EX-10.13(17) 4 doc4.txt Exhibit 10.13(17) ADDENDUM NO. 3 TO QUOTA SHARE REINSURANCE AGREEMENT EFFECTIVE JANUARY 1ST 2000 BETWEEN PAFCO GENERAL INSURANCE COMPANY (HEREAFTER CALLED THE "COMPANY") AND NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. (HEREAFTER CALLED THE "REINSURER") It is understood and agreed that effective January 1st, 2002 the following articles are amended to read as follows: ARTICLE II TERM AND TERMINATION ---------- -------------------- The agreement commences at 12:01 a.m. Eastern Standard Time, January 1, 2000 and shall remain in force until 11:59 p.m. Eastern Standard time, December 31, 2002. Either party may terminate effective on the first day of any calendar quarter with 60 days advance written notice. The Reinsurer shall remain liable for loss under reinsured policies effective prior to the termination date. ARTICLE IV QUOTA SHARE PARTICIPATION ---------- ------------------------- The aggregate quota share cession shall be at the option of the Company and subject to a maximum of 75%. However, the maximum cession will be limited to $20,000,000 of new written premium (ie.not including in-force cession from December 31st, 2001) for the calendar year 2002. In the event this produces more than $20,000,000 for the calendar year, the dollar amount of cessions shall be reduced to $20,000,000 plus the cession of in-force business from December 31st, 2001. The average quota share percent applicable for the Company shall be the ratio of the adjusted dollar cession to the gross subject written premium for the Company for that year. Each quarter shall be adjusted by an equal pro-rata percent to produce the dollar cession applicable. This limit can be increased by mutual agreement between the Reinsurer and the Company. The Company shall notify the Reinsurer prior to the last day of the calendar quarter of the quota share percent for that quarter. That percent shall also apply to the in-force business at the beginning of the quarter. It is agreed that the cession for any one quarter, including the change in in-force, shall not exceed 35% of the total cession for the calendar year. In the event the declared percent cession for a calendar quarter produces premiums in excess of 35% of the premium ceded for the calendar year the cessions for that quarter shall be adjusted to the dollar amount that would equal 35% of the premium ceded for the year. The Reinsurer's liability for aggregate losses, including allocated loss adjustment expenses (and unallocated loss adjustment expenses where applicable under REPORTS AND ACOCUNTING), shall be limited to 97% of earned premium ceded for all business from January 1st, 2002 to the calculation date. ARTICLE VI PREMIUM AND COMMISSION ---------- ---------------------- For business effective prior to 2002, however, excluding business in-force on December 31st, 2001: The Company will pay the Reinsurer a premium equal to the pro rata share of premium applicable on all policies ceded and the Reinsurer shall allow the company a minimum and provisional ceding commission of 18% on such premium. The ceding commission slides 1 for 1 for each 1.0% decrease in the Loss Ratio below 79% up to a maximum ceding commission of 31% at a 66% loss ratio. This calculation shall be from January 1st, 2000 to date for all business ceded effective in all calendar quarters including the in-force business from December 31st, 2000. For business in-force on December 31st, 2001 and with effective dates in 2002: The Company will pay the Reinsurer a premium equal to the pro rata share of premium applicable on all policies ceded. This would be the sum of new written premiums in the quarter plus or minus the change in unearned premium ceded at the beginning of the quarter as the result of a change in the percent ceded. The Reinsurer shall allow the company a minimum and provisional ceding commission of 18% on such premium. The ceding commission slides 1 for 1 for each 1.0% decrease in the Loss Ratio below 78.625% up to a maximum ceding commission of 31% at a 65.625 loss ratio. This calculation shall be from January 1st, 2002 to date of calculation. The first payment, if any, shall be made within 75 days of March 31st 2003. Subsequent payments due either party shall be made within 75 days of March 31st of all years subsequent to 2003 until all liabilities are finalized. ARTICLE VIII DEFINITIONS ------------ ----------- Loss Ratio shall mean losses paid and outstanding, including IBNR and allocated loss adjustment expenses with dates of loss in the period being calculated, divided by earned premium for the period being calculated. Premium shall mean the premium charged the insured, net of return premium, however, uncollectable premium shall not be deemed a return premium. Allocated loss adjustment expenses shall be as defined under statutory accounting practices. Unallocated loss adjustment expenses shall be as defined under statutory accounting practices. For business effective prior to 2002, however, excluding business in-force on December 31st, 2001: Funds withheld balance shall mean: Previous Funds Withheld Balance, plus 97% of ceded written premium, minus ceding commission, minus ceded paid losses (including allocated loss adjustment expenses), minus ceded paid unallocated loss adjustment expenses, if applicable. For business in-force on December 31st, 2001 and with effective dates in 2002: Loss fund shall mean paid losses from the end of the prior quarter to the settlement date. If that amount is not available for a partial month it shall be deemed to be pro-rata of the previous month. Average Daily Cash Balance shall mean Cash payments received by the Reinsurer, minus Cash payments paid by the Reinsurer, minus 3.375% of the total premiums reported. ARTICLE IX REPORTS AND ACCOUNTING ---------- ---------------------- For business effective prior to 2002, however, excluding business in-force on December 31st, 2001: Within 45 days after the end of each calendar quarter, the company shall furnish an account statement to the Reinsurer, for their share on the Business Covered including the following: 1. Written premiums-credit 2. Commission-debit 3. Net losses (including allocated loss adjustment expenses) paid by the company - debit 4. Reserve for outstanding losses including incurred but not reported (including allocated loss adjustment expenses). 5. Unearned Premium In the event the loss ratio is in excess of 85%, the Reinsurer shall be liable for unallocated loss adjustment expenses equal to 1% of earned premium for each Loss Ratio point in excess of 85%, however, not in excess of 6% of earned premium. When applicable, the coverage for unallocated loss adjustment expenses shall be included in the maximum limit of 97% of earned premium ceded referred to in QUOTA SHARE PARTICIPATION AND LIMIT. The forgoing shall be a combined account for all business effective in all calendar quarters plus the in-force business. The Company shall report this information separately for all business effective in each calendar quarter plus a report for the in-force business. The Company will pay the Reinsurer 3% of the premium with the balance, if any, being held in a Funds Withheld Balance for subsequent payment of losses, commission adjustments and return premiums. Amounts due the Company shall be withdrawn from the Funds Withheld Balance and if the Funds Withheld Balance is negative, the Reinsurer shall pay the amount due. For all business in-force on December 31st, 2001 and effective in 2002: Within 75 days after the end of each calendar quarter, the company shall furnish an account statement to the Reinsurer, for their share on the Business Covered including the following: 1. New written premiums-credit Change in unearned premium cession - credit or debit (First quarter only: total unearned premium on December 31st, 2001.) Total written premium 2. Commission-debit 3. Net losses (including allocated loss adjustment expenses) paid by the Company-debit 4. Change in Loss Fund-credit or debit 5. Reserve for outstanding losses including incurred but not reported (including allocated loss adjustment expenses). 6. Unearned Premium In the event the Loss Ratio is in excess of 85%, the Reinsurer shall be liable for unallocated loss adjustment expenses equal to 1% of earned premium for each Loss Ratio point in excess of 85%, however, not in excess of 6% of earned premium. When applicable, the coverage for unallocated loss adjustment expenses shall be included in the maximum limit of 97% of earned premium ceded referred to in QUOTA SHARE PARTICIPATION AND LIMIT. The forgoing shall be a combined account for all business ceded in all calendar quarters. The Company shall provide a separate report for paid and outstanding losses for each accident quarter (ie. all losses with dates of loss in a calendar quarter). The Company shall pay any credit balance with the account statement. The Reinsurer shall pay any debit balance within 30 days of receipt of the account statement. It is understood and agreed that effective January 1st, 2002 the following article is added to this agreement. ARTICLE VI-A INVESTMENT ALLOWANCE ------------ -------------------- For business in-force on December 31st 2001 and with effective dates in 2002: The Reinsurer will calculate notional investment income annually and pay the Company within 75 days of March 31 of the subsequent calendar year. The investment income shall equal the product of the average of the 1 year US Treasury bill rate times the Average Daily Cash Balance for the calendar year. The average US Treasury bill rate shall be the average of the rate on the last business day of each calendar quarter for the year applicable. Notwithstanding the foregoing no payment is due in the event the loss ratio is in excess of 78.625%. IN WITNESS WHEREOF: the parties hereto have caused this Agreement to be executed by their authorized representative: In:________________________________this_______day of_________________2002 PAFCO GENERAL INSURANCE COMPANY By:________________________________Title:____________________________ And in:_____________________________this______day of___________________2002 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. By:________________________________Title:____________________________