EXHIBIT 10.16
FORM OF BROKERAGE BUSINESS
POOLING AGREEMENT
This Brokerage Business Pooling
Agreement (“Pooling Agreement”) by and between Tower
Insurance Company of New York (“TICNY”), an insurance
company domiciled in New York, Tower National Insurance Company
(“TNIC”), an insurance company domiciled in
Massachusetts (collectively called “Tower”) and
CastlePoint Insurance Company (“CPIC”), an insurance
company domiciled in
[ ],
is dated this day of
,
200[ ], and is made effective as of 12:01 a.m.,
[ ],
200[ ], (the “Effective Date”).
WHEREAS, TICNY, TNIC and CPIC are each authorized to
transact, and do transact, a multiple line property and casualty
insurance business; and
WHEREAS, TICNY, TNIC and CPIC desire to pool their
respective Brokerage Business (defined below) in order to make more
efficient use of available surplus and achieve other operating
efficiencies; and
WHEREAS, TICNY will act as the manager of such
pool;
NOW, THEREFORE,
for mutual considerations, the
sufficiency and receipt of which is hereby acknowledged, TICNY,
TNIC and CPIC agree as follows:
ARTICLE
I
Definitions
The following terms, whenever used
herein, shall have the following meanings:
“Brokerage Business”
shall mean broad classes of business that are underwritten on an
individual policy basis by an insurance company’s
underwriting staff through wholesale and
retail agents, and for which most or all of the
services are provided by the insurance company as part of the
overall product offering.
“Brokerage
Business Pool” shall mean Brokerage Business written by or on
behalf of the Participating Companies or assumed by a Participating
Company (including such business assumed by TICNY from its
affiliates), that is pooled and allocated to each of the
Participating Companies based upon their Pooling Percentage as set
forth in this Pooling Agreement.
“Existing Reinsurance”
shall mean reinsurance ceded by a Participating Company that is in
effect on the Effective Date, to the extent that such reinsurance
relates to the Brokerage Business of such Participating
Company.
“Management
Fees” shall mean the management fees payable by CPIC and TNIC
to TICNY pursuant to Article XIV.
“Net
Liability” shall mean the loss and loss adjustment expense
liability remaining after the application of Existing Reinsurance
and, with respect to TICNY, Pool Reinsurance, in each case to the
extent collectible; provided , however , that
“Net Liability” shall not include liability with
respect to losses and loss adjustment expenses incurred prior to
the Effective Date.
“Net Loss Ratio” shall
mean, for any period of time, the ratio of Net Losses and loss
adjustment expenses incurred during such period to Net Premium
Earned for such period.
“Net
Losses” shall mean, for any period of time, any and all
amounts that a Participating Company is required to pay to or on
behalf of insureds for insurance claims made under its Policies,
after the application of any applicable reinsurance but not
including loss adjustment expenses.
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“Net Premium Earned”
shall mean, for any period of time, the earned portion of premiums
written by a Participating Company after payment for reinsurance,
if any.
“Net
Written Premium” shall mean direct premium written on the
Policies covered by this Agreement plus additions, less refunds and
return premium for cancellations and reductions (but not dividends)
and less premium paid or payable for reinsurance that inures to the
benefit of the Participating Companies.
“Participating
Companies” shall mean TICNY, TNIC and CPIC.
“Policies” shall
mean all policies, certificates, binders, contracts and agreements
of insurance covering Brokerage Business issued or renewed on or
after the Effective Date by or on behalf of TICNY, TNIC or CPIC, as
the case may be, all of which shall be subject to this Pooling
Agreement.
“Pool
Reinsurance” shall mean property catastrophe and excess of
loss reinsurance ceded by TICNY to an insurer that is not a
Participating Company and that inures to the benefit of the
Brokerage Business Pool.
“Pooling
Percentages” shall be those percentages set forth on Schedule
A attached, as amended from time to time.
ARTICLE
II
Cessions to Brokerage Business Pool
CPIC and TNIC shall automatically
and obligatorily cede to TICNY as reinsurance, and TICNY shall be
obligated to accept as assumed reinsurance, one hundred percent
(100%) of the Net Liabilities with respect to Policies issued or
assumed by CPIC and TNIC, to be combined with the Net Liabilities
of TICNY under Policies issued or assumed by TICNY, provided,
however, that the total gross written
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premium of CPIC after pooling shall not exceed
$150 million for the first twelve (12) month period ending March
31, 2007, subject to a growth factor of 25% per each twelve (12)
month period thereafter.
ARTICLE III
Participation in Brokerage Business Pool
TICNY shall
establish the Brokerage Business Pool, which shall consist of the
Net Liability under all Brokerage Business written or assumed by
Tower and CPIC (including business assumed by TICNY pursuant to
this Pooling Agreement). Tower shall automatically and
obligatorily cede to CPIC, and retain for Tower’s own
account, the applicable Pooling Percentages of such Net Liability
and CPIC shall automatically and obligatorily accept such
cessions. Notwithstanding the foregoing, if Tower (i) writes
business of the type that it has historically not written or (ii)
writes more than 25% of its gross written premiums outside the
state of New York in any 12 month period ending on the anniversary
date of this Pooling Agreement, then such non-historical business
and the excess of business not in New York over 25% may, at
CPIC’s discretion, be excluded from the pool. In addition,
the pool shall exclude any property excess of loss liabilities over
$10 million resulting from any one occurrence. TICNY and TNIC
shall determine how the Tower Pooling Percentage will be allocated
between each of them. Such Pooling Percentages shall be applied to
all Brokerage Business written by the Participating
Companies. Any change in the Pooling Percentages shall be
made only by a written amendment to this Pooling Agreement signed
by the parties hereto or as otherwise set forth in Article XVI of
this Pooling Agreement. The Participating Companies
acknowledge that, following the acceptance or retention of a
percentage of the Brokerage Business Pool by a Participating
Company, such pooled business shall be subject to such reinsurance
as may be entered into by such Participating Company on or after
the Effective Date that is for the benefit of such Participating
Company as to its participation in the Brokerage Business Pool and
does not inure to the benefit of the Brokerage Business
Pool.
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ARTICLE IV
Reinsurance
TICNY, as pool
manager, shall negotiate, obtain and maintain such Pool Reinsurance
as it deems appropriate with respect to the liabilities of the
Brokerage Business Pool, which reinsurance shall inure to the
benefit of the Participating Companies according to their
respective Pooling Percentages. TICNY shall purchase property and
casualty excess of loss reinsurance and property catastrophe excess
of loss reinsurance from third party reinsurers to protect the net
exposure of the Participating Companies. The property catastrophe
excess of loss reinsurance purchased by TICNY may provide for up to
approximately 10% of the combined surplus of Tower and CPIC to be
retained by the pool prior to reinsurance by third party
reinsurance companies (“Pooled Retention”). Any of the
Participating Companies also shall have the right, in its
discretion, to require TICNY to increase the Pooled Retention by an
additional amount of up to 10% of the surplus of CastlePoint
Reinsurance Company (“CPRe”) provided that TICNY
purchases reinsurance for such additional Pooled Retention from
CPRe. In addition, for the first 12 months of this Pooling
Agreement, Tower shall reimburse CPIC for the property catastrophe
excess of loss premium paid to CPRe to protect CPIC’s net
exposure to the Pooled Retention that is in excess of an amount
equal to the product of $10 million multiplied by CPIC’s
Pooling Percentage in the Brokerage Business pool.
ARTICLE
V Losses and Loss
Adjustment Expenses
A.
All loss settlements made by TICNY with regards to the Brokerage
Business, whether under strict policy conditions or by way of
compromise, shall be unconditionally binding upon CPIC and
TNIC.
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B.
Each Participating Company shall be liable for its proportionate
share of loss adjustment expenses incurred under or in connection
with the Policies and shall be credited with its proportionate
share of any recoveries of such expense.
C.
If a Participating Company pays or is held liable to pay any
punitive, exemplary, compensatory, or consequential damages
(hereinafter called “Extra Contractual Obligations”)
because of alleged or actual negligence on its part in handling a
claim under a Policy, one hundred percent (100%) of such Extra
Contractual Obligations (to the extent permitted by law) shall be
added to the Net Liability, if any, of such Participating Company
under the Policy involved, and the sum thereof shall be subject to
this Pooling Agreement.
D.
If a Participating Company pays or is held liable to pay in
connection with any loss amounts in excess of the limit of its
original Policy, such loss in excess of that limit having been
incurred because of its failure to settle within the Policy limit
or by reason of alleged or actual negligence in rejecting an offer
of settlement or in the preparation of the defense or in the trial
of any action against the original insured or reinsured or in the
preparation or prosecution of an appeal consequent upon such action
(hereinafter called an “Excess of Policy Limits Loss”),
one hundred percent (100%) of such Excess of Policy Limits Loss (to
the extent permitted by law) shall be added to the Net Liability,
if any, of such Participating Company under the Policy involved,
and the sum thereof shall be subject to this Pooling
Agreement.
ARTICLE VI
Salvage and Subrogation
Each of the Participating Companies
shall be credited with its proportionate share of salvage and
subrogation on account of losses under the Policies.
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ARTICLE VII Original
Conditions Apply
All reinsurance
under this Pooling Agreement shall be subject to the same rates,
terms, conditions and waivers, and to the same modifications and
alterations as the respective Policies. Each of the
Participating Companies shall be credited with the proportion equal
to its Pooling Percentage of the original premiums received under
the Policies issued on or after the Effective Date, but after
deduction of premiums, if any, ceded under Existing Reinsurance and
Pool Reinsurance.
ARTICLE VIII Ceding
Commission
Each of the Participating Companies
shall be charged with a ceding commission in an amount equal to
such Participating Company’s Pooling Percentage of actual
commissions paid to agents or brokers, premium taxes, guarantee
fund assessments, fees and assessments for boards, bureaus and
associations, fees and assessments for industry and residual
markets, and other similar expenses incurred by the Participating
Companies on all premiums ceded hereunder, but after deduction of
ceding commissions or expense reimbursement amounts recovered under
Existing Reinsurance and Pool Reinsurance.
ARTICLE IX
Remittances and Reports
A.
As soon as practicable consistent with its standard financial
reporting practices, but no later than thirty (30) days after the
end of each calendar month, TICNY shall submit a pooling report to
TNIC and CPIC setting forth the following information as regards
the Brokerage Business Pool:
1.
Net Written Premium received during the month;
2.
Net Premium Earned received during the month
3.
Ceding commission thereon;
4.
Losses and loss adjustment expenses paid during the
month;
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5.
Salvage and subrogation recoveries received;
6.
Recoverables under inuring reinsurance; and
7.
Management Fees due.
B.
The balance shown to be due a Participating Company shall be
remitted within fifteen (15) days after the issuance of the reports
by TICNY on a collected basis; provi
