatory authorities as referenced in subparagraph A(2) above, shall mean the individual ceding insurers domestic regulator. |
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WORKING LAYER CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
TABLE OF CONTENTS
Article |
Page | |||||
Preamble | 5 | |||||
1 | Business Covered | 5 | ||||
2 | Retention and Limit | 5 | ||||
3 | Florida Hurricane Catastrophe Fund | 6 | ||||
4 | Term | 7 | ||||
5 | Special Termination | 7 | ||||
6 | Territory | 9 | ||||
7 | Exclusions | 9 | ||||
8 | Special Acceptance | 10 | ||||
9 | Premium | 10 | ||||
10 | Reinstatement | 11 | ||||
11 | Definitions | 11 | ||||
12 | Extra Contractual Obligations/Excess of Policy Limits | 14 | ||||
13 | Net Retained Liability | 15 | ||||
14 | Other Reinsurance | 15 | ||||
15 | Original Conditions | 16 | ||||
16 | No Third Party Rights | 16 | ||||
17 | Notice of Loss and Loss Settlements | 16 | ||||
18 | Late Payments | 17 |
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Article |
Page | |||||
19 | Offset | 18 | ||||
20 | Currency | 18 | ||||
21 | Unauthorized Reinsurance | 18 | ||||
22 | Taxes | 20 | ||||
23 | Access to Records | 21 | ||||
24 | Confidentiality | 22 | ||||
25 | Indemnification and Errors and Omissions | 23 | ||||
26 | Insolvency | 23 | ||||
27 | Run-Off Reinsurer | 24 | ||||
28 | Arbitration | 26 | ||||
29 | Expedited Arbitration | 27 | ||||
30 | Service of Suit | 27 | ||||
31 | Governing Law | 28 | ||||
32 | Entire Agreement | 28 | ||||
33 | Non-Waiver | 29 | ||||
34 | Agency | 29 | ||||
35 | Intermediary | 29 | ||||
36 | Mode of Execution | 29 |
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WORKING LAYER CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
TABLE OF CONTENTS
Articles
|
Page | |||||
Company Signing Block | 31 | |||||
Attachments |
||||||
Pools, Associations & Syndicates Exclusions Clause | 33 | |||||
Nuclear Incident Exclusion Clause Physical Damage Reinsurance U.S.A. | 36 | |||||
Terrorism Exclusion | 38 | |||||
Trust Agreement Requirements Clause | 39 |
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WORKING LAYER CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
(the Contract)
issued to
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
Tampa, Florida
and
TYPTAP INSURANCE COMPANY
Ocala, Florida
(collectively, the Company)
by
THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE
INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED TO
AND FORMING PART OF THIS CONTRACT
(the Reinsurer)
BUSINESS COVERED
This Contract is to indemnify the Company in respect of its net excess liability as a result of any loss or losses which may occur during the Term of this Contract under any Policies not covered by the Companys Flood Tower, in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, subject to the terms and conditions herein contained.
RETENTION AND LIMIT
A. |
The Reinsurer shall be liable in respect of each Loss Occurrence for the Ultimate Net Loss over and above the initial Ultimate Net Loss of $**** each Loss Occurrence, subject to a limit of liability to the Reinsurer of $**** each Loss Occurrence, and subject further to a limit of liability of $**** for all Loss Occurrences commencing during the term of this Contract. |
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B. |
No Loss Occurrence shall be covered hereunder unless it involves two or more risks subject to this Contract. The Company shall be the sole judge of what constitutes one risk for purposes of this Contract. |
FLORIDA HURRICANE CATASTROPHE FUND
A. |
As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following: |
1. |
The full reimbursement amount due from the FHCF, based on statutory limits of coverage as of June 1, shall be deemed recovered by the Company, whether or not actually received from the FHCF and whether or not reduced because of the FHCFs inability to pay. |
2. |
For purposes of allocating recoveries from the FHCF with respect to each Loss Occurrence, only amounts recoverable by applying the pay-out and retention multiples for the FHCF prior to any reduction in retention due to multiple Loss Occurrences in the same annual period shall be included in calculating the deduction from Ultimate Net Loss. |
3. |
If the Companys aggregate limit of FHCF reimbursement coverage is exhausted from Loss Occurrences commencing during the term of this Contract, and the FHCF does not designate the portion of said limit allocable to each Loss Occurrence, the total FHCF reimbursement received shall be allocated to the each individual Loss Occurrence in the proportion that the Companys losses in that Loss Occurrence bear to the Companys total losses arising out of all Loss Occurrences to which the reimbursement applies. |
4. |
For purposes of loss recoveries under this Contract prior to the final determination of the Companys retention and limit under the FHCF, FHCF coverage shall be calculated using the Companys Projected Payout Multiple under the FHCF. Upon determination of the Companys retention and limit under the FHCF, losses will be adjusted, recognizing any adjustment to the Projected Payout Multiple caused by a change in the Aggregate Mandatory FHCF Premium but disregarding any change due to a decrease in the statutory limit. |
B. |
Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance. |
C. |
The Company has opted for a 45% coverage selection from the FHCF. |
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TERM
This Contract shall take effect at 12:01 a.m., Standard Time, June 1, 2019, and unless terminated prior to that time and date as provided in the Special Termination Article, shall remain in effect until 12:01 a.m., Standard Time, June 1, 2020, applying to Loss Occurrences commencing during the term of this Contract. For purposes of this Contract, Standard Time shall mean the time as described in the original Policy.
SPECIAL TERMINATION
A. |
The Company may terminate a Subscribing Reinsurers percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances: |
1. |
The Subscribing Reinsurer ceases underwriting operations. |
2. |
A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision. |
3. |
The Subscribing Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations. |
4. |
The Subscribing Reinsurers policyholders surplus (or the equivalent under the Subscribing Reinsurers accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract). |
5. |
The Subscribing Reinsurer has merged with or has become acquired or controlled by any company, corporation, or individual(s) not controlling the Subscribing Reinsurers operations at the inception of this Contract. |
6. |
The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Companys prior written consent, except for retrocessions to members of the Subscribing Reinsurers holding company group. |
7. |
The Subscribing Reinsurer has been assigned an A.M. Bests rating of less than A- and/or an S&P rating of less than BBB+. However, as respects Underwriting Members of Lloyds, London, a Lloyds Market Rating of less than A- by A.M. Best and/or less than BBB+ by S&P shall apply. |
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8. |
The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid. |
9. |
The Subscribing Reinsurer has in any other way assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (8) and (9) of this paragraph.
10. |
The Subscribing Reinsurer has failed to post or maintain required collateral to secure its obligations as required under this Contract, and has not cured such deficiency within 30 days following written notice thereof from the Company. |
B. |
Termination shall be effected on a cut-off basis and the Subscribing Reinsurer shall have no liability for Loss Occurrences commencing after the date of termination. The reinsurance premium due the Subscribing Reinsurer hereunder (including any minimum reinsurance premium) shall be prorated based on the period of the Subscribing Reinsurers participation hereon, and the Subscribing Reinsurer shall immediately return any excess reinsurance premium received. Reinstatement premium, if any, shall be calculated based on the Subscribing Reinsurers reinsurance premium earned during the period of the Subscribing Reinsurers participation hereon. |
C. |
Additionally, in the event of any of the circumstances listed in paragraph A of this Article, the Company shall have the option to commute the Subscribing Reinsurers liability for losses on Policies covered by this Contract. In the event the Company and the Subscribing Reinsurer cannot agree on the commutation amount, they shall appoint an actuary and/or appraiser to assess such amount and shall share equally any expense of the actuary and/or appraiser. If the Company and the Subscribing Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Subscribing Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Subscribing Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties in respect of liability arising from the Subscribing Reinsurers participation under this Contract. |
D. |
The Companys option to require commutation under paragraph C above shall survive the termination or expiration of this Contract. |
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TERRITORY
The territorial limits of this Contract shall be identical with those of the Companys Policies.
EXCLUSIONS
A. |
This Contract shall not apply to and specifically excludes: |
1. |
Flood when written as such. |
2. |
Earthquake for standalone Policies where earthquake is the only named peril. |
3. |
Hail damage to an insureds growing or standing crops. |
4. |
Reinsurance assumed by the Company under obligatory reinsurance agreements, except intercompany reinsurance between the Company and its affiliates and agency reinsurance where the Policies involved are to be re-underwritten in accordance with the underwriting standards of the Company and reissued as Policies of the Company at the next anniversary or expiration date. |
5. |
Pools, Associations & Syndicates, per the attached exclusion. |
6. |
Liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any Insolvency Fund. Insolvency Fund includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, that provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, that has been declared by any competent authority to be insolvent, or that is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. |
7. |
Loss or damage occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, martial law, or confiscation by order of any government or public authority, but not excluding loss or damage that would be covered under a standard form of Policy containing a standard war exclusion clause. |
8. |
Losses excluded by the attached Nuclear Incident Exclusion Clause Physical Damage Reinsurance U.S.A. |
9. |
Terrorism as defined in the attached Terrorism Exclusion. |
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10. |
Mold unless directly resulting from an otherwise covered peril. |
11. |
Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Companys property loss under the applicable original Policy. |
12. |
Financial guarantee and insolvency. |
13. |
Loss or damage to overhead transmission and distribution lines, including supporting structures, of electrical companies, telephone companies, and cable companies. This exclusion shall not apply, however, to transmission and distribution lines and their supporting structures located on the property of any original insured or within 1,000 feet thereof. |
B. |
Except as respects exclusions A(7), A(8), A(9), and A(12), if the Company inadvertently issues a Policy falling within the scope of one or more of the exclusions, such Policy shall be covered hereunder, provided that the Company issues, or causes to be issued, the required notice of cancellation within 30 days after a member of the executive or managerial staff at the Companys home office having underwriting authority in the class of business involved becomes aware that the Policy applies to excluded classes, unless the Company is prevented from canceling said Policy within such period by applicable statute or regulation, in which case such Policy shall be covered hereunder until the earliest date on which the Company may cancel. |
SPECIAL ACCEPTANCE
Business that is not within the scope of this Contract may be submitted to the Reinsurer for special acceptance hereunder, and such business, if accepted by the Reinsurer shall be covered hereunder, subject to the terms and conditions of this Contract, except as modified by the special acceptance. The Reinsurer shall be deemed to have accepted a risk, if it has not responded within five business days after receiving the underwriting information on such risk. Any renewal of a special acceptance agreed to for a predecessor contract to this Contract, shall automatically be covered hereunder.
PREMIUM
A. |
The Company shall pay the Reinsurer a premium of $**** for the term of this Contract. |
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B. |
The premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020. |
C. |
The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurers financial statements. |
REINSTATEMENT
Loss payments under this Contract shall reduce the limit of coverage afforded by the amounts paid, but the limit of coverage shall be reinstated from the time of the occurrence of the loss, and for each amount so reinstated, the Company agrees to pay , simultaneously with the Reinsurers loss payment, an additional premium calculated at pro rata of the Reinsurers premium for the term of this Contract, being pro rata only as to the fraction of the Reinsurers limit of liability hereunder (i.e., the fraction of the Reinsurers limit of liability for each Loss Occurrence as set forth in the Retention and Limit Article) so reinstated. Nevertheless, the Reinsurers liability shall not exceed such limit(s) in respect of any one Loss Occurrence, nor the applicable limit(s) in respect of all Loss Occurrences commencing during the term of this Contract, as set forth in the Retention and Limit Article.
DEFINITIONS
A. 1. |
Ultimate Net Loss means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 100% of any Extra Contractual Obligation and 100% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article. In no event, however, shall more than 25% of Ultimate Net Loss for any one Loss Occurrence be comprised of Extra Contractual Obligations and Loss in Excess of Policy Limits. |
2. |
Salvages and all recoveries (including amounts due from all reinsurances that inure to the benefit of this Contract, whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder. |
3. |
All salvages, recoveries or payments recovered or received subsequent to loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. |
4. |
The Company shall be deemed to be liable to pay a loss when a judgment has been rendered that the Company does not plan to appeal, and/or the Company has obtained a release, and/or the Company has accepted a proof of loss, and/or the Company has made a commitment to pay, and/or the Company has scheduled the payment of a loss. |
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5. |
Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Companys Ultimate Net Loss has been ascertained. |
B. |
Loss Adjustment Expense means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to: |
1. |
court costs; |
2. |
costs of supersedeas and appeal bonds; |
3. |
monitoring counsel expenses; |
4. |
legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions; |
5. |
post-judgment interest; |
6. |
pre-judgment interest, unless included as part of an award or judgment; |
7. |
a pro rata share of salaries and expenses of Company field employees, calculated in accordance with the time occupied in adjusting such loss, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract; and |
8. |
subrogation, salvage and recovery expenses. |
Loss Adjustment Expense does not include salaries and expenses of the Companys employees, except as provided in subparagraph (7) above, and office and other overhead expenses.
C. 1. |
Loss Occurrence means the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term Loss Occurrence shall be further defined as follows: |
a. |
As regards any Named Storm, all individual losses sustained by the Company arising out of and directly occasioned by such Named Storm, without regard to the limitations of duration and extent set forth above. Named Storm means any storm or storm system declared by the US National Hurricane Center, US Central Pacific Hurricane Center, US Weather Prediction Center, or their successor |
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organizations, all being divisions of the US National Weather Service to be a tropical storm or hurricane, and any successors thereof. A storm or storm system that merges with a Named Storm shall be considered part of that Named Storm, once it has merged. A Named Storm shall be deemed to begin at the effective time and date of the first watch, warning or other official advisory applicable to such tropical storm or hurricane issued by the above referenced governmental meteorological agencies. A Named Storm shall be deemed to end 72 hours after the cancellation of the last watch, warning or other official advisory applicable to such tropical storm, hurricane or successor, issued by the above referenced governmental meteorological agencies irrespective of the duration of the timing or spacing between such watches, warnings or other official advisories. If two or more storms are assigned different names by the above referenced governmental meteorological agencies, each of those storms shall constitute a separate event for purposes of this definition. |
b. |
As regards windstorm, hail, tornado, cyclone, including ensuing collapse and water damage other than Named Storm, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. |
c. |
As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses that occur beyond such 96 consecutive hours during the continued occupation of an assureds premises by strikers, provided such occupation commenced during the aforesaid period. |
d. |
As regards earthquake and fire following directly occasioned by the earthquake, those earthquake losses and individual fire losses that commence during the period of 168 consecutive hours may be included in the Companys Loss Occurrence. |
e. |
As regards any related weather conditions involving snow, sleet, freezing rain, freeze, ice, winter weather, and wind losses related to such conditions, all individual losses sustained by the Company, that occur during any period of 168 consecutive hours arising out of and directly occasioned by the same event. |
f. |
As regards firestorms, brush fires and other fires or series of fires, irrespective of origin (except for fires covered in subparagraphs (c) and (d) above) which spread through trees, grassland or other vegetation, all individual losses sustained by the Company occurring during any period of 168 consecutive hours within a 150-mile radius of any fixed point selected by the Company may be included in the Companys Loss Occurrence. However, an individual loss subject to this subparagraph cannot be included in more than one Loss Occurrence. |
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2. |
Except as provided in subparagraph (1)(a) above: |
a. |
The Company may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. |
b. |
Only one period of consecutive hours shall apply with respect to one event, except that, as respects those Loss Occurrences referred to in subparagraph (1)(c) above, if the disaster, accident or loss occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident or loss into two or more Loss Occurrences provided no two periods overlap and no individual loss is included in more than one such period and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. |
3. |
Losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one Loss Occurrence. Furthermore, all losses arising from an event involving a combination of losses described in subparagraphs (1)(a) and (1)(b) may be considered as having arisen from one Loss Occurrence. Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and, except as respects those Loss Occurrences involving a Named Storm referred to in subparagraph (1)(a) above, no single Loss Occurrence shall encompass a time period greater than 168 consecutive hours. |
D. |
Policy means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company. |
EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS
A. |
This Contract shall cover Extra Contractual Obligations, as provided in the definition of Ultimate Net Loss. Extra Contractual Obligations shall be defined as those liabilities not covered under any other provision of this Contract and that arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the 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 reinsured or in the preparation or prosecution of an appeal consequent upon such action. |
B. |
This Contract shall cover Loss in Excess of Policy Limits, as provided in the definition of Ultimate Net Loss. Loss in Excess of Policy Limits shall be defined as Loss in excess of |
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the Policy limit, having been incurred because of, but not limited to, failure by the 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 reinsured or in the preparation or prosecution of an appeal consequent upon such action. |
C. |
An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Companys Policy, and shall constitute part of the original loss. |
D. |
For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word Loss shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy. |
E. |
Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense. |
F. |
However, this Article shall not apply where the loss has been incurred due to final legal adjudication of fraud of a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. |
G. |
In no event shall coverage be provided to the extent not permitted under law. |
NET RETAINED LIABILITY
A. |
This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company). |
B. |
The amount of the Reinsurers liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts that may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. |
OTHER REINSURANCE
The Company shall be permitted to carry in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.
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ORIGINAL CONDITIONS
All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the respective Policies of the Company. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.
NO THIRD PARTY RIGHTS
This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.
NOTICE OF LOSS AND LOSS SETTLEMENTS
A. |
The Company shall advise the Reinsurer promptly if paid and estimated Ultimate Net Loss is in excess of 75% of the Companys retention, or if, in the opinion of the Company, such Ultimate Net Loss may result in a claim hereunder. Thereafter, the Company shall advise the Reinsurer, at least monthly, of all subsequent developments thereto that may materially affect the position of the Reinsurer. |
B. |
The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses. |
C. |
As respects losses subject to this Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, and any Extra Contractual Obligations and/or Loss in Excess of Policy Limits, shall be binding upon the Reinsurer. The Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of reasonable evidence of the amount paid by the Company or that the Company estimates it will pay within the next 14 days. Within 30 days after receipt of the Reinsurers payment, the Company shall report to the Reinsurer the Reinsurers payment, minus the Reinsurers share of losses subject to this Contract that the Company has paid, or become liable to pay, as of the date of the report. Any positive difference shall be remitted to the Reinsurer with the Companys report. |
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LATE PAYMENTS
A. |
In the event any payment due either party is not received by the Intermediary by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: |
1. |
The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times |
2. |
1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times |
3. |
The amount past due, including accrued interest. |
Interest |
shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. |
B. |
The due date shall, for purposes of this Article, be determined as follows: |
1. |
Payments from the Reinsurer to the Company shall be due on the date on which the demand for payment (including delivery of bordereaux or quarterly or monthly reports) is received by the Reinsurer, and shall be overdue 30 days thereafter. |
2. |
Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such reinstatement premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing. |
C. |
If the information contained in the Companys demand for payment is insufficient or not in accordance with the conditions of this Contract, then within 30 days the Reinsurer shall request from the Company all additional information necessary to validate its claim and the payment due date as defined in paragraph B shall be deemed to be the date upon which the Reinsurer received the requested additional information. This paragraph is only for the purpose of establishing when a payment is overdue, and shall not alter the provisions of the Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations. |
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D. |
In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein. |
E. |
Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving partys rights to other interest amounts due as a result of this Article. |
OFFSET
Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any and all balances due from a party to the other arising under this Contract. In the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of any applicable law governing offset entitlement.
CURRENCY
A. |
Where the word Dollars and/or the sign $ appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars. |
B. |
For purposes of this Contract, where the Company receives premiums or pays losses in currencies other than United States Dollars, such premiums or losses shall be converted into United States Dollars at the actual rates of exchange at which these premiums or losses are entered in the Companys books. |
UNAUTHORIZED REINSURANCE
A. |
This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Companys reserves. |
B. |
The Company agrees, in respect of its Policies or bonds falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The Reinsurers Obligations shall be defined as follows: |
1. |
unearned premium (if applicable); |
2. |
known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto; |
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3. |
losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer; |
4. |
losses incurred but not reported and Loss Adjustment Expense relating thereto; |
5. |
all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer. |
C. |
The Reinsurers Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves. |
D. |
When funding by Trust Agreement, the Reinsurer shall ensure that the Trust Agreement complies with the provisions of the Trust Agreement Requirements Clause attached hereto. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves in an amount equal to the Reinsurers Obligations. Such LOC shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (or such other time period as may be required by insurance regulatory authorities), prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period. |
E. |
The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company, for the following purposes, unless otherwise provided for in a separate Trust Agreement: |
1. |
to reimburse the Company for the Reinsurers Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid; |
2. |
to make refund of any sum that is in excess of the actual amount required to pay the Reinsurers Obligations under this Contract (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement); |
3. |
to fund an account with the Company for the Reinsurers Obligations. Such cash deposit shall be held in an interest bearing account separate from the Companys other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued interest shall be paid out of the assets in the account that are in excess of the Reinsurers Obligations (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid or reimbursed by the Reinsurer; |
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4. |
to pay the Reinsurers share of any other amounts the Company claims are due under this Contract. |
F. |
If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(4), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer. |
G. |
The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company. |
H. |
At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurers Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner: |
1. |
If the statement shows that the Reinsurers Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference. |
2. |
If, however, the statement shows that the Reinsurers Obligations are less than the balance of the LOC (or that 102% of the Reinsurers Obligations are less than the trust account balance if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess. |
TAXES
A. |
In consideration of the terms under which this Contract is issued, the Company undertakes not to claim any deduction of the premium hereon when making Canadian tax returns or when making tax returns, other than Income or Profits Tax returns, to any state or territory of the United States of America or to the District of Columbia. |
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B. 1. |
Each Subscribing Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax. |
2. |
In the event of any return of premium becoming due hereunder, the Subscribing Reinsurer shall deduct the applicable percentage of the premium from the amount of the return, and the Company or its agent should take steps to recover the Tax from the U.S. Government. |
ACCESS TO RECORDS
A. |
The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (Records) relating to business reinsured under this Contract during regular business hours after giving five working days prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company. |
B. |
Notwithstanding the above, the Company reserves the right to withhold from the Reinsurer any Privileged Documents. However, the Company shall permit and not object to the Reinsurers access to Privileged Documents in connection with the underlying claim reinsured hereunder following final settlement or final adjudication of the case or cases involving such claim, with prejudice against all claimants and all parties to such adjudications; the Company may defer release of such Privileged Documents if there are subrogation, contribution, or other third party actions with respect to that claim or case, and the Companys defense might be jeopardized by release of such Privileged Documents. In the event that the Company seeks to defer release of such Privileged Documents, it shall, in consultation with the Reinsurer, take other steps as reasonably necessary to provide the Reinsurer with the information it reasonably requires to indemnify the Company without causing a loss of such privileges or protections. The Reinsurer shall not have access to Privileged Documents relating to any dispute between the Company and the Reinsurer. |
C. |
For purposes of this Article: |
1. |
Privileged Documents means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents. |
2. |
Attorney-Client Privilege Documents means communications of a confidential nature between (a) the Company, or anyone retained by or at the direction of the Company, or its in-house or outside legal counsel, or anyone in the control of such legal counsel, and (b) any in-house or outside legal counsel, if such communications relate to legal advice being sought by the Company and/or contain legal advice being provided to the Company. |
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3. |
Work Product Privilege Documents means communications, written materials and tangible things prepared by or for in-house or outside counsel, or prepared by or for the Company, in anticipation of or in connection with litigation, arbitration, or other dispute resolution proceedings. |
CONFIDENTIALITY
A. |
The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (Confidential Information) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show: |
1. |
are publicly known or have become publicly known through no unauthorized act of the Reinsurer; |
2. |
have been rightfully received from a third person without obligation of confidentiality; or |
3. |
were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality. |
B. |
Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except: |
1. |
when required by retrocessionaires as respects business ceded to this Contract; |
2. |
when required by regulators performing an audit of the Reinsurers records and/or financial condition; or |
3. |
when required by external auditors performing an audit of the Reinsurers records in the normal course of business. |
Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.
C. |
Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. |
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D. |
The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. |
INDEMNIFICATION AND ERRORS AND OMISSIONS
A. |
The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to: |
1. |
what shall constitute a claim or loss covered under any Policy; |
2. |
the Companys liability thereunder; |
3. |
the amount or amounts that it shall be proper for the Company to pay thereunder. |
B. |
The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy. |
C. |
Any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay had not been made, provided such error, omission or delay is rectified immediately upon discovery. |
D. |
Nothing in this Article shall be construed to override any of the other terms and conditions of this Contract. |
INSOLVENCY
A. |
If more than one reinsured company is referenced within the definition of Company in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary states laws shall prevail. |
B. |
In the event of the insolvency of the Company, this reinsurance (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without |
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diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. |
C. |
Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company. |
D. |
As to all reinsurance made, ceded, renewed or otherwise becoming effective under this Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the Company or to its liquidator, receiver, conservator or statutory successor, (except as provided by Section 4118(a)(1)(A) of the New York Insurance Law, provided the conditions of 1114(c) of such law have been met, if New York law applies) or except (1) where the Contract specifically provides another payee in the event of the insolvency of the Company, or (2) where the Reinsurer, with the consent of the direct insured or insureds, has assumed such Policy obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Company to such payees. Then, and in that event only, the Company, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Financial Services of the State of New York, or with the prior approval of such other regulatory authority as may be applicable, is entirely released from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy. |
RUN-OFF REINSURER
A. |
Run-off Reinsurer means any Subscribing Reinsurer that: |
1. |
has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or |
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2. |
has ceased reinsurance underwriting operations; or |
3. |
has transferred its claims-paying authority to an unaffiliated entity; or |
4. |
engages in a process of Scheme of Arrangement or similar procedure related to this Contract, including but not limited to an insurance business transfer scheme pursuant to Part VII of the Financial Services and Markets Act 2000 (U.K.), as may be amended from time to time; or |
5. |
in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (3) and (5) of this paragraph.
B. |
Notwithstanding any other provision of this Contract, in the event that a Subscribing Reinsurer becomes a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurers participation hereunder: |
1. |
Should the Run-off Reinsurer fail to pay amounts due hereunder, the interest penalty specified in the Late Payments Article shall be increased by 0.5% for each 30 days that a payment is past due, subject to a maximum increase of 7.0%. |
2. |
The Run-off Reinsurers liability for losses for Policies covered by this Contract shall be commuted. In the event the Company and the Run-off Reinsurer cannot agree on the commutation amount of the Run-off Reinsurers liability under such Policies, they shall appoint an actuary and/or appraiser to assess such liability and shall share equally any expense of the actuary and/or appraiser. If the Company and the Run-off Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Run-off Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Run-off Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties under this Contract. |
3. |
The Run-off Reinsurer shall have no right of access to the Records of the Company if the Run-off Reinsurer has denied payment of any claim hereunder or there is a pending arbitration between the Company and the Run-off Reinsurer regarding any claim hereunder. A reservation of rights shall be considered a denial of a claim. Notwithstanding the above, the Run-off Reinsurer shall continue to have access to Records of the Company for any claim for which it has raised a query within 30 days of its receipt of a billing, but any inspection of Records must be completed within 90 days of receipt of billing or access will be deemed waived. |
4. |
The provisions of the Arbitration Article shall not apply. |
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C. |
The Companys waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date. |
ARBITRATION
A. |
Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested. |
B. |
One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days prior notice by certified or registered mail of its intention to do so, may appoint the second arbitrator. |
C. |
If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue. |
D. |
Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings. |
E. |
The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Contract. The arbitration shall take place in Tampa, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate. |
F. |
The panel shall interpret this Contract as an honorable engagement rather than as merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible after the hearings. Judgment upon an award may be entered in any court having jurisdiction thereof. |
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G. |
Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The remaining costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including but not limited to attorneys fees, to the extent permitted by law. |
EXPEDITED ARBITRATION
A. |
Notwithstanding the provisions of the Arbitration Article, in the event an amount in dispute hereunder $1,000,000 or less, the parties will submit to an expedited arbitration process with the use of a single arbitrator. The arbitrator will be chosen in accordance with the procedures for selecting an arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). |
B. |
Each partys case will be submitted to the arbitrator within 100 calendar days of the date of determination of the arbitrator. Discovery will be limited to exchanging only those documents directly relating to the issue in dispute, subject to a limit of two discovery depositions from each party, unless otherwise authorized by the arbitrator upon a showing of good cause. |
C. |
Within 120 calendar days of the date of determination of the arbitrator, the hearing will be completed and a written award will be issued by the arbitrator. As the parties agree that time is of the essence, the sole arbitrator does not have the authority to lengthen the schedule, absent agreement of both parties. The arbitrator will have all the powers conferred on the arbitration panel as provided in the Arbitration Article, and said Article will apply to all matters not specifically addressed above. |
SERVICE OF SUIT
A. |
This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities. |
B. |
This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract. |
C. |
In the event of the failure of the Reinsurer to perform its obligations hereunder, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be |
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understood to constitute a waiver of the Reinsurers rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal. |
D. |
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit. |
E. |
Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof. |
GOVERNING LAW
This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.
ENTIRE AGREEMENT
This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. This Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties. However, this Article shall not be construed as limiting the admissibility of evidence regarding the formation, interpretation, purpose or intent of this Contract.
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NON-WAIVER
The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in this Contract nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such remedy in the future.
AGENCY
For purposes of sending and receiving notices and payments required by this Contract, the reinsured company that is set forth first in the Preamble to this Contract shall be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, shall any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.
INTERMEDIARY
Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements, premiums, return premiums, commissions, taxes, losses, Loss Adjustment Expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed payment to the Company only to the extent that such payments are actually received by the Company.
MODE OF EXECUTION
A. |
This Contract may be executed by: |
1. |
an original written ink signature of paper documents; |
2. |
an exchange of facsimile copies showing the original written ink signature of paper documents; |
3. |
electronic signature technology employing computer software and a digital signature or digitizer pen pad to capture a persons handwritten signature in such a manner that the signature is unique to the person signing, is under the sole control of the person |
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signing, is capable of verification to authenticate the signature and is linked to the document signed in such a manner that if the data is changed, such signature is invalidated. |
B. |
The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. |
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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s), who also confirms the Companys review of and agreement to be bound by the terms and conditions of the Interests and Liabilities Agreements attached to and forming part of this Contract, this day of , in the year of 2019.
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
WORKING LAYER CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
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POOLS, ASSOCIATIONS & SYNDICATES EXCLUSIONS CLAUSE
Section A:
This Contract excludes:
a. |
All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities. |
b. |
Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968 for the purpose of insuring property, whether on a country-wide basis or in respect of designated areas. This exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage. |
Section B:
1. |
This Contract excludes business written by the Company for the same perils, which is known at the time to be insured by, or in excess of underlying amounts placed in, any Pool, Association or Syndicate, whether by way of insurance or reinsurance, formed for the purpose of writing any of the following: |
Oil, Gas or Petro-Chemical Plants
Oil or Gas Drilling Rigs and/or
Aviation Risks
2. |
The exclusion under paragraph 1 of this Section B does not apply: |
a. |
Where the Total Insured Value over all interests of the risk in question is less than $250,000,000. |
b. |
To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis. |
c. |
To Contingent Business Interruption, except when the Company is aware that the key location is known at the time to be insured in any Pool, Association or Syndicate named above, other than as provided for under subparagraph (a). |
Section C:
1. |
Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom: |
a. |
So-called Beach and Windstorm Plans and so-called Coastal Pools; |
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b. |
All FAIR Plan and Rural Risk Plan business; |
c. |
Louisiana Citizens Property Insurance Corporation; |
d. |
California Earthquake Authority (CEA) or any similar entity. |
Notwithstanding the above, assessments related to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation (Florida) shall be excluded hereunder.
2. |
However, this reinsurance does not include any increase in such liability resulting from: |
a. |
The inability of any other participant in such Residual Market Mechanisms to meet its liability; |
b. |
Any claim against a Residual Market Mechanism or any participant therein, including the Company, whether by way of subrogation or otherwise, brought by or on behalf of any insolvency fund (as defined in the Exclusions Article); |
c. |
Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company; |
d. |
The Companys initial capital contribution to the CEA; |
e. |
Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above; |
f. |
Any expenditure to purchase or retire bonds. |
3. |
The Company may include in Ultimate Net Loss for any Loss Occurrence covered hereunder only the liability attributable to that Loss Occurrence. If the relevant entity does not specify what portion of an assessment is attributable to each Loss Occurrence, the Company may include in Ultimate Net Loss in respect of each Loss Occurrence a percentage of the Companys assessments from the relevant entity related to the calendar year in which the Loss Occurrence commenced, regardless of when assessed, such percentage to be determined by dividing the relevant entitys losses arising from the Loss Occurrence by its total losses for the calendar year. |
4. |
The Company will deduct from Ultimate Net Loss amounts received as recoupment of any assessment that has been included in the Ultimate Net Loss, provided the recoupment is directly allocable to the assessment (itemized recoupment). The Company shall use commercially reasonable efforts to recoup such assessment. Any amount received as an itemized recoupment of any assessment (whether under this Contract or any predecessor contract), and therefore deductible from Ultimate Net Loss, shall not be included in the subject premium of this Contract. |
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However, if a state levies assessments but does not allow itemized recoupment from policyholders, instead allowing the Company to file an overall increased rate, any such premium increased thereby shall not be deemed to be a recoupment that is deductible from Ultimate Net Loss. Any recoupment received as part of a general premium rate increase, not specifically itemized, shall be included as part of the subject premium of this Contract or a successor contract, as applicable.
NOTES: |
Wherever used herein the terms: | |||
Company | shall be understood to mean Company, Reinsured, Reassured or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies. | |||
Contract | shall be understood to mean Agreement, Contract, Policy or whatever other term is used to designate the attached reinsurance document. | |||
Reinsurer | shall be understood to mean Reinsurer, Reinsurers, Underwriters or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers. |
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NUCLEAR INCIDENT EXCLUSION CLAUSE PHYSICAL DAMAGE REINSURANCE U.S.A.
1. |
This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. |
2. |
Without in any way restricting the operation of paragraph (1) of this clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: |
I. |
Nuclear reactor power plants including all auxiliary property on the site, or |
II. |
Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and critical facilities as such, or |
III. |
Installations for fabricating complete fuel elements or for processing substantial quantities of special nuclear material, and for reprocessing, salvaging, chemically separating, storing or disposing of spent nuclear fuel or waste materials, or |
IV. |
Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission. |
3. |
Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate |
(a) |
where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or |
(b) |
where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. |
4. |
Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. |
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5. |
It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. |
6. |
The term special nuclear material shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof. |
7. |
Reassured to be sole judge of what constitutes: |
(a) |
substantial quantities, and |
(b) |
the extent of installation, plant or site. |
Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that
(a) |
all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. |
(b) |
with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. |
12/12/57
NMA 1119
NOTES: |
Wherever used herein the terms: | |||
Reassured | shall be understood to mean Company, Reinsured, Reassured or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies. | |||
Agreement | shall be understood to mean Agreement, Contract, Policy or whatever other term is used to designate the attached reinsurance document. | |||
Reinsurers | shall be understood to mean Reinsurers, Underwriters or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers. |
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A. |
Notwithstanding any provision to the contrary within this Contract or any endorsement thereto, it is agreed that this Contract excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any Act of Terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. |
B. |
An Act of Terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological, or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: |
a. |
involves violence against one or more persons; or |
b. |
involves damage to property; or |
c. |
endangers life other than that of the person committing the action; or |
d. |
creates a risk to health or safety of the public or a section of the public; or |
e. |
is designed to interfere with or to disrupt an electronic system. |
C. |
This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any Act of Terrorism. |
D. |
Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract shall pay actual loss or damage (but not related cost or expense) caused by any Act of Terrorism, provided such act is not directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with biological, chemical, radiological or nuclear pollution or contamination. |
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TRUST AGREEMENT REQUIREMENTS CLAUSE
A. |
Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover; |
2. |
Stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash (United States legal tender), and certificates of deposit (issued by a United States bank and payable in United States legal tender), or any combination of the two, provided that the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Reinsurer or the Company; |
3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate these assets without consent or signature from the Reinsurer or any other entity; |
4. |
Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and |
5. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer. |
B. |
If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in California Insurance Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above. |
2. |
Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed 5% of total investments. |
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3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity. |
4. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer. |
C. |
If there are multiple ceding insurers that collectively comprise the Company, regulatory authorities as referenced in subparagraph A(2) above, shall mean the individual ceding insurers domestic regulator. |
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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT
TABLE OF CONTENTS
Article | Page | |||||
Preamble |
4 | |||||
1 |
Business Covered |
4 | ||||
2 |
Coverage |
4 | ||||
3 |
Term |
4 | ||||
4 |
Special Termination |
5 | ||||
5 |
Territory |
6 | ||||
6 |
Exclusions |
6 | ||||
7 |
Premium |
6 | ||||
8 |
Definitions |
7 | ||||
9 |
Original Conditions |
8 | ||||
10 |
No Third Party Rights |
8 | ||||
11 |
Notice of Loss and Loss Settlements |
8 | ||||
12 |
Late Payments |
9 | ||||
13 |
Offset |
10 | ||||
14 |
Currency |
10 | ||||
15 |
Unauthorized Reinsurance |
10 | ||||
16 |
Taxes |
12 | ||||
17 |
Access to Records |
13 | ||||
18 |
Confidentiality |
14 |
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Article | Page | |||||
19 |
Errors and Omissions |
15 | ||||
20 |
Insolvency |
15 | ||||
21 |
Run-Off Reinsurer |
16 | ||||
22 |
Arbitration |
17 | ||||
23 |
Expedited Arbitration |
18 | ||||
24 |
Service of Suit |
19 | ||||
25 |
Governing Law |
20 | ||||
26 |
Entire Agreement |
20 | ||||
27 |
Non-Waiver |
20 | ||||
28 |
Agency |
20 | ||||
29 |
Intermediary |
20 | ||||
30 |
Mode of Execution |
21 | ||||
Company Signing Block |
22 | |||||
Attachments |
||||||
Trust Agreement Requirements Clause |
24 |
REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT
(the Contract)
issued to
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
Tampa, Florida
and
TYPTAP INSURANCE COMPANY
Ocala, Florida
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by
THE SUBSCRIBING REINSURER(S) IDENTIFIED
IN THE INTERESTS AND LIABILITIES AGREEMENT(S)
ATTACHED TO AND FORMING PART OF THIS CONTRACT
(the Reinsurer)
ARTICLE 1
This Contract is to indemnify the Company in respect of the liability that may accrue to the Company as a result of Reinstatement Premium the Company may become liable to pay under the reinstatement provisions of the Property Catastrophe Excess of Loss Reinsurance Contract, effective at 12:01 a.m., Standard Time, June 1, 2019 and expiring 12:01 a.m., Standard Time, June 1, 2020, Document Number: U8GR0001 (the Original Contract), subject to the terms and conditions herein contained. The Original Contract covers losses under Policies not covered by the Companys Flood Tower, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, in force at the inception of this Contract, or issued or renewed during the term of this Contract. A copy of the Original Contract is attached to and forms part of this Contract.
ARTICLE 2
The Reinsurer shall be liable to pay the Reinstatement Premium obligations under the Original Contract.
ARTICLE 3
This Contract shall take effect at 12:01 a.m., Standard Time, June 1, 2019, and unless terminated prior to that time and date as provided in the Special Termination Article, shall remain in effect until 12:01 a.m., Standard Time, June 1, 2020, applying to Loss Occurrences commencing during the term of this Contract. For purposes of this Contract, Standard Time shall mean the time as described in the original Policy.
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ARTICLE 4
A. |
The Company may terminate a Subscribing Reinsurers percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances: |
1. |
The Subscribing Reinsurer ceases underwriting operations. |
2. |
A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision. |
3. |
The Subscribing Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations. |
4. |
The Subscribing Reinsurers policyholders surplus (or the equivalent under the Subscribing Reinsurers accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract). |
5. |
The Subscribing Reinsurer has merged with or has become acquired or controlled by any company, corporation, or individual(s) not controlling the Subscribing Reinsurers operations at the inception of this Contract. |
6. |
The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Companys prior written consent, except for retrocessions to members of the Subscribing Reinsurers holding company group. |
7. |
The Subscribing Reinsurer has been assigned an A.M. Bests rating of less than A- and/or an S&P rating of less than BBB+. However, as respects Underwriting Members of Lloyds, London, a Lloyds Market Rating of less than A- by A.M. Best and/or less than BBB+ by S&P shall apply. |
8. |
The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid. |
9. |
The Subscribing Reinsurer has in any other way assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
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Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (8) and (9) of this paragraph.
10. |
The Subscribing Reinsurer has failed to post or maintain required collateral to secure its obligations as required under this Contract, and has not cured such deficiency within 30 days following written notice thereof from the Company. |
B. |
The Subscribing Reinsurer shall have no liability for Reinstatement Premium arising from Loss Occurrences commencing after termination. The premium due the Subscribing Reinsurer hereunder (including any minimum premium) shall be prorated based on the period of the Subscribing Reinsurers participation hereon, and the Subscribing Reinsurer shall immediately return any excess premium received. |
ARTICLE 5
The territorial limits of this Contract shall be identical with those of the Original Contract.
ARTICLE 6
This Contract shall follow the exclusions set forth in the Original Contract.
ARTICLE 7
A. |
The premium for this Contract shall be based on the Layers of the Original Contract. The Company shall pay the Reinsurer a deposit premium in accordance with the schedule set forth below. The adjusted premium to be paid to the Reinsurer for the reinsurance provided under each Layer shall be calculated as the Rate on Line set out below multiplied by the Final Premium for that Layer: |
PREMIUM SCHEDULE |
||||||||
Layer |
Rate on Line |
Deposit
Premium |
||||||
Third Layer |
****% | $ | **** | |||||
Fourth Layer |
****% | $ | **** | |||||
Fifth Layer |
****% | $ | **** |
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B. |
The deposit premiums set forth in paragraph A above shall be payable to the Reinsurer by the Company in installments as follows: |
DEPOSIT INSTALLMENT SCHEDULE |
||||||||||||||||
Layer |
June 1, 2019 | September 1, 2019 | January 1, 2020 | April 1, 2020 | ||||||||||||
Third Layer |
$ | **** | $ | **** | $ | **** | $ | **** | ||||||||
Fourth Layer |
$ | **** | $ | **** | $ | **** | $ | **** | ||||||||
Fifth Layer |
$ | **** | $ | **** | $ | **** | $ | **** |
C. |
By April 1, 2020, the Company shall calculate and report the Final Premium in accordance with paragraph A above. If the Final Premium for a Layer is less than the deposit premium payable hereunder (including the fourth deposit premium installment), the fourth quarterly deposit premium installment shall be waived, and any amount in excess of the sum of the previously paid three deposit premium installments shall be remitted to the Reinsurer with the Companys report. If the Final Premium is less than the sum of the previously paid three deposit premium installments, the Reinsurer shall remit the difference to the Company. Notwithstanding the foregoing, if the Final Premium for a Layer is greater than the deposit premium payable hereunder (including the fourth deposit premium installment), the Company shall remit to the Reinsurer the difference between the Final Premium and the full deposit premium within 45 days after the expiration of this Contract. |
D. |
The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurers financial statements. |
ARTICLE 8
A. |
Reinstatement Premium means premium paid by the Company for each Layer under the provisions of the Reinstatement Article of the Original Contract. Reinstatement Premium shall be calculated at pro rata of the original reinsurance premium, being pro rata only for the amount being reinstated. If, at the time of a loss settlement under the Original Contract, the reinsurance premium thereunder is not yet known, Reinstatement Premium shall be based upon the deposit premium, subject to adjustment when said reinsurance premium is finally established. Nothing in this clause shall be construed to mean that amounts are not recoverable hereunder until the Companys final Reinstatement Premium has been ascertained. All recoveries received subsequent to reimbursement hereunder shall be applied as if received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. |
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B. |
Loss Occurrence shall follow the definition set forth in the Original Contract. |
C. |
Final Premium means the total reinsurance premium except for Reinstatement Premium. |
D. |
Policy means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company. |
ARTICLE 9
All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the Original Contract. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.
ARTICLE 10
This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.
ARTICLE 11
NOTICE OF LOSS AND LOSS SETTLEMENTS
A. |
The Company shall advise the Reinsurer promptly of all losses that, in the opinion of the Company, may result in a claim hereunder and of all subsequent developments thereto that may materially affect the position of the Reinsurer. |
B. |
The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses. |
C. |
As respects losses subject to the Original Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of reasonable evidence of the amount paid by the Company or that the Company estimates it will pay within the next 14 days. Within 30 days after receipt of the Reinsurers payment, the Company shall report to the Reinsurer the positive difference, if any, of the Reinsurers payment, minus the Reinsurers share of losses subject to this Contract that the Company has paid, or becomes liable to pay, as of the date of the report. Any such positive difference shall be remitted to the Reinsurer with the Companys report. |
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ARTICLE 12
A. |
In the event any payment due either party is not received by the Intermediary by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: |
1. |
The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times |
2. |
1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times |
3. |
The amount past due, including accrued interest. |
Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. |
B. |
The due date shall, for purposes of this Article, be determined as follows: |
1. |
Payments from the Reinsurer to the Company shall be due on the date on which the demand for payment (including delivery of bordereaux or quarterly or monthly reports) is received by the Reinsurer, and shall be overdue 30 days thereafter. |
2. |
Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement Premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such Reinstatement Premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing. |
C. |
If the information contained in the Companys demand for payment is insufficient or not in accordance with the conditions of this Contract, then within 30 days the Reinsurer shall request from the Company all additional information necessary to validate its claim and the payment due date as defined in paragraph B shall be deemed to be the date upon which the Reinsurer received the requested additional information. This paragraph is only for the purpose of establishing when a payment is overdue, and shall not alter the provisions of the Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations. |
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D. |
In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein. |
E. |
Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving partys rights to other interest amounts due as a result of this Article. |
ARTICLE 13
Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any and all balances due from a party to the other arising under this Contract. In the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of any applicable law governing offset entitlement.
ARTICLE 14
A. |
Where the word Dollars and/or the sign $ appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars. |
B. |
For purposes of this Contract, where the Company receives or pays amounts in currencies other than United States Dollars, such amounts shall be converted into United States Dollars at the actual rates of exchange at which these amounts are entered in the Companys books. |
ARTICLE 15
A. |
This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Companys reserves. |
B. |
The Company agrees, in respect of business falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The Reinsurers Obligations shall be defined as any amounts due the Company under this Contract, as set up on the Companys books. |
C. |
The Reinsurers Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves. |
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D. |
When funding by Trust Agreement, the Reinsurer shall ensure that the Trust Agreement complies with the provisions of the Trust Agreement Requirements Clause attached hereto. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves in an amount equal to the Reinsurers Obligations. Such LOC shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (or such other time period as may be required by insurance regulatory authorities), prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period. |
E. |
The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company, for the following purposes, unless otherwise provided for in a separate Trust Agreement: |
1. |
to reimburse the Company for the Reinsurers Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid; |
2. |
to make refund of any sum that is in excess of the actual amount required to pay the Reinsurers Obligations under this Contract (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement); |
3. |
to fund an account with the Company for the Reinsurers Obligations. Such cash deposit shall be held in an interest bearing account separate from the Companys other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued interest shall be paid out of the assets in the account that are in excess of the Reinsurers Obligations (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid or reimbursed by the Reinsurer; |
4. |
to pay the Reinsurers share of any other amounts the Company claims are due under this Contract. |
F. |
If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(4), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer. |
G. |
The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company. |
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H. |
At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurers Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner: |
1. |
If the statement shows that the Reinsurers Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference. |
2. |
If, however, the statement shows that the Reinsurers Obligations are less than the balance of the LOC (or that 102% of the Reinsurers Obligations are less than the trust account if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess. |
ARTICLE 16
A. |
In consideration of the terms under which this Contract is issued, the Company undertakes not to claim any deduction of the premium hereon when making Canadian tax returns or when making tax returns, other than Income or Profits Tax returns, to any state or territory of the United States of America or to the District of Columbia. |
B. 1. |
Each Subscribing Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax. |
2. |
In the event of any return of premium becoming due hereunder, the Subscribing Reinsurer shall deduct the applicable percentage of the premium from the amount of the return, and the Company or its agent should take steps to recover the Tax from the U.S. Government. |
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ARTICLE 17
A. |
The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (Records) relating to business reinsured under this Contract during regular business hours after giving five working days prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company. |
B. |
Notwithstanding the above, the Company reserves the right to withhold from the Reinsurer any Privileged Documents. However, the Company shall permit and not object to the Reinsurers access to Privileged Documents in connection with the underlying claim reinsured hereunder following final settlement or final adjudication of the case or cases involving such claim, with prejudice against all claimants and all parties to such adjudications; the Company may defer release of such Privileged Documents if there are subrogation, contribution, or other third party actions with respect to that claim or case, and the Companys defense might be jeopardized by release of such Privileged Documents. In the event that the Company seeks to defer release of such Privileged Documents, it shall, in consultation with the Reinsurer, take other steps as reasonably necessary to provide the Reinsurer with the information it reasonably requires to indemnify the Company without causing a loss of such privileges or protections. The Reinsurer shall not have access to Privileged Documents relating to any dispute between the Company and the Reinsurer. |
C. |
For purposes of this Article: |
1. |
Privileged Documents means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents. |
2. |
Attorney-Client Privilege Documents means communications of a confidential nature between (a) the Company, or anyone retained by or at the direction of the Company, or its in-house or outside legal counsel, or anyone in the control of such legal counsel, and (b) any in-house or outside legal counsel, if such communications relate to legal advice being sought by the Company and/or contain legal advice being provided to the Company. |
3. |
Work Product Privilege Documents means communications, written materials and tangible things prepared by or for in-house or outside counsel, or prepared by or for the Company, in anticipation of or in connection with litigation, arbitration, or other dispute resolution proceedings. |
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ARTICLE 18
A. |
The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (Confidential Information) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show: |
1. |
are publicly known or have become publicly known through no unauthorized act of the Reinsurer; |
2. |
have been rightfully received from a third person without obligation of confidentiality; or |
3. |
were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality. |
B. |
Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except: |
1. |
when required by retrocessionaires as respects business ceded to this Contract; |
2. |
when required by regulators performing an audit of the Reinsurers records and/or financial condition; or |
3. |
when required by external auditors performing an audit of the Reinsurers records in the normal course of business. |
Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.
C. |
Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. |
D. |
The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. |
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ARTICLE 19
Any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay had not been made, provided such error, omission or delay is rectified immediately upon discovery.
ARTICLE 20
A. |
If more than one company is referenced within the definition of Company in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary states laws shall prevail. |
B. |
In the event of the insolvency of the Company, this coverage (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. |
C. |
Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company. |
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ARTICLE 21
A. |
Run-off Reinsurer means any Subscribing Reinsurer that: |
1. |
has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or |
2. |
has ceased reinsurance underwriting operations; or |
3. |
has transferred its claims-paying authority to an unaffiliated entity; or |
4. |
engages in a process of Scheme of Arrangement or similar procedure related to this Contract, including but not limited to an insurance business transfer scheme pursuant to Part VII of the Financial Services and Markets Act 2000 (U.K.), as may be amended from time to time; or |
5. |
in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (3) and (5) of this paragraph.
B. |
Notwithstanding any other provision of this Contract, in the event that a Subscribing Reinsurer becomes a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurers participation hereunder: |
1. |
Should the Run-off Reinsurer fail to pay amounts due hereunder, the interest penalty specified in the Late Payments Article shall be increased by 0.5% for each 30 days that a payment is past due, subject to a maximum increase of 7.0%. |
2. |
The Run-off Reinsurers liability for losses for Policies covered by this Contract shall be commuted. In the event the Company and the Run-off Reinsurer cannot agree on the commutation amount of the Run-off Reinsurers liability under such Policies, they shall appoint an actuary and/or appraiser to assess such liability and shall share equally any expense of the actuary and/or appraiser. If the Company and the Run-off Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Run-off Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Run-off Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties under this Contract. |
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3. |
The Run-off Reinsurer shall have no right of access to the Records of the Company if the Run-off Reinsurer has denied payment of any claim hereunder or there is a pending arbitration between the Company and the Run-off Reinsurer regarding any claim hereunder. A reservation of rights shall be considered a denial of a claim. Notwithstanding the above, the Run-off Reinsurer shall continue to have access to Records of the Company for any claim for which it has raised a query within 30 days of its receipt of a billing, but any inspection of Records must be completed within 90 days of receipt of billing or access will be deemed waived. |
4. |
The provisions of the Arbitration Article shall not apply. |
C. |
The Companys waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date. |
ARTICLE 22
A. |
Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested. |
B. |
One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days prior notice by certified or registered mail of its intention to do so, may appoint the second arbitrator. |
C. |
If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue. |
D. |
Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings. |
E. |
The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the |
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parties that is related to this Contract. The arbitration shall take place in Tampa, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate. |
F. |
The panel shall interpret this Contract as an honorable engagement rather than as merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible after the hearings. Judgment upon an award may be entered in any court having jurisdiction thereof. |
G. |
Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The remaining costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including but not limited to attorneys fees, to the extent permitted by law. |
ARTICLE 23
A. |
Notwithstanding the provisions of the Arbitration Article, in the event an amount in dispute hereunder $1,000,000 or less, the parties will submit to an expedited arbitration process with the use of a single arbitrator. The arbitrator will be chosen in accordance with the procedures for selecting an arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). |
B. |
Each partys case will be submitted to the arbitrator within 100 calendar days of the date of determination of the arbitrator. Discovery will be limited to exchanging only those documents directly relating to the issue in dispute, subject to a limit of two discovery depositions from each party, unless otherwise authorized by the arbitrator upon a showing of good cause. |
C. |
Within 120 calendar days of the date of determination of the arbitrator, the hearing will be completed and a written award will be issued by the arbitrator. As the parties agree that time is of the essence, the sole arbitrator does not have the authority to lengthen the schedule, absent agreement of both parties. The arbitrator will have all the powers conferred on the arbitration panel as provided in the Arbitration Article, and said Article will apply to all matters not specifically addressed above. |
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ARTICLE 24
A. |
This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities. |
B. |
This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract. |
C. |
In the event of the failure of the Reinsurer to perform its obligations hereunder, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurers rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal. |
D. |
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit. |
E. |
Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof. |
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ARTICLE 25
This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.
ARTICLE 26
This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. This Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties. However, this Article shall not be construed as limiting the admissibility of evidence regarding the formation, interpretation, purpose or intent of this Contract.
ARTICLE 27
The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in this Contract nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such remedy in the future.
ARTICLE 28
For purposes of sending and receiving notices and payments required by this Contract, the reinsured company that is set forth first in the Preamble to this Contract shall be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, shall any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.
ARTICLE 29
Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements,
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premiums, return premiums, commissions, taxes, losses, Loss Adjustment Expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed payment to the Company only to the extent that such payments are actually received by the Company.
ARTICLE 30
A. |
This Contract may be executed by: |
1. |
an original written ink signature of paper documents; |
2. |
an exchange of facsimile copies showing the original written ink signature of paper documents; |
3. |
electronic signature technology employing computer software and a digital signature or digitizer pen pad to capture a persons handwritten signature in such a manner that the signature is unique to the person signing, is under the sole control of the person signing, is capable of verification to authenticate the signature and is linked to the document signed in such a manner that if the data is changed, such signature is invalidated. |
B. |
The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. |
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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s), who also confirms the Companys review of and agreement to be bound by the terms and conditions of the Interests and Liabilities Agreements attached to and forming part of this Contract, this day of , in the year of 2019.
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT
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TRUST AGREEMENT REQUIREMENTS CLAUSE
A. |
Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover; |
2. |
Stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash (United States legal tender), and certificates of deposit (issued by a United States bank and payable in United States legal tender), or any combination of the two, provided that the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Reinsurer or the Company; |
3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate these assets without consent or signature from the Reinsurer or any other entity; |
4. |
Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and |
5. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer. |
B. |
If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in California Insurance Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above. |
2. |
Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed 5% of total investments. |
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3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity. |
4. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer. |
C. |
If there are multiple ceding insurers that collectively comprise the Company, regulatory authorities as referenced in subparagraph A(2) above, shall mean the individual ceding insurers domestic regulator. |
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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT
(FOR FIRST EXCESS CAT U8GR000D)
TABLE OF CONTENTS
Article |
Page | |||||
Preamble |
4 | |||||
1 |
Business Covered |
4 | ||||
2 |
Coverage |
5 | ||||
3 |
Term |
5 | ||||
4 |
Special Termination |
5 | ||||
5 |
Territory |
6 | ||||
6 |
Exclusions |
6 | ||||
7 |
Premium |
7 | ||||
8 |
Definitions |
7 | ||||
9 |
Original Conditions |
7 | ||||
10 |
No Third Party Rights |
8 | ||||
11 |
Notice of Loss and Loss Settlements |
8 | ||||
12 |
Late Payments |
8 | ||||
13 |
Offset |
9 | ||||
14 |
Currency |
10 | ||||
15 |
Unauthorized Reinsurance |
10 | ||||
16 |
Taxes |
12 | ||||
17 |
Access to Records |
12 |
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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT
(FOR FIRST EXCESS CAT U8GR000D)
(the Contract)
issued to
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
Tampa, Florida
and
TYPTAP INSURANCE COMPANY
Ocala, Florida
(collectively, the Company)
by
THE SUBSCRIBING REINSURER(S) IDENTIFIED
IN THE INTERESTS AND LIABILITIES AGREEMENT(S)
ATTACHED TO AND FORMING PART OF THIS CONTRACT
(the Reinsurer)
ARTICLE 1
This Contract is to indemnify the Company in respect of the liability that may accrue to the Company as a result of Reinstatement Premium the Company may become liable to pay under the reinstatement provisions of the Property Catastrophe First Excess of Loss Reinsurance Contract, effective at 12:01 a.m., Standard Time, June 1, 2019 and expiring 12:01 a.m., Standard Time, June 1, 2020, Document Number: U8GR000D (the Original Contract), subject to the terms and conditions herein contained. The Original Contract covers losses under Policies not covered by the Companys Flood Tower, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, in force at the inception of this Contract, or issued or renewed during the term of this Contract. A copy of the Original Contract is attached to and forms part of this Contract.
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ARTICLE 2
The Reinsurer shall be liable to pay the Reinstatement Premium obligations under the Original Contract.
ARTICLE 3
This Contract shall take effect at 12:01 a.m., Standard Time, June 1, 2019, and unless terminated prior to that time and date as provided in the Special Termination Article, shall remain in effect until 12:01 a.m., Standard Time, June 1, 2020, applying to Loss Occurrences commencing during the term of this Contract. For purposes of this Contract, Standard Time shall mean the time as described in the original Policy.
ARTICLE 4
A. |
The Company may terminate a Subscribing Reinsurers percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances: |
1. |
The Subscribing Reinsurer ceases underwriting operations. |
2. |
A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision. |
3. |
The Subscribing Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations. |
4. |
The Subscribing Reinsurers policyholders surplus (or the equivalent under the Subscribing Reinsurers accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract). |
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5. |
The Subscribing Reinsurer has merged with or has become acquired or controlled by any company, corporation, or individual(s) not controlling the Subscribing Reinsurers operations at the inception of this Contract. |
6. |
The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Companys prior written consent, except for retrocessions to members of the Subscribing Reinsurers holding company group. |
7. |
The Subscribing Reinsurer has been assigned an A.M. Bests rating of less than A- and/or an S&P rating of less than BBB+. However, as respects Underwriting Members of Lloyds, London, a Lloyds Market Rating of less than A- by A.M. Best and/or less than BBB+ by S&P shall apply. |
8. |
The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid. |
9. |
The Subscribing Reinsurer has in any other way assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (8) and (9) of this paragraph.
10. |
The Subscribing Reinsurer has failed to post or maintain required collateral to secure its obligations as required under this Contract, and has not cured such deficiency within 30 days following written notice thereof from the Company. |
B. |
The Subscribing Reinsurer shall have no liability for Reinstatement Premium arising from Loss Occurrences commencing after termination. The premium due the Subscribing Reinsurer hereunder (including any minimum premium) shall be prorated based on the period of the Subscribing Reinsurers participation hereon, and the Subscribing Reinsurer shall immediately return any excess premium received. |
ARTICLE 5
The territorial limits of this Contract shall be identical with those of the Original Contract.
ARTICLE 6
This Contract shall follow the exclusions set forth in the Original Contract.
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ARTICLE 7
A. |
The Company shall pay the Reinsurer a premium of $**** for the term of this Contract. |
B. |
The premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020. |
C. |
The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurers financial statements. |
ARTICLE 8
A. |
Reinstatement Premium means premium paid by the Company under the provisions of the Reinstatement Article of the Original Contract. Reinstatement Premium shall be calculated at pro rata of the original reinsurance premium, being pro rata only for the amount being reinstated. If, at the time of a loss settlement under the Original Contract, the reinsurance premium thereunder is not yet known, Reinstatement Premium shall be based upon the deposit premium, subject to adjustment when said reinsurance premium is finally established. Nothing in this clause shall be construed to mean that amounts are not recoverable hereunder until the Companys final Reinstatement Premium has been ascertained. All recoveries received subsequent to reimbursement hereunder shall be applied as if received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. |
B. |
Loss Occurrence shall follow the definition set forth in the Original Contract. |
C. |
Policy means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company. |
ARTICLE 9
All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the Original Contract. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.
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ARTICLE 10
This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.
ARTICLE 11
NOTICE OF LOSS AND LOSS SETTLEMENTS
A. |
The Company shall advise the Reinsurer promptly of all losses that, in the opinion of the Company, may result in a claim hereunder and of all subsequent developments thereto that may materially affect the position of the Reinsurer. |
B. |
The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses. |
C. |
As respects losses subject to the Original Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of reasonable evidence of the amount paid by the Company or that the Company estimates it will pay within the next 14 days. Within 30 days after receipt of the Reinsurers payment, the Company shall report to the Reinsurer the positive difference, if any, of the Reinsurers payment, minus the Reinsurers share of losses subject to this Contract that the Company has paid, or becomes liable to pay, as of the date of the report. Any such positive difference shall be remitted to the Reinsurer with the Companys report. |
ARTICLE 12
A. |
In the event any payment due either party is not received by the Intermediary by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: |
1. |
The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times |
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2. |
1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times |
3. |
The amount past due, including accrued interest. |
Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.
B. |
The due date shall, for purposes of this Article, be determined as follows: |
1. |
Payments from the Reinsurer to the Company shall be due on the date on which the demand for payment (including delivery of bordereaux or quarterly or monthly reports) is received by the Reinsurer, and shall be overdue 30 days thereafter. |
2. |
Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement Premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such Reinstatement Premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing. |
C. |
If the information contained in the Companys demand for payment is insufficient or not in accordance with the conditions of this Contract, then within 30 days the Reinsurer shall request from the Company all additional information necessary to validate its claim and the payment due date as defined in paragraph B shall be deemed to be the date upon which the Reinsurer received the requested additional information. This paragraph is only for the purpose of establishing when a payment is overdue, and shall not alter the provisions of the Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations. |
D. |
In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein. |
E. |
Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving partys rights to other interest amounts due as a result of this Article. |
ARTICLE 13
Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any and all balances due from a party to the other arising under this Contract. In the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of any applicable law governing offset entitlement.
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ARTICLE 14
A. |
Where the word Dollars and/or the sign $ appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars. |
B. |
For purposes of this Contract, where the Company receives or pays amounts in currencies other than United States Dollars, such amounts shall be converted into United States Dollars at the actual rates of exchange at which these amounts are entered in the Companys books. |
ARTICLE 15
A. |
This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Companys reserves. |
B. |
The Company agrees, in respect of business falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The Reinsurers Obligations shall be defined as any amounts due the Company under this Contract, as set up on the Companys books. |
C. |
The Reinsurers Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves. |
D. |
When funding by Trust Agreement, the Reinsurer shall ensure that the Trust Agreement complies with the provisions of the Trust Agreement Requirements Clause attached hereto. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves in an amount equal to the Reinsurers Obligations. Such LOC shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (or such other time period as may be required by insurance regulatory authorities), prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period. |
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E. |
The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company, for the following purposes, unless otherwise provided for in a separate Trust Agreement: |
1. |
to reimburse the Company for the Reinsurers Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid; |
2. |
to make refund of any sum that is in excess of the actual amount required to pay the Reinsurers Obligations under this Contract (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement); |
3. |
to fund an account with the Company for the Reinsurers Obligations. Such cash deposit shall be held in an interest bearing account separate from the Companys other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued interest shall be paid out of the assets in the account that are in excess of the Reinsurers Obligations (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid or reimbursed by the Reinsurer; |
4. |
to pay the Reinsurers share of any other amounts the Company claims are due under this Contract. |
F. |
If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(4), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer. |
G. |
The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company. |
H. |
At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurers Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner: |
1. |
If the statement shows that the Reinsurers Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding |
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be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference. |
2. |
If, however, the statement shows that the Reinsurers Obligations are less than the balance of the LOC (or that 102% of the Reinsurers Obligations are less than the trust account if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess. |
ARTICLE 16
A. |
In consideration of the terms under which this Contract is issued, the Company undertakes not to claim any deduction of the premium hereon when making Canadian tax returns or when making tax returns, other than Income or Profits Tax returns, to any state or territory of the United States of America or to the District of Columbia. |
B. 1. |
Each Subscribing Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax. |
2. |
In the event of any return of premium becoming due hereunder, the Subscribing Reinsurer shall deduct the applicable percentage of the premium 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 17
A. |
The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (Records) relating to business reinsured under this Contract during regular business hours after giving five working days prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company. |
B. |
Notwithstanding the above, the Company reserves the right to withhold from the Reinsurer any Privileged Documents. However, the Company shall permit and not object to the |
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Reinsurers access to Privileged Documents in connection with the underlying claim reinsured hereunder following final settlement or final adjudication of the case or cases involving such claim, with prejudice against all claimants and all parties to such adjudications; the Company may defer release of such Privileged Documents if there are subrogation, contribution, or other third party actions with respect to that claim or case, and the Companys defense might be jeopardized by release of such Privileged Documents. In the event that the Company seeks to defer release of such Privileged Documents, it shall, in consultation with the Reinsurer, take other steps as reasonably necessary to provide the Reinsurer with the information it reasonably requires to indemnify the Company without causing a loss of such privileges or protections. The Reinsurer shall not have access to Privileged Documents relating to any dispute between the Company and the Reinsurer. |
C. |
For purposes of this Article: |
1. |
Privileged Documents means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents. |
2. |
Attorney-Client Privilege Documents means communications of a confidential nature between (a) the Company, or anyone retained by or at the direction of the Company, or its in-house or outside legal counsel, or anyone in the control of such legal counsel, and (b) any in-house or outside legal counsel, if such communications relate to legal advice being sought by the Company and/or contain legal advice being provided to the Company. |
3. |
Work Product Privilege Documents means communications, written materials and tangible things prepared by or for in-house or outside counsel, or prepared by or for the Company, in anticipation of or in connection with litigation, arbitration, or other dispute resolution proceedings. |
ARTICLE 18
A. |
The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (Confidential Information) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show: |
1. |
are publicly known or have become publicly known through no unauthorized act of the Reinsurer; |
2. |
have been rightfully received from a third person without obligation of confidentiality; or |
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3. |
were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality. |
B. |
Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except: |
1. |
when required by retrocessionaires as respects business ceded to this Contract; |
2. |
when required by regulators performing an audit of the Reinsurers records and/or financial condition; or |
3. |
when required by external auditors performing an audit of the Reinsurers records in the normal course of business. |
Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.
C. |
Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. |
D. |
The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. |
ARTICLE 19
Any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay had not been made, provided such error, omission or delay is rectified immediately upon discovery.
ARTICLE 20
A. |
If more than one company is referenced within the definition of Company in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary states laws shall prevail. |
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B. |
In the event of the insolvency of the Company, this coverage (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. |
C. |
Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company. |
ARTICLE 21
A. |
Run-off Reinsurer means any Subscribing Reinsurer that: |
1. |
has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or |
2. |
has ceased reinsurance underwriting operations; or |
3. |
has transferred its claims-paying authority to an unaffiliated entity; or |
4. |
engages in a process of Scheme of Arrangement or similar procedure related to this Contract, including but not limited to an insurance business transfer scheme pursuant to Part VII of the Financial Services and Markets Act 2000 (U.K.), as may be amended from time to time; or |
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5. |
in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (3) and (5) of this paragraph.
B. |
Notwithstanding any other provision of this Contract, in the event that a Subscribing Reinsurer becomes a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurers participation hereunder: |
1. |
Should the Run-off Reinsurer fail to pay amounts due hereunder, the interest penalty specified in the Late Payments Article shall be increased by 0.5% for each 30 days that a payment is past due, subject to a maximum increase of 7.0%. |
2. |
The Run-off Reinsurers liability for losses for Policies covered by this Contract shall be commuted. In the event the Company and the Run-off Reinsurer cannot agree on the commutation amount of the Run-off Reinsurers liability under such Policies, they shall appoint an actuary and/or appraiser to assess such liability and shall share equally any expense of the actuary and/or appraiser. If the Company and the Run-off Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Run-off Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Run-off Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties under this Contract. |
3. |
The Run-off Reinsurer shall have no right of access to the Records of the Company if the Run-off Reinsurer has denied payment of any claim hereunder or there is a pending arbitration between the Company and the Run-off Reinsurer regarding any claim hereunder. A reservation of rights shall be considered a denial of a claim. Notwithstanding the above, the Run-off Reinsurer shall continue to have access to Records of the Company for any claim for which it has raised a query within 30 days of its receipt of a billing, but any inspection of Records must be completed within 90 days of receipt of billing or access will be deemed waived. |
4. |
The provisions of the Arbitration Article shall not apply. |
C. |
The Companys waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date. |
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ARTICLE 22
A. |
Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested. |
B. |
One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days prior notice by certified or registered mail of its intention to do so, may appoint the second arbitrator. |
C. |
If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue. |
D. |
Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings. |
E. |
The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Contract. The arbitration shall take place in Tampa, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate. |
F. |
The panel shall interpret this Contract as an honorable engagement rather than as merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible after the hearings. Judgment upon an award may be entered in any court having jurisdiction thereof. |
G. |
Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The remaining costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including but not limited to attorneys fees, to the extent permitted by law. |
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ARTICLE 23
A. |
Notwithstanding the provisions of the Arbitration Article, in the event an amount in dispute hereunder $1,000,000 or less, the parties will submit to an expedited arbitration process with the use of a single arbitrator. The arbitrator will be chosen in accordance with the procedures for selecting an arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). |
B. |
Each partys case will be submitted to the arbitrator within 100 calendar days of the date of determination of the arbitrator. Discovery will be limited to exchanging only those documents directly relating to the issue in dispute, subject to a limit of two discovery depositions from each party, unless otherwise authorized by the arbitrator upon a showing of good cause. |
C. |
Within 120 calendar days of the date of determination of the arbitrator, the hearing will be completed and a written award will be issued by the arbitrator. As the parties agree that time is of the essence, the sole arbitrator does not have the authority to lengthen the schedule, absent agreement of both parties. The arbitrator will have all the powers conferred on the arbitration panel as provided in the Arbitration Article, and said Article will apply to all matters not specifically addressed above. |
ARTICLE 24
A. |
This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities. |
B. |
This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract. |
C. |
In the event of the failure of the Reinsurer to perform its obligations hereunder, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurers rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the |
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United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal. |
D. |
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit. |
E. |
Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof. |
ARTICLE 25
This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.
ARTICLE 26
This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. This Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties. However, this Article shall not be construed as limiting the admissibility of evidence regarding the formation, interpretation, purpose or intent of this Contract.
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ARTICLE 27
The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in this Contract nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such remedy in the future.
ARTICLE 28
For purposes of sending and receiving notices and payments required by this Contract, the reinsured company that is set forth first in the Preamble to this Contract shall be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, shall any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.
ARTICLE 29
Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements, premiums, return premiums, commissions, taxes, losses, Loss Adjustment Expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed payment to the Company only to the extent that such payments are actually received by the Company.
ARTICLE 30
A. |
This Contract may be executed by: |
1. |
an original written ink signature of paper documents; |
2. |
an exchange of facsimile copies showing the original written ink signature of paper documents; |
3. |
electronic signature technology employing computer software and a digital signature or digitizer pen pad to capture a persons handwritten signature in such a manner that the signature is unique to the person signing, is under the sole control of the person |
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signing, is capable of verification to authenticate the signature and is linked to the document signed in such a manner that if the data is changed, such signature is invalidated. |
B. |
The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. |
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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s), who also confirms the Companys review of and agreement to be bound by the terms and conditions of the Interests and Liabilities Agreements attached to and forming part of this Contract, this day of , in the year of 2019.
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT
(FOR FIRST EXCESS CAT U8GR000D)
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TRUST AGREEMENT REQUIREMENTS CLAUSE
A. |
Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover; |
2. |
Stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash (United States legal tender), and certificates of deposit (issued by a United States bank and payable in United States legal tender), or any combination of the two, provided that the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Reinsurer or the Company; |
3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate these assets without consent or signature from the Reinsurer or any other entity; |
4. |
Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and |
5. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer. |
B. |
If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in California Insurance Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above. |
2. |
Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed 5% of total investments. |
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3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity. |
4. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer. |
C. |
If there are multiple ceding insurers that collectively comprise the Company, regulatory authorities as referenced in subparagraph A(2) above, shall mean the individual ceding insurers domestic regulator. |
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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT
(FOR WORKING LAYER CAT U8GR0008)
TABLE OF CONTENTS
Article |
Page | |||||
Preamble |
4 | |||||
1 |
Business Covered |
4 | ||||
2 |
Coverage |
5 | ||||
3 |
Term |
5 | ||||
4 |
Special Termination |
5 | ||||
5 |
Territory |
6 | ||||
6 |
Exclusions |
6 | ||||
7 |
Premium |
7 | ||||
8 |
Definitions |
7 | ||||
9 |
Original Conditions |
7 | ||||
10 |
No Third Party Rights |
8 | ||||
11 |
Notice of Loss and Loss Settlements |
8 | ||||
12 |
Late Payments |
8 | ||||
13 |
Offset |
9 | ||||
14 |
Currency |
10 | ||||
15 |
Unauthorized Reinsurance |
10 | ||||
16 |
Taxes |
12 | ||||
17 |
Access to Records |
12 |
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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT
(FOR WORKING LAYER CAT U8GR0008)
(the Contract)
issued to
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
Tampa, Florida
and
TYPTAP INSURANCE COMPANY
Ocala, Florida
(collectively, the Company)
by
THE SUBSCRIBING REINSURER(S) IDENTIFIED
IN THE INTERESTS AND LIABILITIES AGREEMENT(S)
ATTACHED TO AND FORMING PART OF THIS CONTRACT
(the Reinsurer)
ARTICLE 1
This Contract is to indemnify the Company in respect of the liability that may accrue to the Company as a result of Reinstatement Premium the Company may become liable to pay under the reinstatement provisions of the Working Layer Catastrophe Excess of Loss Reinsurance Contract, effective at 12:01 a.m., Standard Time, June 1, 2019 and expiring 12:01 a.m., Standard Time, June 1, 2020, Document Number: U8GR0008 (the Original Contract), subject to the terms and conditions herein contained. The Original Contract covers losses under Policies not covered by the Companys Flood Tower, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, in force at the inception of this Contract, or issued or renewed during the term of this Contract. A copy of the Original Contract is attached to and forms part of this Contract.
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ARTICLE 2
The Reinsurer shall be liable to pay the Reinstatement Premium obligations under the Original Contract.
ARTICLE 3
This Contract shall take effect at 12:01 a.m., Standard Time, June 1, 2019, and unless terminated prior to that time and date as provided in the Special Termination Article, shall remain in effect until 12:01 a.m., Standard Time, June 1, 2020, applying to Loss Occurrences commencing during the term of this Contract. For purposes of this Contract, Standard Time shall mean the time as described in the original Policy.
ARTICLE 4
A. |
The Company may terminate a Subscribing Reinsurers percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances: |
1. |
The Subscribing Reinsurer ceases underwriting operations. |
2. |
A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision. |
3. |
The Subscribing Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations. |
4. |
The Subscribing Reinsurers policyholders surplus (or the equivalent under the Subscribing Reinsurers accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract). |
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5. |
The Subscribing Reinsurer has merged with or has become acquired or controlled by any company, corporation, or individual(s) not controlling the Subscribing Reinsurers operations at the inception of this Contract. |
6. |
The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Companys prior written consent, except for retrocessions to members of the Subscribing Reinsurers holding company group. |
7. |
The Subscribing Reinsurer has been assigned an A.M. Bests rating of less than A- and/or an S&P rating of less than BBB+. However, as respects Underwriting Members of Lloyds, London, a Lloyds Market Rating of less than A- by A.M. Best and/or less than BBB+ by S&P shall apply. |
8. |
The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid. |
9. |
The Subscribing Reinsurer has in any other way assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (8) and (9) of this paragraph.
10. |
The Subscribing Reinsurer has failed to post or maintain required collateral to secure its obligations as required under this Contract, and has not cured such deficiency within 30 days following written notice thereof from the Company. |
B. |
The Subscribing Reinsurer shall have no liability for Reinstatement Premium arising from Loss Occurrences commencing after termination. The premium due the Subscribing Reinsurer hereunder (including any minimum premium) shall be prorated based on the period of the Subscribing Reinsurers participation hereon, and the Subscribing Reinsurer shall immediately return any excess premium received. |
ARTICLE 5
The territorial limits of this Contract shall be identical with those of the Original Contract.
ARTICLE 6
This Contract shall follow the exclusions set forth in the Original Contract.
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ARTICLE 7
A. |
The Company shall pay the Reinsurer a premium of $**** for the term of this Contract. |
B. |
The premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020. |
C. |
The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurers financial statements. |
ARTICLE 8
A. |
Reinstatement Premium means premium paid by the Company under the provisions of the Reinstatement Article of the Original Contract. Reinstatement Premium shall be calculated at pro rata of the original reinsurance premium, being pro rata only for the amount being reinstated. If, at the time of a loss settlement under the Original Contract, the reinsurance premium thereunder is not yet known, Reinstatement Premium shall be based upon the deposit premium, subject to adjustment when said reinsurance premium is finally established. Nothing in this clause shall be construed to mean that amounts are not recoverable hereunder until the Companys final Reinstatement Premium has been ascertained. All recoveries received subsequent to reimbursement hereunder shall be applied as if received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. |
B. |
Loss Occurrence shall follow the definition set forth in the Original Contract. |
C. |
Policy means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company. |
ARTICLE 9
All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the Original Contract. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.
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ARTICLE 10
This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.
ARTICLE 11
NOTICE OF LOSS AND LOSS SETTLEMENTS
A. |
The Company shall advise the Reinsurer promptly of all losses that, in the opinion of the Company, may result in a claim hereunder and of all subsequent developments thereto that may materially affect the position of the Reinsurer. |
B. |
The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses. |
C. |
As respects losses subject to the Original Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of reasonable evidence of the amount paid by the Company or that the Company estimates it will pay within the next 14 days. Within 30 days after receipt of the Reinsurers payment, the Company shall report to the Reinsurer the positive difference, if any, of the Reinsurers payment, minus the Reinsurers share of losses subject to this Contract that the Company has paid, or becomes liable to pay, as of the date of the report. Any such positive difference shall be remitted to the Reinsurer with the Companys report. |
ARTICLE 12
A. |
In the event any payment due either party is not received by the Intermediary by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: |
1. |
The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times |
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2. |
1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times |
3. |
The amount past due, including accrued interest. |
Interest |
shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. |
B. |
The due date shall, for purposes of this Article, be determined as follows: |
1. |
Payments from the Reinsurer to the Company shall be due on the date on which the demand for payment (including delivery of bordereaux or quarterly or monthly reports) is received by the Reinsurer, and shall be overdue 30 days thereafter. |
2. |
Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement Premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such Reinstatement Premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing. |
C. |
If the information contained in the Companys demand for payment is insufficient or not in accordance with the conditions of this Contract, then within 30 days the Reinsurer shall request from the Company all additional information necessary to validate its claim and the payment due date as defined in paragraph B shall be deemed to be the date upon which the Reinsurer received the requested additional information. This paragraph is only for the purpose of establishing when a payment is overdue, and shall not alter the provisions of the Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations. |
D. |
In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein. |
E. |
Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving partys rights to other interest amounts due as a result of this Article. |
ARTICLE 13
Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any and all balances due from a party to the other arising under this Contract. In the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of any applicable law governing offset entitlement.
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ARTICLE 14
A. |
Where the word Dollars and/or the sign $ appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars. |
B. |
For purposes of this Contract, where the Company receives or pays amounts in currencies other than United States Dollars, such amounts shall be converted into United States Dollars at the actual rates of exchange at which these amounts are entered in the Companys books. |
ARTICLE 15
A. |
This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Companys reserves. |
B. |
The Company agrees, in respect of business falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The Reinsurers Obligations shall be defined as any amounts due the Company under this Contract, as set up on the Companys books. |
C. |
The Reinsurers Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves. |
D. |
When funding by Trust Agreement, the Reinsurer shall ensure that the Trust Agreement complies with the provisions of the Trust Agreement Requirements Clause attached hereto. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Companys reserves in an amount equal to the Reinsurers Obligations. Such LOC shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (or such other time period as may be required by insurance regulatory authorities), prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period. |
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E. |
The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company, for the following purposes, unless otherwise provided for in a separate Trust Agreement: |
1. |
to reimburse the Company for the Reinsurers Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid; |
2. |
to make refund of any sum that is in excess of the actual amount required to pay the Reinsurers Obligations under this Contract (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement); |
3. |
to fund an account with the Company for the Reinsurers Obligations. Such cash deposit shall be held in an interest bearing account separate from the Companys other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued interest shall be paid out of the assets in the account that are in excess of the Reinsurers Obligations (or in excess of 102% of the Reinsurers Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid or reimbursed by the Reinsurer; |
4. |
to pay the Reinsurers share of any other amounts the Company claims are due under this Contract. |
F. |
If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(4), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer. |
G. |
The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company. |
H. |
At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurers Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner: |
1. |
If the statement shows that the Reinsurers Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference. |
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2. |
If, however, the statement shows that the Reinsurers Obligations are less than the balance of the LOC (or that 102% of the Reinsurers Obligations are less than the trust account if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess. |
ARTICLE 16
A. |
In consideration of the terms under which this Contract is issued, the Company undertakes not to claim any deduction of the premium hereon when making Canadian tax returns or when making tax returns, other than Income or Profits Tax returns, to any state or territory of the United States of America or to the District of Columbia. |
B. |
1.Each Subscribing Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax. |
2. |
In the event of any return of premium becoming due hereunder, the Subscribing Reinsurer shall deduct the applicable percentage of the premium 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 17
A. |
The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (Records) relating to business reinsured under this Contract during regular business hours after giving five working days prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company. |
B. |
Notwithstanding the above, the Company reserves the right to withhold from the Reinsurer any Privileged Documents. However, the Company shall permit and not object to the |
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Reinsurers access to Privileged Documents in connection with the underlying claim reinsured hereunder following final settlement or final adjudication of the case or cases involving such claim, with prejudice against all claimants and all parties to such adjudications; the Company may defer release of such Privileged Documents if there are subrogation, contribution, or other third party actions with respect to that claim or case, and the Companys defense might be jeopardized by release of such Privileged Documents. In the event that the Company seeks to defer release of such Privileged Documents, it shall, in consultation with the Reinsurer, take other steps as reasonably necessary to provide the Reinsurer with the information it reasonably requires to indemnify the Company without causing a loss of such privileges or protections. The Reinsurer shall not have access to Privileged Documents relating to any dispute between the Company and the Reinsurer. |
C. |
For purposes of this Article: |
1. |
Privileged Documents means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents. |
2. |
Attorney-Client Privilege Documents means communications of a confidential nature between (a) the Company, or anyone retained by or at the direction of the Company, or its in-house or outside legal counsel, or anyone in the control of such legal counsel, and (b) any in-house or outside legal counsel, if such communications relate to legal advice being sought by the Company and/or contain legal advice being provided to the Company. |
3. |
Work Product Privilege Documents means communications, written materials and tangible things prepared by or for in-house or outside counsel, or prepared by or for the Company, in anticipation of or in connection with litigation, arbitration, or other dispute resolution proceedings. |
ARTICLE 18
A. |
The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (Confidential Information) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show: |
1. |
are publicly known or have become publicly known through no unauthorized act of the Reinsurer; |
2. |
have been rightfully received from a third person without obligation of confidentiality; or |
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3. |
were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality. |
B. |
Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except: |
1. |
when required by retrocessionaires as respects business ceded to this Contract; |
2. |
when required by regulators performing an audit of the Reinsurers records and/or financial condition; or |
3. |
when required by external auditors performing an audit of the Reinsurers records in the normal course of business. |
Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.
C. |
Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. |
D. |
The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. |
ARTICLE 19
Any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay had not been made, provided such error, omission or delay is rectified immediately upon discovery.
ARTICLE 20
A. |
If more than one company is referenced within the definition of Company in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary states laws shall prevail. |
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B. |
In the event of the insolvency of the Company, this coverage (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. |
C. |
Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company. |
ARTICLE 21
A. |
Run-off Reinsurer means any Subscribing Reinsurer that: |
1. |
has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or |
2. |
has ceased reinsurance underwriting operations; or |
3. |
has transferred its claims-paying authority to an unaffiliated entity; or |
4. |
engages in a process of Scheme of Arrangement or similar procedure related to this Contract, including but not limited to an insurance business transfer scheme pursuant to Part VII of the Financial Services and Markets Act 2000 (U.K.), as may be amended from time to time; or |
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5. |
in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity. |
Notwithstanding the foregoing, agreement by a Lloyds syndicate to follow claim settlements procedures under Lloyds Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (3) and (5) of this paragraph.
B. |
Notwithstanding any other provision of this Contract, in the event that a Subscribing Reinsurer becomes a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurers participation hereunder: |
1. |
Should the Run-off Reinsurer fail to pay amounts due hereunder, the interest penalty specified in the Late Payments Article shall be increased by 0.5% for each 30 days that a payment is past due, subject to a maximum increase of 7.0%. |
2. |
The Run-off Reinsurers liability for losses for Policies covered by this Contract shall be commuted. In the event the Company and the Run-off Reinsurer cannot agree on the commutation amount of the Run-off Reinsurers liability under such Policies, they shall appoint an actuary and/or appraiser to assess such liability and shall share equally any expense of the actuary and/or appraiser. If the Company and the Run-off Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Run-off Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Run-off Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties under this Contract. |
3. |
The Run-off Reinsurer shall have no right of access to the Records of the Company if the Run-off Reinsurer has denied payment of any claim hereunder or there is a pending arbitration between the Company and the Run-off Reinsurer regarding any claim hereunder. A reservation of rights shall be considered a denial of a claim. Notwithstanding the above, the Run-off Reinsurer shall continue to have access to Records of the Company for any claim for which it has raised a query within 30 days of its receipt of a billing, but any inspection of Records must be completed within 90 days of receipt of billing or access will be deemed waived. |
4. |
The provisions of the Arbitration Article shall not apply. |
C. |
The Companys waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date. |
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ARTICLE 22
A. |
Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested. |
B. |
One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days prior notice by certified or registered mail of its intention to do so, may appoint the second arbitrator. |
C. |
If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue. |
D. |
Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings. |
E. |
The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Contract. The arbitration shall take place in Tampa, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate. |
F. |
The panel shall interpret this Contract as an honorable engagement rather than as merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible after the hearings. Judgment upon an award may be entered in any court having jurisdiction thereof. |
G. |
Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The remaining costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including but not limited to attorneys fees, to the extent permitted by law. |
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ARTICLE 23
A. |
Notwithstanding the provisions of the Arbitration Article, in the event an amount in dispute hereunder $1,000,000 or less, the parties will submit to an expedited arbitration process with the use of a single arbitrator. The arbitrator will be chosen in accordance with the procedures for selecting an arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society U.S. (ARIAS). |
B. |
Each partys case will be submitted to the arbitrator within 100 calendar days of the date of determination of the arbitrator. Discovery will be limited to exchanging only those documents directly relating to the issue in dispute, subject to a limit of two discovery depositions from each party, unless otherwise authorized by the arbitrator upon a showing of good cause. |
C. |
Within 120 calendar days of the date of determination of the arbitrator, the hearing will be completed and a written award will be issued by the arbitrator. As the parties agree that time is of the essence, the sole arbitrator does not have the authority to lengthen the schedule, absent agreement of both parties. The arbitrator will have all the powers conferred on the arbitration panel as provided in the Arbitration Article, and said Article will apply to all matters not specifically addressed above. |
ARTICLE 24
A. |
This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities. |
B. |
This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract. |
C. |
In the event of the failure of the Reinsurer to perform its obligations hereunder, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurers rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the |
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United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal. |
D. |
Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit. |
E. |
Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof. |
ARTICLE 25
This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.
ARTICLE 26
This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. This Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties. However, this Article shall not be construed as limiting the admissibility of evidence regarding the formation, interpretation, purpose or intent of this Contract.
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ARTICLE 27
The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in this Contract nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such remedy in the future.
ARTICLE 28
For purposes of sending and receiving notices and payments required by this Contract, the reinsured company that is set forth first in the Preamble to this Contract shall be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, shall any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.
ARTICLE 29
Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements, premiums, return premiums, commissions, taxes, losses, Loss Adjustment Expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed payment to the Company only to the extent that such payments are actually received by the Company.
ARTICLE 30
A. |
This Contract may be executed by: |
1. |
an original written ink signature of paper documents; |
2. |
an exchange of facsimile copies showing the original written ink signature of paper documents; |
3. |
electronic signature technology employing computer software and a digital signature or digitizer pen pad to capture a persons handwritten signature in such a manner that the signature is unique to the person signing, is under the sole control of the person |
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signing, is capable of verification to authenticate the signature and is linked to the document signed in such a manner that if the data is changed, such signature is invalidated. |
B. |
The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. |
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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s), who also confirms the Companys review of and agreement to be bound by the terms and conditions of the Interests and Liabilities Agreements attached to and forming part of this Contract, this day of , in the year of 2019.
HOMEOWNERS CHOICE PROPERTY & CASUALTY
INSURANCE COMPANY, INC.
REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT
(FOR WORKING LAYER CAT U8GR0008)
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TRUST AGREEMENT REQUIREMENTS CLAUSE
A. |
Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover; |
2. |
Stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash (United States legal tender), and certificates of deposit (issued by a United States bank and payable in United States legal tender), or any combination of the two, provided that the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Reinsurer or the Company; |
3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate these assets without consent or signature from the Reinsurer or any other entity; |
4. |
Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and |
5. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer. |
B. |
If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement: |
1. |
Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in California Insurance Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above. |
2. |
Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed 5% of total investments. |
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3. |
Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity. |
4. |
Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer. |
C. |
If there are multiple ceding insurers that collectively comprise the Company, regulatory authorities as referenced in subparagraph A(2) above, shall mean the individual ceding insurers domestic regulator. |
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EXHIBIT 10.45
STATE BOARD OF ADMINISTRATION OF FLORIDA
1801 HERMITAGE BOULEVARD, SUITE 100 TALLAHASSEE, FLORIDA 32308 (850) 488-4406
POST OFFICE BOX 13300 32317-3300 |
RON DESANTIS GOVERNOR CHAIR
JIMMY PATRONIS CHIEF FINANCIAL OFFICER
ASHLEY MOODY ATTORNEY GENERAL
ASHBEL C. WILLIAMS EXECUTIVE DIRECTOR & CHIEF INVESTMENT OFFICER |
REIMBURSEMENT CONTRACT
Effective: June 1, 2019
(Contract)
between
HOMEOWNERS CHOICE PROPERTY AND CASUALTY INSURANCE COMPANY
(Company)
NAIC # 12944
and
THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (SBA)
WHICH ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (FHCF)
PREAMBLE
Section 215.555, Florida Statutes creates the FHCF and directs the SBA to administer the FHCF. This Contract, consisting of the principal document entitled Reimbursement Contract, addressing the mandatory FHCF coverage, and Addenda, is subject to Section 215.555, Florida Statutes, and to any administrative rule adopted pursuant thereto, and is not intended to be in conflict therewith. All provisions in the principal document are equally applicable to each Addendum unless specifically superseded by one of the Addenda.
In consideration of the promises set forth in this Contract, the parties agree as follows:
ARTICLE ISCOPE OF AGREEMENT
As a condition precedent to the SBAs obligations under this Contract, the Company shall report to the SBA in a specified format the business it writes which is described in this Contract as Covered Policies. The terms of this Contract shall determine the rights and obligations of the parties. This Contract provides reimbursement to the Company under certain circumstances, as described herein, and does not provide or extend insurance or reinsurance coverage to any person, firm, corporation or other entity. The SBA shall reimburse the Company for its Ultimate Net Loss on Covered Policies, which were in force and in effect at the time of the Covered Event causing the Loss, in excess of the Companys Retention as a result of each Covered Event commencing during the Contract Year, to the extent funds are available, all as hereinafter defined.
ARTICLE IIPARTIES TO THE CONTRACT
This Contract is solely between the Company, an Authorized Insurer or any entity writing Covered Policies under Section 627.351, Florida Statutes, in the State of Florida, and the SBA. In no instance shall any
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insured of the Company, any claimant against an insured of the Company, or any other third party have any rights under this Contract, except as provided in Article XV. The SBA will disburse funds only to the Company, except as provided for in Article XV. The Company shall not, without the prior approval of the Florida Office of Insurance Regulation, sell, assign, or transfer to any third party, in return for a fee or other consideration any sums the FHCF pays under this Contract or the right to receive such sums.
ARTICLE III TERM; EXECUTION
(1) |
Term |
This Contract applies to Losses from Covered Events which commence during the period from 12:00:01 a.m., Eastern Time, June 1,2019, to 12:00 midnight, Eastern Time, May 31, 2020 (the Contract Year). The SBA shall not be liable for Losses from Covered Events which commence after the effective time and date of expiration or termination. Should this Contract expire or terminate while a Covered Event is in progress, the SBA shall be responsible for such Covered Event in progress in the same manner and to the same extent it would have been responsible had the Contract expired the day following the conclusion of the Covered Event in progress.
(2) |
Mandatory Nature of this Contract |
(a) |
Statutory Requirement |
This Contract has been adopted as part of Rule 19-8.010, Florida Administrative Code (F.A.C.), in fulfillment of the statutory requirement that the SBA enter into a Contract with each Company writing Covered Policies in Florida. Under Section 215.555(4)(a), Florida Statutes, the SBA must enter into such a Contract with each such Company, and each such Company must enter into the Contract as a condition of doing business in Florida. Under Section 215.555(16)(c), Florida Statutes, Companies writing Covered Policies must execute the Contract by March 1 of the immediately preceding Contract Year.
(b) |
Duty to Provide a Fully and Timely Executed Copy of this Contract to the FHCF Administrator |
The Company must provide a fully executed copy of this Contract in electronic form to the Administrator no later than the March 1 statutory deadline for execution, or, in the case of a New Participant, no later than 30 days after the New Participant began writing Covered Policies.
(3) |
Contract Deemed Executed Notwithstanding Execution Errors |
Except with respect to New Participants, this Contract is deemed to have been executed by the Company as of the March 1 statutory deadline, notwithstanding the fact that the Coverage Level election in Article XX(1)(b) may be invalid, and notwithstanding the fact that the person purporting to execute the Contract on the part of the Company may have lacked the requisite authority. With respect to New Participants, this Contract is deemed to have been executed by the New Participant as of the date on which the New Participant began writing Covered Policies; coverage shall be determined as provided in paragraphs (c) and (d). Execution of this Contract by or on behalf of an entity that does not write Covered Policies is void. If the Company failed to timely submit an executed copy of this Contract, or if the executed Contract includes an invalid Coverage Level election under Article XX, the Companys Coverage Level shall be deemed as follows:
(a) |
For a Company that is a member of a National Association of Insurance Commissioners (NAIC) group, the same Coverage Level selected by the other Companies of the same NAIC group shall be deemed. If executed Contracts for none of the members of an NAIC group have been received by the FHCF Administrator, the Coverage Level from the prior Contract Year shall be deemed. |
(b) |
For a Company that is not a member of an NAIC group under which other Companies are active participants in the FHCF, the Coverage Level from the prior Contract Year shall be deemed. |
(c) |
For a New Participant that is a member of an NAIC group, the same Coverage Level selected by the other Companies of the same NAIC group shall be deemed. |
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(d) |
For a New Participant that is not a member of an NAIC group under which other Companies are active participants in the FHCF, the 45%, 75% or 90% Coverage Levels may be selected if the FHCF Administrator receives executed Contracts within 30 calendar days after the effective date of the first Covered Policy, otherwise, the 45% Coverage Level shall be deemed to have been selected. |
ARTICLE IV LIABILITY OF THE FHCF
(1) |
The SBA shall reimburse the Company with respect to each Covered Event commencing during the Contract Year in the amount of Ultimate Net Loss paid by the Company in excess of the Companys Retention, as adjusted pursuant to the definition of Retention in Article V, multiplied by the applicable Coverage Level, plus 5% of the reimbursed Losses as a Loss Adjustment Expense Allowance, the total of which shall not exceed the Companys Limit. |
(2) |
Section 215.555(4)(c)1., Florida Statutes provides that the obligation of the FHCF with respect to all Contracts covering a particular Contract Year shall not exceed the Actual Claims-Paying Capacity of the FHCF up to a specified dollar limit. |
(3) |
In order to assure that reimbursements do not exceed the statutory limit on the obligation of the FHCF provided in Section 215.555(4)(c)1., Florida Statutes, the SBA shall, upon the occurrence of a Covered Event, evaluate the potential Losses to the FHCF and the FHCFs capacity at the time of the event. The initial Projected Payout Multiple used to reimburse the Company for its Losses shall not exceed the Projected Payout Multiple as calculated based on the capacity needed to provide the FHCFs coverage. If it appears that the Estimated Claims-Paying Capacity may be exceeded, the SBA shall reduce the projected payout factors or multiples for determining each participating insurers projected payout uniformly among all insurers to reflect the Estimated Claims-Paying Capacity. |
(4) |
Reimbursement amounts shall not be reduced by reinsurance paid or payable to the Company from other sources. Once the Companys Limit has been exhausted, the Company will not be entitled to further reimbursements. |
ARTICLE V DEFINITIONS
As used in this Contract, the following words and phrases are defined to mean:
(1) |
Actual Claims-Paying Capacity of the FHCF |
This term means the sum of the Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the amount the SBA is able to raise through the issuance of revenue bonds under Section 215.555(6), Florida Statutes.
(2) |
Actuarially Indicated |
This term means an amount determined according to principles of actuarial science to be adequate, but not excessive, in the aggregate, to pay current and future obligations and expenses of the fund, including additional amounts if needed to pay debt service on revenue bonds and to provide required debt service coverage in excess of the amounts required to pay actual debt service on revenue bonds, and determined according to principles of actuarial science to reflect each insurers relative exposure to hurricane losses.
(3) |
Additional Living Expense (ALE) |
ALE Losses covered by the FHCF are not to exceed 40 percent of the insured value of a Residential Structure or its contents based on the coverage provided in the policy. Fair rental value, loss of rents, or business interruption losses are not covered by the FHCF.
(4) |
Administrator |
This term means the entity with which the SBA contracts to perform administrative tasks associated with the operations of the FHCF. The current Administrator is Paragon Strategic Solutions Inc., 8200 Tower, 5600 West 83 1 Street, Suite 1100, Minneapolis, Minnesota 55437. The telephone number is (800) 689-3863, and the facsimile number is (800) 264-0492.
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(5) |
Authorized Insurer |
This term is defined in Section 624.09(1), Florida Statutes.
(6) |
Balance of the Fund as of December 31 or Fund Balance |
This term means the amount of assets available to pay claims resulting from Covered Events which occurred during the Contract Year, not including any pre-event or post-event bonds, reinsurance, or proceeds from other financing mechanisms.
(7) |
Borrowing Capacity |
This term means the amount of funds which are able to be raised by the issuance of revenue bonds or through other financing mechanisms, less bond issuance expenses and reserves.
(8) |
Citizens Property Insurance Corporation (Citizens) |
This term means Citizens Property Insurance Corporation as created under Section 627.351(6), Florida Statutes. For the purposes of the FHCF, Citizens Property Insurance Corporation incorporates two accounts, (a) the coastal account and (b) the personal lines and commercial lines accounts. Each account is treated by the FHCF as if it were a separate participating insurer with its own reportable exposures, Reimbursement Premium, Retention, and Ultimate Net Loss.
(9) |
Covered Event |
This term means any one storm declared to be a hurricane by the National Hurricane Center which causes insured losses in Florida. A Covered Event begins when a hurricane causes damage in Florida while it is a hurricane and continues throughout any subsequent downgrades in storm status by the National Hurricane Center regardless of whether the hurricane makes landfall. Any storm, including a tropical storm, which does not become a hurricane is not a Covered Event.
(10) |
Coverage Level |
This term means the level of reimbursement (90%, 75%, or 45%), as elected by the Company under Article XX or deemed under Article III(3), which is used in determining reimbursement under Article IV.
(11) |
Covered Policy |
(a) |
Covered Policy, as defined in Section 215.555(2)(c), Florida Statutes, is further clarified to mean only that portion of a binder, policy or contract of insurance that insures real or personal property located in the State of Florida to the extent such policy insures a Residential Structure or the contents of a Residential Structure, located in the State of Florida. |
(b) |
Covered Policy also includes any collateral protection insurance policy covering personal residences which protects both the borrowers and the lenders financial interest, in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowners policy, if such policy can be accurately reported as required in Section 215.555(5), Florida Statutes. A Company will be deemed to be able to accurately report data if the required data, as specified in the Premium Formula adopted in Section 215.555(5), Florida Statutes, are available. |
(c) |
Covered Policy does not include any policy or exposure excluded under Article VI. |
(12) |
Deductible Buy-Back Policy |
This term means a specific policy that provides coverage to a policyholder for some portion of the policyholders deductible under a policy issued by another insurer.
(13) |
Estimated Claims-Paying Capacity of the FHCF |
This term means the sum of the projected Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the most recent estimate of the Borrowing Capacity of the FHCF, determined pursuant to Section 215.555(4)(c), Florida Statutes.
(14) |
Excess Policy |
This term means, for the purposes of this Contract, a policy that provides insurance protection for large commercial property risks and that provides a layer of coverage above a primary layer (which is insured by a different insurer) that acts much the same as a very large deductible.
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(15) |
Insurer Group |
For purposes of the Coverage Level election in Section 215.555(4)(b), Florida Statutes, Insurer Group means the group designation assigned by the National Association of Insurance Commissioners (NAIC) for regulatory purposes. A Company is a member of a group as designated by the NAIC until such Company is assigned another group designation or is no longer a member of a group.
(16) |
Limit |
This term means the maximum amount that a Company may recover under this Contract, calculated by multiplying the Companys Reimbursement Premium by the Payout Multiple.
(17) |
Loss |
This term means an incurred loss under a Covered Policy from a Covered Event, including Additional Living Expenses not to exceed 40 percent of the insured value of a Residential Structure or its contents and amounts paid as fees on behalf of or inuring to the benefit of a policyholder. The term Loss does not include allocated or unallocated loss adjustment expenses or any item for which this Contract does not provide reimbursement pursuant to the exclusions in Article VI.
(18) |
Loss Adjustment Expense Allowance |
(a) |
The Loss Adjustment Expense Allowance is equal to 5% of the reimbursed Losses under this Contract as provided in Article IV, pursuant to Section 215.555(4)(b)1., Florida Statutes. |
(b) |
The Loss Adjustment Expense Allowance is included in, and not in addition to, the Limit applicable to a Company. |
(19) |
New Participant |
This term means a Company that begins writing Covered Policies on or after the beginning of the Contract Year. A Company that removes Covered Policies from Citizens pursuant to an assumption agreement effective on or after June 1 and had written no other Covered Policies before June 1 is also considered a New Participant.
(20) |
Payout Multiple |
This term means the multiple as calculated in accordance with Section 215.555(4)(c), Florida Statutes, which is derived by dividing the actual single season Claims-Paying Capacity of the FHCF by the total aggregate industry Reimbursement Premium for the FHCF for the Contract Year billed as of December 31 of the Contract Year. The final Payout Multiple is determined once Reimbursement Premiums have been billed as of December 31 and the amount of bond proceeds has been determined.
(21) |
Premium Formula |
This term means the Formula developed pursuant to Section 215.555(5)(b), Florida Statutes, and approved by the SBA Trustees for the purpose of determining the Actuarially Indicated Reimbursement Premium to be paid to the FHCF.
(22) |
Projected Payout Multiple |
The Projected Payout Multiple is used to calculate a Companys projected payout pursuant to Section 215.555(4)(d)2., Florida Statutes. The Projected Payout Multiple is derived by dividing the estimated single season Claims-Paying Capacity of the FHCF by the estimated total aggregate industry Reimbursement Premium for the FHCF for the Contract Year. The Companys Reimbursement Premium as paid to the SBA for the Contract Year is multiplied by the Projected Payout Multiple to estimate the Companys coverage from the FHCF for the Contract Year.
(23) |
Reimbursement Premium or Premium |
These terms mean the amount to be paid by the Company, as determined by multiplying each $1,000 of insured value reported by the Company in accordance with Section 215.555(5)(b), Florida Statutes, by the rate as derived from the Premium Formula, as described in Rule 19-8.028, F.A.C.
(24) |
Residential Structure |
In general, this term means a unit or building used exclusively or predominantly for dwelling or habitational occupancies, including the primary structure and appurtenant structures insured under the same Covered Policy and any other structures covered under endorsements associated with the Covered Policy covering the Residential Structure.
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FHCF-2019K Rule 19-8.010 F.A.C. |
(a) |
With respect to a unit or home insured under a personal lines residential policy form, such unit or home is deemed to have a habitational occupancy and to be a Residential Structure regardless of the term of its occupancy. |
( ) |
With respect to a condominium structure or complex insured under a commercial lines policy, such structure is deemed to have a habitational occupancy and to be a Residential Structure, regardless of the term of occupancy of individual units. |
(a) |
A single structure which includes a mix of commercial habitational and commercial non-habitational occupancies, and is insured under a commercial lines policy, is considered a Residential Structure if 50% or more of the total insured value of the structure is used for habitational occupancies. |
(b) |
Residential Structures do not include any structures excluded under Article VI. |
(25) |
Retention |
This term means the amount of Losses from a Covered Event which must be incurred by the Company before it is eligible for reimbursement from the FHCF.
(a) |
When the Company incurs Losses from one or two Covered Events during the Contract Year, the Companys full Retention shall be applied to each of the Covered Events. |
(b) |
When the Company incurs Losses from more than two Covered Events during the Contract Year, the Companys full Retention shall be applied to each of the two Covered Events causing the largest Losses for the Company. For each other Covered Event resulting in Losses, the Companys Retention shall be reduced to one-third of its full Retention. |
1. |
All reimbursement of Losses for each Covered Event shall be based on the Companys full Retention until December 31 of the Contract Year. Adjustments to reflect a reduction to one-third of the full Retention shall be made on or after January 1 of the Contract Year provided the Company reports its Losses as specified in this Contract. |
2. |
Adjustments to the Companys Retention shall be based upon its paid and outstanding Losses as reported on the Companys Proof of Loss Reports, but shall not include incurred but not reported Losses. The Companys Proof of Loss Reports shall be used to determine which Covered Events constitute the Companys two largest Covered Events. After this initial determination, any subsequent adjustments shall be made quarterly by the SBA only if the Proof of Loss Reports reveal that loss development patterns have resulted in a change in the order of Covered Events entitled to the reduction to one-third of the full Retention. |
(c) |
The Companys full Retention is established in accordance with the provisions of Section 215.555(2)(e), Florida Statutes, and shall be determined by multiplying the Retention Multiple by the Companys Reimbursement Premium for the Contract Year. |
(26) |
Retention Multiple |
(a) |
The Retention Multiple is applied to the Companys Reimbursement Premium to determine the Companys Retention. The Retention Multiple for the 2019/2020 Contract Year shall be equal to $4.5 billion, adjusted based upon the reported exposure for the 2017/2018 Contract Year to reflect the percentage growth in exposure to the FHCF since 2004, divided by the estimated total industry Reimbursement Premium at the 90% Coverage Level for the Contract Year as determined by the SBA. |
(b) |
The Retention Multiple shall be adjusted to reflect the Coverage Level elected by the Company under this Contract as follows: |
1. |
If the Company elects the 90% Coverage Level, the adjusted Retention Multiple is 100% of the amount determined under paragraph (a); |
2. |
If the Company elects the 75% Coverage Level, the adjusted Retention Multiple is 120% of the amount determined under paragraph (a); or |
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FHCF-2019K Rule 19-8.010 F.A.C. |
3. |
If the Company elects the 45% Coverage Level, the adjusted Retention Multiple is 200% of the amount determined under paragraph (a). |
(27) |
Ultimate Net Loss |
(a) |
This term means all Losses under Covered Policies in force at the time of a Covered Event prior to the application of the Companys Retention and Coverage Level, and excluding loss adjustment expense and any exclusions under Article VI. |
(b) |
In calculating the Companys Ultimate Net Loss, the amounts described in paragraph (a) shall be reduced by the deductibles applicable under the policy to the hurricane loss, which must first be applied to the portion of the Loss covered by the FHCF. |
(c) |
Salvages and all other recoveries, excluding reinsurance recoveries, shall be first deducted from such Loss to arrive at the amount of liability attaching hereunder. |
(d) |
All salvages, recoveries or payments recovered or received subsequent to a Loss settlement under this Contract shall be applied as if recovered or received prior to the aforesaid settlement and all necessary adjustments shall be made by the parties hereto. |
(e) |
The SBA shall be subrogated to the rights of the Company to the extent of its reimbursement of the Company. The Company agrees to assist and cooperate with the SBA in all respects as regards such subrogation. The Company further agrees to undertake such actions as may be necessary to enforce its rights of salvage and subrogation, and its rights, if any, against other insurers as respects any claim, loss, or payment arising out of a Covered Event. |
ARTICLE VI EXCLUSIONS
This Contract does not provide reimbursement for:
(1) |
Any losses not defined as being within the scope of a Covered Policy, including any loss other than a loss under the first-party property section of a policy pertaining strictly to the structure, its contents, appurtenant structures, or ALE coverage. |
(2) |
Any policy which excludes wind or hurricane coverage. |
(3) |
Any Excess Policy or Deductible Buy-Back Policy that requires individual ratemaking, as determined by the FHCF. |
(4) (a) |
Any policy for Residential Structures that provides a layer of coverage underneath an Excess Policy issued by a different insurer; |
(b) |
Any policy providing a layer of windstorm or hurricane coverage for a particular structure above or below a layer of windstorm or hurricane coverage under a separate policy issued by a different insurer, or any other circumstance in which two or more insurers provide primary windstorm or hurricane coverage for a single structure using separate policy forms; |
(c) |
Any other policy providing a layer of windstorm or hurricane coverage for a particular structure below a layer of self-insured windstorm or hurricane coverage for the same structure; or |
(d) |
The exclusions in this subsection do not apply to primary quota share policies written by Citizens Property Insurance Corporation under Section 627.351(6)(c)2., Florida Statutes. |
(5) |
Any liability of the Company attributable to losses for fair rental value, loss of rent or rental income, or business interruption. |
(6) |
Any collateral protection policy that does not meet the definition of Covered Policy as defined in Article V(11)(b). |
(7) |
Any reinsurance assumed by the Company. |
(8) |
Hotels, motels, timeshares, shelters, camps, retreats, or other similar structures. |
(9) |
Retail, office, mercantile, or manufacturing facilities, or other similar structures. |
(10) |
Any exposure for condominium or homeowner associations if no Residential Structures are insured under the policy. |
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FHCF-2019K Rule 19-8.010 F.A.C. |
(11) |
Commercial healthcare facilities and nursing homes; however, a nursing home which is an integral part of a retirement community consisting primarily of habitational structures that are not nursing homes will not be subject to this exclusion. |
(12) |
Any exposure under commercial policies covering only appurtenant structures or structures that do not function as a habitational structure (e.g., a policy covering only the pool of an apartment complex). |
(13) |
Policies covering only Additional Living Expense. |
(14) |
Any exposure for barns or barns with apartments or living quarters. |
(15) |
Any exposure for builders risk coverage or new Residential Structures under construction. |
(16) |
Any exposure for vehicles, recreational vehicles, golf carts, or boats (including boat related equipment) requiring licensing. |
(17) |
Any liability of the Company for extra contractual obligations or liabilities in excess of original policy limits. This exclusion includes, but is not limited to, amounts paid as bad faith awards, punitive damages awards, or other court-imposed fines, sanctions, or penalties; or other amounts in excess of the coverage limits under the Covered Policy. |
(18) |
Any losses paid in excess of a policys hurricane limit in force at the time of the Covered Event, including individual coverage limits (i.e., building, appurtenant structures, contents, and additional living expense), or other amounts paid as the result of a voluntary expansion of coverage by the insurer, including, but not limited to, a discount on or waiver of an applicable deductible. This exclusion includes overpayments of a specific individual coverage limit even if total payments under the policy are within the aggregate policy limit. |
(19) |
Any losses paid under a policy for Additional Living Expense, written as a time element coverage, in excess of the Additional Living Expense exposure reported for that policy under the Data Call for the applicable Contract Year (unless policy limits have changed effective after June 30 of the Contract Year). |
(20) |
Any losses which the Companys claims files do not adequately support. Claim file support shall be deemed adequate if in compliance with the Records Retention Requirements outlined on the Form FHCF-L1B (Proof of Loss Report) applicable to the Contract Year. |
(21) |
Any exposure for, or amounts paid to reimburse a policyholder for, condominium association loss assessments or under similar coverages for contractual liabilities. |
(22) |
Losses in excess of the aggregate limits of liability specified in Article IV and in Section 215.555(4)(c), Florida Statutes. |
(23) |
Any liability assumed by the Company from Pools, Associations, and Syndicates. Exception: Covered Policies assumed from Citizens under the terms and conditions of an executed assumption agreement between the Company and Citizens are covered by this Contract. |
(24) |
All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. Insolvency fund includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. |
(25) |
Property losses that are proximately caused by any peril other than a Covered Event, including, but not limited to, fire, theft, flood or rising water, or windstorm that does not constitute a Covered Event, or any liability of the Company for loss or damage caused by or resulting from nuclear reaction, nuclear radiation, or radioactive contamination from any cause, whether direct or indirect, proximate |
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FHCF-2019K Rule 19-8.010 F.A.C. |
or remote, and regardless of any other cause or event contributing concurrently or in any other sequence to the loss. |
(26) |
Losses from water damage, which is generally excluded under property insurance contracts, including flood, surface water, waves, tidal water, overflow of a body of water, storm surge, or spray from any of these, whether or not driven by wind. |
(27) |
A policy providing personal property coverage separate from coverage of personal property included in a homeowners, mobile home owners, condominium unit owners, or tenants policy or other policy covering a Residential Structure, or in an endorsement to such a policy. |
(28) |
Endorsements predominantly covering Specialized Fine Arts Risks or collectible types of property meeting the following requirements: |
(a) |
An endorsement predominantly covering Specialized Fine Arts Risks and not covering any Residential Structure if it meets the description in subparagraph 1 and if the conditions in subparagraph 2 are met. |
1. |
For purposes of this exemption, a Specialized Fine Arts Risk endorsement is an endorsement that: |
a. |
Insures works of art, of rarity, or of historic value, such as paintings, works on paper, etchings, art glass windows, pictures, statuary, sculptures, tapestries, antique furniture, antique silver, antique rugs, rare books or manuscripts, jewelry, or other similar items; |
b. |
Charges a minimum premium of $500; and |
c. |
Insures scheduled items valued, in the aggregate, at no less than $100,000. |
2. |
The insurer offers specialized loss prevention services or other collector services designed to prevent or minimize loss, or to value or inventory the Specialized Fine Arts for insurance purposes, such as: |
a. |
Collection risk assessments; |
b. |
Fire and security loss prevention; |
c. |
Warehouse inspections to protect items stored off-site; |
d. |
Assistance with collection inventory management; or |
e. |
Collection valuation reviews. |
(b) |
An endorsement generally used by the Company to cover personal property which could include property of a collectible nature, including fine arts, as further described in this paragraph, either on a scheduled basis or written under a blanket limit, and not covering anything other than personal property. All such endorsements are subject to the exclusion provided in this paragraph when the endorsement limit equals or exceeds $500,000. Generally such collectible property has unusually high values due to its investible, artistic, or unique intrinsic nature. The class of property covered under such an endorsement represents an unusually high exposure value and such endorsement is intended to provide coverage for a class or classes of property that is not typical for the contents coverage under residential property insurance policies. In many cases property may be located at various locations either in or outside the state of Florida or the location of the property may change from time to time. The investment nature of such property distinguishes this type of exposure from the typical contents associated with a Covered Policy. |
(29) |
Any losses under liability coverages. |
ARTICLE VII MANAGEMENT OF CLAIMS AND LOSSES
The Company shall investigate and settle or defend all claims and Losses. All payments of claims or Losses by the Company within the terms and limits of the appropriate coverage parts of Covered Policies shall be binding on the SBA, subject to the terms of this Contract, including the provisions in Article XIII relating to inspection of records and examinations.
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FHCF-2019K Rule 19-8.010 F.A.C. |
ARTICLE VIII REIMBURSEMENT ADJUSTMENTS
Section 215.555(4)(d) and (e), Florida Statutes, provides the SBA with the right to seek the return of excess reimbursements which have been paid to the Company along with interest thereon. Excess reimbursements are those payments made to the Company by the SBA that are in excess of the Companys coverage under the Contract Year. Excess reimbursements may result from adjustments to the Projected Payout Multiple or the Payout Multiple, incorrect exposure (Data Call) submissions or resubmissions, incorrect calculation of Reimbursement Premium or Retention, incorrect Proof of Loss Reports, incorrect calculation of reinsurance recoveries, or subsequent readjustment of policyholder claims, including subrogation and salvage, or any combination of the foregoing. The Company will be sent an invoice showing the due date for adjustments along with the interest due thereon through the due date. The applicable interest rate for interest credits, and for interest charges for adjustments beyond the Companys control, will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges on excess reimbursements due to adjustments resulting from incorrect exposure submissions or Proof of Loss Reports will accrue at this rate plus 5%. All interest will continue to accrue if not paid by the due date.
ARTICLE IX REIMBURSEMENT PREMIUM
(1) |
The Company shall, in a timely manner, pay the SBA its Reimbursement Premium for the Contract Year. The Reimbursement Premium for the Contract Year shall be calculated in accordance with Section 215.555, Florida Statutes, with any rules promulgated thereunder, and with Article X(2). |
(2) |
The Companys Reimbursement Premium is based on its June 30 exposure in accordance with Article X, except as provided for New Participants under Article X, and is not adjusted to reflect an increase or decrease in exposure for Covered Policies effective after June 30 nor is the Reimbursement Premium adjusted when the Company cancels policies or is liquidated or otherwise changes its business status (merger, acquisition, or termination) or stops writing new business (continues in business with its policies in a runoff mode). Similarly, new business written after June 30 will not increase or decrease the Companys FHCF Reimbursement Premium or impact its FHCF coverage. FHCF Reimbursement Premiums are required of all Companies based on their writing Covered Policies in Florida as of June 30, and each Companys FHCF coverage as based on the definition in Section 215.555(2)(m), Florida Statutes, shall exist for the entirety of the Contract Year regardless of exposure changes, except as provided for New Participants under Article X. |
(3) |
Since the calculation of the Actuarially Indicated Premium assumes that the Companies will pay their Reimbursement Premiums timely, interest charges will accrue under the following circumstances. A Company may choose to estimate its own Reimbursement Premium installments. However, if the Companys estimation is less than the provisional Reimbursement Premium billed, an interest charge will accrue on the difference between the estimated Reimbursement Premium and the final Reimbursement Premium. If a Company estimates its first installment, the Administrator shall bill that estimated Reimbursement Premium as the second installment as well, which will be considered as an estimate by the Company. No interest will accrue regarding any provisional Reimbursement Premium if paid as billed by the FHCFs Administrator, except in the case of an estimated second installment as set forth in this Article. Also, if a Company makes an estimation that is higher than the provisional Reimbursement Premium billed but is less than the final Reimbursement Premium, interest will not accrue. If the Reimbursement Premium payment is not received from a Company when it is due, an interest charge will accrue on a daily basis until the payment is received. Interest will also accrue on Reimbursement Premiums resulting from submissions or resubmissions finalized after December 1 of the Contract Year. An interest credit will be applied for any Reimbursement Premium which is overpaid as either an estimate or as a provisional Reimbursement Premium. Interest shall not be credited past December 1 of the Contract Year. The applicable interest rate for interest credits will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges will accrue at this rate plus 5%. |
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FHCF-2019K Rule 19-8.010 F.A.C. |
ARTICLE X REPORTS AND REMITTANCES
(1) |
Exposures |
(a) |
If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall report to the SBA, unless otherwise provided in Rule 19-8.029, F.A.C., no later than the statutorily required date of September 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of June 30 of the Contract Year as outlined in the annual reporting of insured values form, FHCF-DIA (Data Call) adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA. |
(b) |
If the Company first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year, the Company shall report to the SBA, no later than February 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of November 30 of the Contract Year as outlined in the Supplemental Instructions for New Participants section of the Data Call adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA. |
(c) |
If the Company first begins writing Covered Policies on December 1 through and including May 31 of the Contract Year, the Company shall not report its exposure data for the Contract Year to the SBA. |
(d) |
The requirement that a report is due on a certain date means that the report shall be received by the SBA no later than 4 p.m. Eastern Time on the due date. Reports sent to the FHCF Administrator in Minneapolis, Minnesota, will be returned to the sender. Reports not in the physical possession of the SBA by 4 p.m., Eastern Time, on the applicable due date are late. |
(2) |
Reimbursement Premium |
(a) |
If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall pay the FHCF its Reimbursement Premium in installments due on or before August 1, October 1, and December 1 of the Contract Year in amounts to be determined by the FHCF. However, if the Companys Reimbursement Premium for the prior Contract Year was less than $5,000, the Companys full provisional Reimbursement Premium, in an amount equal to the Reimbursement Premium paid in the prior year, shall be due in full on or before August 1 of the Contract Year. The Company will be invoiced for amounts due, if any, beyond the provisional Reimbursement Premium payment, on or before December 1 of the Contract Year. |
(b) |
If the Company is under administrative supervision, or if any control or oversight of the Company has been transferred through any legal or regulatory action to a state regulator or court appointed receiver or rehabilitator (referred to in the aggregate as state action): |
1. |
The full annual provisional Reimbursement Premium as billed and any outstanding balances will be due and payable on August 1, or the date that such State action occurs after August 1 of the Contract Year. |
2. |
Failure by such Company to pay the full annual provisional Reimbursement Premium as specified in subparagraph 1. by the applicable due date shall result in the 45% Coverage Level being deemed for the complete Contract Year regardless of the level selected for the Company through the execution of this Contract and regardless of whether a Covered Event occurred or triggered coverage. |
3. |
Subparagraphs 1. and 2. do not apply if the state regulator, receiver, or rehabilitator provides a letter of assurance to the FHCF stating that the Company will have the resources and will pay the full Reimbursement Premium for the Coverage Level selected through the execution of this Contract. |
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FHCF-2019K Rule 19-8.010 F.A.C. |
4. |
When control or oversight has been transferred, in whole or in part, through a legal or regulatory action, the controlling management of the Company shall specify by August 1 or as soon thereafter as possible (but not to exceed two weeks after any regulatory or legal action) in a letter to the FHCF as to the Companys intentions to either pay the full FHCF Reimbursement Premium as specified in subparagraph 1., to default to the 45% Coverage Level being deemed as specified in subparagraph 2., or to provide the assurances as specified in subparagraph 3. |
(c) |
A New Participant that first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year shall pay the FHCF a provisional Reimbursement Premium of $1,000 no later than 30 days from the date the New Participant began writing Covered Policies. The Administrator shall calculate the Companys actual Reimbursement Premium for the period based on its actual exposure as of November 30 of the Contract Year, as reported on or before February 1 of the Contract Year. To recognize that New Participants have limited exposure during this period, the actual Reimbursement Premium as determined by processing the Companys exposure data shall then be divided in half, the provisional Reimbursement Premium shall be credited, and the resulting amount shall be the total Reimbursement Premium due for the Company for the remainder of the Contract Year. However, if that amount is less than $1,000, then the Company shall pay $1,000. The Reimbursement Premium payment is due no later than April 1 of the Contract Year. The Companys Retention and coverage will be determined based on the total Reimbursement Premium due as calculated above. |
(d) |
A New Participant that first begins writing Covered Policies on or after December 1 through and including May 31 of the Contract Year shall pay the FHCF a Reimbursement Premium of $1,000 no later than 30 days from the date the New Participant began writing Covered Policies. |
(e) |
The requirement that the Reimbursement Premium is due on a certain date means that the Reimbursement Premium shall be remitted by wire transfer or ACH and shall have been credited to the FHCF s account, as set out on the invoice sent to the Company, on the due date applicable to the particular installment. |
(f) |
Except as required by Section 215.555(7)(c), Florida Statutes, or as described in the following sentence, Reimbursement Premiums, together with earnings thereon, received in a given Contract Year will be used only to pay for Losses attributable to Covered Events occurring in that Contract Year or for Losses attributable to Covered Events in subsequent Contract Years and will not be used to pay for past Losses or for debt service on post-event revenue bonds issued pursuant to Section 215.555(6)(a)1., Florida Statutes. Reimbursement Premiums and earnings thereon may be used for payments relating to such revenue bonds in the event emergency assessments are insufficient. If Reimbursement Premiums or earnings thereon are used for debt service on post-event revenue bonds, then the amount of the Reimbursement Premiums or earnings thereon so used shall be returned, without interest, to the Fund when emergency assessments or other legally available funds remain available after making payment relating to the post-event revenue bonds and any other purposes for which emergency assessments were levied. |
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FHCF-2019K Rule 19-8.010 F.A.C. |
(3) |
Losses |
(a) |
In General |
Losses resulting from a Covered Event commencing during the Contract Year shall be reported by the Company and reimbursed by the FHCF as provided herein and in accordance with the Statute, this Contract, and any rules adopted pursuant to the Statute. For a Company participating in a quota share primary insurance agreement(s) with Citizens Property Insurance Corporation Coastal Account, Citizens and the Company shall report only their respective portion of Losses under the quota share primary insurance agreement(s). Pursuant to Section 215.555(4)(c), Florida Statutes, the SBA is obligated to pay for Losses not to exceed the Actual Claims-Paying Capacity of the FHCF, up to the limit in accordance with Section 215.555(4)(c)1., Florida Statutes, for any one Contract Year.
(b) |
Loss Reports |
1. |
At the direction of the SBA, the Company shall report its projected Ultimate Net Loss fromeach Covered Event to provide information to the SBA in determining any potential liability for possible reimbursable Losses under the Contract on the Interim Loss Report, Form FHCF-L1A, adopted for the Contract Year under Rule 19-8.029, F.A.C. Interim Loss Reports (including subsequent Interim Loss Reports if required by the SBA) will be due in no less than fourteen days from the date of the notice from the SBA that such a report is required. |
2. |
FHCF reimbursements will be issued based on Ultimate Net Loss information reported by the Company on the Proof of Loss Report, Form FHCF-L1B, adopted for the Contract Year under Rule 19-8.029, F.A.C. |
a. |
To qualify for reimbursement, the Proof of Loss Report must have the electronic signatures of two executive officers authorized by the Company to sign or submit the report. |
b. |
The Company must also submit a Detailed Claims Listing, Form FHCF-DCL, adopted for the Contract Year under Rule 19-8.029, F.A.C., at the same time it submits its first Proof of Loss Report for a specific Covered Event that qualifies the Company for reimbursement under that Covered Event, and must be prepared to supply a Detailed Claims Listing for any subsequent Proof of Loss Report upon request. |
c. |
While the Company may submit a Proof of Loss Report requesting reimbursement at any time following a Covered Event, the Company shall submit a mandatory Proof of Loss Report for each Covered Event no earlier than December 1 and no later than December 31 of the Contract Year during which the Covered Event occurs using the most current data available, regardless of the amount of Ultimate Net Loss or the amount of reimbursements or advances already received. |
d. |
For the Proof of Loss Reports due by December 31 of the Contract Year, and the required subsequent quarterly and annual reports required under subparagraphs 3. and 4., the Company shall submit its Proof of Loss Reports by each quarter-end or year-end using the most current data available. However, the date of such data shall not be more than sixty days prior to the applicable quarter-end or year-end date. |
e. |
For the Proof of Loss Reports due by December 31 of the Contract Year and the required subsequent annual reports required under subparagraph 4., the Company shall include a Detailed Claims Listing if requested by the SBA. |
3. |
Updated Proof of Loss Reports for each Covered Event are due quarterly thereafter until all Losses resulting from a Covered Event are fully discharged including any adjustments to such Losses due to salvage or other recoveries, or the Company has received its full coverage under the Contract Year in which the Covered Event occurred. Guidelines follow: |
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FHCF-2019K Rule 19-8.010 F.A.C. |
a. |
Quarterly Proof of Loss Reports are due by March 31 from a Company whose Losses exceed, or are expected to exceed, 50% of its FHCF Retention for a specific Covered Event. |
b. |
Quarterly Proof of Loss Reports are due by June 30 from a Company whose Losses exceed, or are expected to exceed, 75% of its FHCF Retention for a specific Covered Event. |
c. |
Quarterly Proof of Loss Reports are due by September 30 and quarterly thereafter from a Company whose Losses exceed, or are expected to exceed, its FHCF Retention for a specific Covered Event. |
If the Companys Retention must be recalculated as the result of an exposure resubmission, and if the recalculated Retention changes the FHCFs reimbursement obligations, then the Company shall submit additional Proof of Loss Reports for recalculation of the FHCFs obligations.
4. |
Annually after December 31 of the Contract Year, all Companies shall submit a mandatory year-end Proof of Loss Report for each Covered Event, as applicable, using the most current data available. This Proof of Loss Report shall be filed no earlier than December 1 and no later than December 31 of each year and shall continue until the earlier of the commutation process described in paragraph (3)(d) or until all Losses resulting from the Covered Event are fully discharged including any adjustments to such Losses due to salvage or other recoveries. |
5. |
The SBA, except as noted below, will determine and pay, within 30 days or as soon as practicable after receiving Proof of Loss Reports, the reimbursement amount due based on Losses paid by the Company to date and adjustments to this amount based on subsequent quarterly information. The adjustments to reimbursement amounts shall require the SBA to pay, or the Company to return, amounts reflecting the most recent determination of Losses. |
a. |
The SBA shall have the right to consult with all relevant regulatory agencies to seek all relevant information, and shall consider any other factors deemed relevant, prior to the issuance of reimbursements. |
b. |
The SBA shall require commercial self-insurance funds established under Section 624.462, Florida Statutes, to submit contractor receipts to support paid Losses reported on a Proof of Loss Report, and the SBA may hire an independent consultant to confirm Losses, prior to the issuance of reimbursements. |
c. |
The SBA shall have the right to conduct a claims examination prior to the issuance of any advances or reimbursements requested by Companies that have been placed under regulatory supervision by a State or where control has been transferred through any legal or regulatory proceeding to a state regulator or court appointed receiver or rehabilitator. |
6. |
All Proof of Loss Reports received will be compared with the FHCFs exposure data to establish the facial reasonableness of the reports. The SBA may also review the results of current and prior Contract Year exposure and claims examinations to determine the reasonableness of the reported Losses. Except as noted in subparagraph 5., Companies meeting these tests for reasonableness will be scheduled for reimbursement. Companies not meeting these tests for reasonableness will be handled on a case-by-case basis and will be contacted to provide specific information regarding their individual book of business. The discovery of errors in a Companys reported exposure under the Data Call may require a resubmission of the current Contract Year Data Call which, as the Data Call impacts the Companys Reimbursement Premium, Retention, and coverage for the Contract Year, will be required before the Companys request for reimbursement or an advance will be fully processed by the Administrator. |
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(c) |
Loss Reimbursement Calculations |
1. |
In general, the Companys paid Ultimate Net Losses must exceed its full FHCF Retention for a specific Covered Event before any reimbursement is payable from the FHCF for that Covered Event. As described in Article V(25)(b), Retention adjustments will be made on or after January 1 of the Contract Year. No interest is payable on additional payments to the Company due to this type of Retention adjustment. Each Company, including entities created pursuant to Section 627.351(6), Florida Statutes, incurring reimbursable Losses will receive the amount of reimbursement due under the individual Companys Contract up to the amount of the Companys payout. If more than one Covered Event occurs in any one Contract Year, any reimbursements due from the FHCF shall take into account the Companys Retention for each Covered Event. However, the Companys reimbursements from the FHCF for all Covered Events occurring during the Contract Year shall not exceed, in aggregate, the Projected Payout Multiple or Payout Multiple, as applicable, times the individual Companys Reimbursement Premium for the Contract Year. |
2. |
Reserve established. When a Covered Event occurs in a subsequent Contract Year when reimbursable Losses are still being paid for a Covered Event in a previous Contract Year, the SBA will establish a reserve for the outstanding reimbursable Losses for the previous Contract Year, based on the length of time the Losses have been outstanding, the amount of Losses already paid, the percentage of incurred Losses still unpaid, and any other factors specific to the loss development of the Covered Events involved. |
(d) |
Commutation |
1. |
Except as provided in subparagraph 3., not less than 36 months or more than 60 months afterthe end of the Contract Year, the Company shall file a final Proof of Loss Report(s), with the exception of Companies having no reportable Losses as described in sub-subparagraph a. Otherwise, the final Proof of Loss Report(s) is required as specified in sub-subparagraph b. The Company and SBA may mutually agree to initiate commutation after 36 months and prior to 60 months after the end of the Contract Year. The commutation negotiations shall begin at the later of 60 months after the end of the Contract Year or upon completion of the FHCF claims examination for the Company and the resolution of all outstanding examination issues. |
a. |
If the Companys most recently submitted Proof of Loss Report(s) indicates that it has no Losses resulting from Covered Events during the Contract Year, the SBA shall after 36 months request that the Company execute a final commutation agreement. The final commutation agreement shall constitute a complete and final release of all obligations of the SBA with respect to Losses. If the Company chooses not to execute a final commutation agreement, the SBA shall be released from all obligations 60 months following the end of the Contract Year if no Proof of Loss Report indicating reimbursable Losses had been filed and the commutation shall be deemed concluded. However during this time, if the Company determines that it does have Losses to report for FHCF reimbursement, the Company must submit an updated Proof of Loss Report prior to the end of 60 months after the Contract Year and the Company shall be required to follow the commutation provisions and time frames otherwise specified in this section. |
. |
If the Company has submitted a Proof of Loss Report indicating that it does have Losses resulting from a Covered Event during the Contract Year, the SBA may require the Company to submit within 30 days an updated, current Proof of Loss Report for each Covered Event during the Contract Year. The Proof of Loss Report must include all paid Losses as well as all outstanding Losses and incurred but not reported Losses, which are not finally settled and which may be reimbursable Losses under this Contract, and must be accompanied by supporting documentation (at a minimum an adjusters summary report or equivalent details) and a copy of a written opinion on the present value of the |
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outstanding Losses and incurred but not reported Losses by the Companys certifying actuary. Failure of the Company to provide an updated current Proof of Loss Report, supporting documentation, and an opinion by the date requested by the SBA may result in referral to the Florida Office of Insurance Regulation for a violation of the Contract. Increases in reported paid, outstanding, or incurred but not reported Losses on original or corrected Proof of Loss Report filings received later than 60 months after the end of the Contract Year shall not be eligible for reimbursement or commutation. |
2. |
Determining the present value of outstanding Losses. |
a. |
If the Company exceeds or expects to exceed its Retention, the Company and the SBA or their respective representatives shall attempt, by mutual agreement, to agree upon the present value of all outstanding Losses, both reported and incurred but not reported, resulting from Covered Events during the Contract Year. The Loss valuation process under this subparagraph may begin only after all other issues arising under this Contract have been resolved, and shall be suspended pending resolution of any such issues that arise during the Loss valuation process. Payment by the SBA of its portion of any amount or amounts so mutually agreed and certified by the Companys certifying actuary shall constitute a complete and final release of the SBA in respect of all Losses, both reported and unreported, under this Contract. |
b. |
If agreement on present value cannot be reached within 90 days of the FHCFs receipt of the final Proof of Loss Report and supporting documentation, the Company and the SBA may mutually appoint an actuary, adjuster, or appraiser to investigate and determine such Losses. If both parties then agree, the SBA shall pay its portion of the amount so determined to be the present value of such Losses. |
c. |
If the parties fail to agree on the valuation of any Losses, then any difference in valuation of the Loss shall be settled by a panel of three actuaries, as provided in this subparagraph. Either the SBA or the Company may initiate the process under this subparagraph by providing written notice to the other party stating that the parties are at an impasse with respect to valuation of Losses and specifying the dollar amounts in dispute. |
i. |
One actuary shall be chosen by each party, and the third actuary shall be chosen by those two actuaries. If either party does not appoint an actuary within 30 days after the initiation of the process, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of an independent third actuary within 30 days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots. |
ii. |
All of the actuaries shall be regularly engaged in the valuation of property claims and losses and shall be members of the Casualty Actuarial Society and of the American Academy of Actuaries. |
iii. |
None of the actuaries shall be under the control of either party to this Contract. |
iv. |
Each party shall submit a written statement of its case to the panel of actuaries and the opposing party no later than 30 days after the appointment of the third actuary. Within 15 days after receiving the other partys submission, a party may submit its written response to the panel of actuaries and the other party. After the appointment of the third actuary, a party may not communicate with the panel or any member of the panel except in writing simultaneously furnished to all members of the panel and the opposing party. Any member of the panel may present questions to be answered by both parties, which shall be answered in writing and simultaneously furnished to the members of the panel and the opposing party or, at the discretion of the panel, may be provided in a meeting or teleconference attended by both parties and all members of the panel. |
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v. |
The written decision of a majority of the panel as to the disagreement over the valuation of losses identified in the written notice of impasse, when filed with the parties hereto, shall be final and binding on both parties. |
d. |
The reasonable and customary expense of the actuaries and of the commutation (as a result of sub-subparagraphs 2.b. and c.) shall be equally divided between the two parties. Said commutation shall take place in Tallahassee, Florida, unless some other place is mutually agreed upon by the Company and the SBA. |
3. |
The Company and SBA may mutually agree to initiate and complete a commutation for zero dollars without being subject to the 36-month waiting period provided in subparagraph (d)1. Such early commutation, once completed, eliminates the mandatory Proof of Loss Report requirements required under subparagraphs (b)3. and 4. for all reporting periods subsequent to the completion of the commutation. |
(4) |
Advances |
(a) |
The SBA may make advances for loss reimbursements as defined herein, at market interest rates, to the Company in accordance with Section 215.555(4)(e), Florida Statutes. An advance is an early reimbursement which allows the Company to continue to pay claims in a timely manner. Advances will be made based on the Companys paid and reported outstanding Losses for Covered Policies (excluding all incurred but not reported Losses) as reported on a Proof of Loss Report, and shall include a Loss Adjustment Expense Allowance as calculated by the FHCF. In order to be eligible for an advance, the Company must submit its exposure data for the Contract Year as required under subsection (1) of this Article. Except as noted below, advances, if approved, will be made as soon as practicable after the SBA receives a written request, signed by two officers of the Company, for an advance of a specific amount and any other information required for the specific type of advance under paragraphs (c) and (d). All reimbursements due to the Company shall be offset against any amount of outstanding advances plus the interest due thereon. |
(b) |
For advances or excess advances, which are advances that are in excess of the amount to which the Company is entitled, the market interest rate shall be the prime rate as published in the Wall Street Journal on the first business day of the Contract Year. This rate will be adjusted annually on the first business day of each subsequent Contract Year, regardless of whether the Company executes subsequent Contracts. In addition to the prime rate, an additional 5% interest charge will apply on excess advances. All interest charged will commence on the date the SBA issues a check for an advance and will cease on the date upon which the FHCF has received the Companys Proof of Loss Report for the Covered Event for which the Company qualifies for reimbursement. If such reimbursement is less than the amount of outstanding advances issued to the Company, interest will continue to accrue on the outstanding balance of the advances until subsequent Proof of Loss Reports qualify the Company for reimbursement under any Covered Event equal to or exceeding the amount of any outstanding advances. Interest shall be billed on a periodic basis. If it is determined that the Company received funds in excess of those to which it was entitled, the interest as to those sums will not cease on the date of the receipt of the Proof of Loss Report but will continue until the Company reimburses the FHCF for the overpayment. |
(c) |
If the Company has an outstanding advance balance as of December 31 of this or any other Contract Year, the Company is required to have an actuary certify outstanding and incurred but not reported Losses as reported on the applicable December Proof of Loss Report. |
(d) |
The specific type of advances enumerated in Section 215.555, Florida Statutes, follow. I. Advances to Companies to prevent insolvency, as defined under Article XV. |
a. |
Section 215.555(4)(e)1., Florida Statutes, provides that the SBA shall advance to the Company amounts necessary to maintain the solvency of the Company, up to 50 percent of the SBAs estimate of the reimbursement due to the Company. |
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b. |
In addition to the requirements outlined in subparagraph (4)(a), the requirements for an advance to a Company to prevent insolvency are that the Company demonstrates it is likely to qualify for reimbursement and that the immediate receipt of moneys from the SBA is likely to prevent the Company from becoming insolvent, and the Company provides the following information: |
i. |
Current assets; |
ii. |
Current liabilities other than liabilities due to the Covered Event; |
iii. |
Current surplus as to policyholders; |
iv. |
Estimate of other expected liabilities not due to the Covered Event; and |
v. |
Amount of reinsurance available to pay claims for the Covered Event under other reinsurance treaties. |
c. |
The SBAs final decision regarding an application for an advance to prevent insolvency shall be based on whether or not, considering the totality of the circumstances, including the SBAs obligations to provide reimbursement for all Covered Events occurring during the Contract Year, granting an advance is essential to allowing the entity to continue to pay additional claims for a Covered Event in a timely manner. |
2. |
Advances to entities created pursuant to Section 627.351(6), Florida Statutes. |
a. |
Section 215.555(4)(e)2., Florida Statutes, provides that the SBA may advance to an entity created pursuant to Section 627.351(6), Florida Statutes, up to 90% of the lesser of the SBAs estimate of the reimbursement due or the entitys share of the actual aggregate Reimbursement Premium for that Contract Year, multiplied by the current available liquid assets of the FHCF. |
b. |
In addition to the requirements outlined in paragraph (4)(a), the requirements for an advance to entities created pursuant to Section 627.351(6), Florida Statutes, are that the entity must demonstrate to the SBA that the advance is essential to allow the entity to pay claims for a Covered Event. |
3. |
Advances to limited apportionment companies. |
Section 215.555(4)(e)3., Florida Statutes, provides that the SBA may advance the amount of estimated reimbursement payable to limited apportionment companies.
(e) |
In determining whether or not to grant an advance and the amount of an advance, the SBA: |
1. |
Shall determine whether its assets available for the payment of obligations are sufficient and sufficiently liquid to fulfill its obligations to other Companies prior to granting an advance; |
2. |
Shall review and consider all the information submitted by such Companies; |
3. |
Shall review such Companies compliance with all requirements of Section 215.555, Florida Statutes; |
4. |
Shall consult with all relevant regulatory agencies to seek all relevant information; |
5. |
Shall review the damage caused by the Covered Event and when that Covered Event occurred; |
6. |
Shall consider whether the Company has substantially exhausted amounts previously advanced; |
7. |
Shall consider any other factors deemed relevant; and |
8. |
Shall require commercial self-insurance funds established under section 624.462, Florida Statutes, to submit a copy of written estimates of expenses in support of the amount of advance requested. |
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(f) |
Any amount advanced by the SBA shall be used by the Company only to pay claims of its policyholders for the Covered Event which has precipitated the immediate need to continue to pay additional claims as they become due. |
(5) |
Inadequate Data Submissions |
If exposure data or other information required to be reported by the Company under the terms of this Contract are not received by the FHCF in the format specified by the FHCF or is inadequate to the extent that the FHCF requires resubmission of data, the Company will be required to pay the FHCF a resubmission fee of $1,000 for resubmissions that are not a result of an examination by the SBA. If a resubmission is necessary as a result of an examination report issued by the SBA, the first resubmission fee will be $2,000. If the Companys examination-required resubmission is inadequate and the SBA requires an additional resubmission(s), the resubmission fee for each subsequent resubmission shall be $2,000. A resubmission of exposure data may delay the processing of the Companys request for reimbursement or an advance.
(6) |
Confidential Information/Trade Secret Information |
Pursuant to the provisions of Section 215.557, Florida Statutes, the reports of insured values under Covered Policies by ZIP Code submitted to the SBA pursuant to Section 215.555, Florida Statutes, are confidential and exempt from the provisions of Section 119.07(1), Florida Statutes, and Section 24(a), Art. I of the State Constitution. If other information submitted by the Company to the FHCF could reasonably be ruled a trade secret as defined in Section 812.081, Florida Statutes, such information must be clearly marked Trade Secret Information.
ARTICLE XI TAXES
In consideration of the terms under which this Contract is issued, the Company agrees to make no deduction in respect of the Reimbursement Premium herein when making premium tax returns to the appropriate authorities. Should any taxes be levied on the Company in respect of the Reimbursement Premium herein, the Company agrees to make no claim upon the SBA for reimbursement in respect of such taxes.
ARTICLE XII ERRORS AND OMISSIONS
Any inadvertent delay, omission, or error on the part of the SBA shall not be held to relieve the Company from any liability which would attach to it hereunder if such delay, omission, or error had not been made.
ARTICLE XIII INSPECTION OF RECORDS
The Company shall allow the SBA to inspect, examine, and verify, at reasonable times, all records of the Company relating to the Covered Policies under this Contract, including Company files concerning claims, Losses, or legal proceedings regarding subrogation or claims recoveries which involve this Contract, including premium, loss records and reports involving exposure data or Losses under Covered Policies. This right by the SBA to inspect, examine, and verify shall survive the completion and closure of an exposure examination or claims examination file and the termination of the Contract. The Company shall have no right to re-open an exposure or claims examination once closed and the findings have been accepted by the Company; any re-opening shall be at the sole discretion of the SBA. If the State Board of Administration Finance Corporation has issued revenue bonds and relied upon the exposure and Loss data submitted and certified by the Company as accurate to determine the amount of bonding needed, the SBA may choose not to require, or accept, a resubmission if the resubmission will result in additional reimbursements to the Company. The SBA may require any discovered errors, inadvertent omissions, and typographical errors associated with the data reporting of insured values, discovered prior to the closing of the file and acceptance of the examination findings by the Company, to be corrected to reflect the proper values. The Company shall retain its records in accordance with the requirements for records retention regarding exposure reports and claims reports outlined herein, and in any administrative rules adopted pursuant to Section 215.555, Florida Statutes. Companies writing covered collateral protection policies, as defined in defmition (11)(b) of Article V, must be able to provide documentation that the policy covers personal residences, protects both the borrowers and lenders interest, and that the coverage is in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowners policy.
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(1) |
Purpose of FHCF Examination |
The purpose of the examinations conducted by the SBA is to evaluate the accuracy of the FHCF exposure or Loss data reported by the Company. However, due to the limited nature of the examination, it cannot be relied upon as an assurance that a Companys data is reported accurately or in its entirety. The Company should not rely on the FHCF to identify every type of reporting error in its data. In addition, the reporting requirements are subject to change each Contract Year so it is the Companys responsibility to be familiar with the applicable Contract Year requirements and to incorporate any changes into its data for that Contract Year. It is also the Companys responsibility to ensure that its data is reported accurately and to comply with Florida Statutes and any applicable rules when reporting exposure data. The examination report is not intended to provide a legal determination of the Companys compliance.
(2) |
Examination Requirements for Exposure Verification |
The Company shall retain complete and accurate records, in policy level detail, of all exposure data submitted to the SBA in any Contract Year until the SBA has completed its examination of the Companys exposure submissions. The Company shall also retain complete and accurate records of any completed exposure examination for any Contract Year in which the Company incurred Losses until the completion of the claims examination and commutation for that Contract Year. The records to be retained are outlined in the Data Call adopted for the Contract Year under Rule 19-8.029, F.A.C. A complete list of records to be retained for the exposure examination is set forth in Form FHCF-EAP1, adopted for the Contract Year under Rule 19-8.029, F.A.C.
(3) |
Examination Requirements for Loss Reports |
The Company shall retain complete and accurate records of all reported Losses and/or advances submitted to the SBA until the SBA has completed its examination of the Companys reimbursable Losses and commutation for the Contract Year (if applicable) has been concluded. The records to be retained are set forth as part of the Proof of Loss Report, Form FHCF-L1B and Form FHCF-LAP1, both adopted for the Contract Year under Rule 19-8.029, F.A.C.
(4) |
Examination Procedures |
(a) |
The FHCF will send an examination notice letter to the Company providing the commencement date of the examination, the site of the examination, any accommodation requirements of the examiner, and the reports and data which must be assembled by the Company and forwarded to the FHCF. The Company shall be prepared to choose one location in which to be examined, unless otherwise specified by the SBA. |
(b) |
The reports and data are required to be forwarded to the FHCF as set forth in an examination notice letter. The information is then forwarded to the examiner. If the FHCF receives accurate and complete records as requested, the examiner will contact the Company to inform the Company as to what policies or other documentation will be required once the examiner is on site. Any records not required to be provided to the examiner in advance shall be made available at the time the examiner arrives on site. Any records to support reported exposure or Losses which are provided after the examiner has left the work-site will, at the SBAs discretion, result in an additional examination of exposure and/or Loss records or an extension or expansion of the examination already in progress. All costs associated with such additional examination or with the extension or expansion of the original examination shall be borne by the Company. |
(c) |
At the conclusion of the examiners work and the management review of the examiners report, findings, recommendations, and work papers, the FHCF will forward an examination report to the Company. |
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(d) |
Within 30 days from the date of the letter accompanying the examination report, the Company must provide a written response to the FHCF. The response must indicate whether the Company agrees with the findings and recommendations of the examination report. If the Company disagrees with any examination findings or recommendations, the reason for the disagreement must be outlined in the response and the Company must provide supporting information to support its objection. An extension of 30 days may be granted if the Company can show that the need for additional time is due to circumstances beyond the reasonable control of the Company. No response is required if the examination report does not include any findings or recommendations. |
(e) |
If the Company accepts the examination findings and recommendations, and there is no recommendation for additional information, the examination report will be finalized and the exam file closed. |
(f) |
If the Company disputes the examiners findings, the areas in dispute will be resolved by a meeting or a conference call between the Company and FHCF management. |
(g) 1. |
If the recommendation of the examiner is to resubmit the Companys exposure data for the Contract Year in question, then the FHCF will send the Company a letter outlining the process for resubmission and including a deadline to resubmit. Once the resubmission is received, the FHCFs Administrator calculates a revised Reimbursement Premium for the Contract Year which has been examined. The SBA shall then review the resubmission with respect to the examiners findings, and accept the resubmission or contact the Company with any questions regarding the resubmission. Once the SBA has accepted the resubmission as a sufficient response to the examiners findings, the exam is closed. |
2. |
If the recommendation of the examiner is to give the Company the option to either resubmit the exposure data or to pay the estimated Reimbursement Premium difference, then the FHCF will send the Company a letter outlining the process for resubmission or for paying the estimated Reimbursement Premium difference and including a deadline for the resubmission or the payment to be received by the FHCFs Administrator. If the Company chooses to resubmit, the same procedures outlined in Article XIII(4) apply. |
(h) |
If the recommendation of the examiner is to update the Companys Proof of Loss Report(s) for the Contract Year under review, the FHCF will send the Company a letter outlining the process for submitting the Proof of Loss Report(s) and including a deadline to file. Once the Proof of Loss Report(s) is received by the FHCF Administrator, the FHCFs Administrator will calculate a revised reimbursement. The SBA shall then review the submitted Proof of Loss Report(s) with respect to the examiners findings, and accept the Proof of Loss Report(s) as filed or contact the Company with any questions. Once the SBA has accepted the corrected Proof of Loss Report(s) as a sufficient response to the examiners findings, the exam is closed. |
(i) |
The examiners list of errors is made available in the examination report sent to the Company. Given that the examination was based on a sample of the Companys policies or claims rather than the whole universe of the Companys Covered Policies or reported claims, the error list is not intended to provide a complete list of errors but is intended to indicate what information needs to be reviewed and corrected throughout the Companys book of Covered Policy business or claims information to ensure more complete and accurate reporting to the FHCF. |
(5) |
Costs of the Examinations |
The costs of the examinations shall be borne by the SBA. However, in order to remove any incentive for a Company to delay preparations for an examination, the SBA shall be reimbursed by the Company for any examination expenses incurred in addition to the usual and customary costs, which additional expenses were incurred as a result of the Companys failure, despite proper notice, to be prepared for the examination or as a result of a Companys failure to provide requested information. All requested information must be complete and accurate.
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ARTICLE XIV OFFSETS
The SBA reserves the right to offset amounts payable to the SBA from the Company, including amounts payable under the Reimbursement Contract for any Contract Year and also including the Companys full Reimbursement Premium for the current Contract Year (regardless of installment due dates), against any (1) Reimbursement Premium refunds under any Contract Year, (2) reimbursement or advance amounts, or (3) amounts agreed to in a commutation agreement, which are due and payable to the Company from the SBA as a result of the liability of the SBA.
ARTICLE XV INSOLVENCY OF THE COMPANY
Company shall notify the FHCF immediately upon becoming insolvent. Except as otherwise provided below, no reimbursements will be made until the FHCF has completed and closed its examination of the insolvent Companys Losses, unless an agreement is entered into by the court appointed receiver specifying that all data and computer systems required for FHCF exposure and claims examinations will be maintained until completion of the Companys exposure and claims examinations. Except as otherwise provided below, in order to account for potential erroneous reporting, the SBA shall hold back 25% of requested reimbursements until the exposure and claims examinations for the Company are completed. Only those Losses supported by the examination will be reimbursed. Pursuant to Section 215.555(4)(g), Florida Statutes, the FHCF is required to pay the net amount of all reimbursement moneys due an insolvent insurer to the Florida Insurance Guaranty Association (FIGA) for the benefit of Florida policyholders. For the purpose of this Contract, a Company is insolvent when an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction. In light of the need for an immediate infusion of funds to enable policyholders of insolvent companies to be paid for their claims, the SBA may enter into agreements with FIGA allowing exposure and claims examinations to take place immediately without the usual notice and response time limitations and allowing the FHCF to make reimbursements (net of any amounts payable to the SBA from the Company or FIGA) to FIGA before the examinations are completed and before the response time expires for claims filing by reinsurers and financial institutions, which have a priority interest in those funds pursuant to Section 215.555(4)(g), Florida Statutes. Such agreements must ensure the availability of the necessary records and adequate security must be provided so that if the FHCF determines that it overpaid FIGA on behalf of the Company, or if claims are filed by reinsurers or financial institutions having a priority interest in these funds, that the funds will be repaid to the FHCF by FIGA within a reasonable time.
ARTICLE XVI TERMINATION
The FHCF and the obligations of both parties under this Contract can be terminated only as may be provided
by law or applicable rules.
ARTICLE XVII VIOLATIONS
(1) |
Statutory Provisions |
(a) |
Section 215.555(10), Florida Statutes, provides that any violation of Section 215.555, Florida Statutes, or of rules adopted under that section, constitutes a violation of the Florida Insurance Code. This Contract has been adopted as part of Rule 19-8.010, Florida Administrative Code, under the authority of that section of Florida Statutes. |
(b) |
Section 215.555(11), Florida Statutes, authorizes the SBA to take any action necessary to enforce the rules and the provisions and requirements of this Contract, required by and adopted pursuant to Section 215.555, Florida Statutes. |
(2) |
Noncompliance |
(a) |
As used in this Article, the term noncompliance means the failure of the Company to meet any applicable requirement of Section 215.555, Florida Statutes, or of any rule adopted under the authority of that section of Florida Statutes, including, but not limited to, any failure to meet a deadline for an FHCF payment, Data Call submissions or resubmissions, Loss reporting or |
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commutation documentation, or a deadline related to SBA examination requirements. The Company remains in a state of noncompliance as long as the Company fails to meet the applicable requirement(s). |
(b) |
If the Company is in a state of noncompliance, the SBA reserves the right to withhold any payments or advances due to the Company until the SBA determines that the Company is no longer in a state of noncompliance. |
ARTICLE XVIII APPLICABLE LAW
This Contract shall be governed by and construed according to the laws of the State of Florida in respect of any matter relating to or arising out of this Contract.
ARTICLE XIX DUE DATES
If any due date provided in this Contract is a Saturday, Sunday or a legal State of Florida or federal holiday, then the actual due date will be the day immediately following the applicable due date which is not a Saturday, Sunday or a legal State of Florida or federal holiday.
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ARTICLE XX REIMBURSEMENT CONTRACT ELECTIONS
(1) |
Coverage Level |
For purposes of determining reimbursement (if any) due the Company under this Contract and in accordance with the Statute, the Company has the option to elect a 45% or 75% or 90% Coverage Level under this Contract. If the Company is a member of an NAIC group, all members must elect the same Coverage Level, and the individual executing this Contract on behalf of the Company, by placing his or her initials in the box under (a) below, affirms that the Company has elected the same Coverage Level as all members of its NAIC group. If the Company is an entity created pursuant to Section 627.351, Florida Statutes, the Company must elect the 90% Coverage Level. The Company shall not be permitted to change its Coverage Level during the Contract Year. The Company shall be permitted to change its Coverage Level at the beginning of a new Contract Year, but may not reduce its Coverage Level if a Covered Event required the issuance of revenue bonds, until the bonds are no longer outstanding.
The Coverage Level elected by the Company for the prior Contract Year effective June 1, 2018 was as follows: Homeowners Choice Property and Casualty Insurance Company 45%
(a) |
NAIC Group Affirmation: Initial the following box if the Company is part of an NAIC Group: |
(b) |
Coverage Level Election: The Company hereby elects the following Coverage Level for the Contract Year from 12:00:01 a.m., Eastern Time, June 1, 2019, to 12:00 a.m., Eastern Time, May 31, 2020, (the individual executing this Contract on behalf of the Company shall place his or her initials in the box to the left of the percentage elected for the Company): |
45% OR | 75% OR | 90% |
(2) |
Additional Living Expense (ALE) Written as Time Element Coverage |
If your Company writes Covered Policies that provide ALE coverage on a time element basis (i.e., coverage is based on a specific period of time as opposed to a stated dollar limit), you must initial the Yes Time Element ALE box below. If your Company does not write time element ALE coverage, initial No Time Element ALE box below.
OR | ||||
No Time Element ALE |
Yes Time
Element ALE |
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ARTICLE XXI SIGNATURES
Approved by:
Paragon Strategic Solutions Inc., on Behalf of the State Board of Administration of the State of Florida and as Administrator of the Florida Hurricane Catastrophe Fund.
By: | 3-26-19 | |||||
Date |
Authority to sign on behalf of the Company:
The person signing this Contract on behalf of the Company hereby represents that he or she is an officer of the Company, acting within his or her authority to enter into this Contract on behalf of the Company, with the requisite authority to bind the Company and make the representations on behalf of the Company as set forth in this Contract.
Homeowners Choice Property and Casualty Insurance Company
PARESHBHAI PATEL CHAIRMAN |
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Printed Name and Title |
By: | 2/26/2019 | |||||
Signature | Date |
25 |
FHCF-2019K Rule 19-8.010 F.A.C. |
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Paresh Patel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of HCI Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
/s/ PARESH PATEL |
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August 7, 2019 | Paresh Patel | |||
Chief Executive Officer (Principal Executive Officer) |
A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, James Mark Harmsworth, certify that:
1. I have reviewed this quarterly report on Form 10-Q of HCI Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
/s/ JAMES MARK HARMSWORTH |
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August 7, 2019 | James Mark Harmsworth | |||
Chief Financial Officer (Principal Financial and Accounting Officer) |
A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.1
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Chief Executive Officer of HCI Group, Inc. (the Company), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission on August 7, 2019 (the Report), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ PARESH PATEL |
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Paresh Patel | ||||
Chief Executive Officer August 7, 2019 |
A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Chief Financial Officer of HCI Group, Inc. (the Company), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission on August 7, 2019 (the Report), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ JAMES MARK HARMSWORTH |
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James Mark Harmsworth | ||||
Chief Financial Officer August 7, 2019 |
A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.