Exhibit 10(118)

 

EXECUTION COPY

 

UNCONDITIONAL CAPITAL MAINTENANCE AGREEMENT

BETWEEN

AMERICAN INTERNATIONAL GROUP, INC.

AND

CHARTIS INC.

AND

THE INSURANCE COMPANIES NAMED ON SCHEDULE 1

 

This Unconditional Capital Maintenance Agreement (this “Agreement”), is made,
entered into and effective as of February 17, 2012, by and between American
International Group, Inc., a corporation organized under the laws of the State
of Delaware (“AIG”), Chartis Inc., a corporation organized under the laws of the
State of Delaware (“Chartis”), and each of the insurance companies listed on
Schedule 1 hereto (each, a “Company” and collectively, the “Fleet”).

 

WITNESSETH:

 

WHEREAS, each Company is a property-casualty insurer subject to certain capital
requirements of the insurance laws and regulations of its applicable
jurisdiction of incorporation set forth on Schedule 1 (the “Domiciliary State”);

 

WHEREAS, each Company is an indirect wholly owned subsidiary of each of AIG and
Chartis; and

 

WHEREAS, AIG has an interest in unconditionally maintaining and enhancing the
Fleet’s financial condition (the “Fleet” for purposes of this Agreement shall be
treated as one insurance company as if each Company combined its financial
attributes into one entity):

 

NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:

 

1.             Capital Contributions.  In the event that the Fleet’s Total
Adjusted Capital for each of the Fleet’s first and third fiscal quarters (as
determined based on each Company’s first and third fiscal quarterly filed
statutory financial statements, respectively, subject to any adjustments or
modifications thereto required by the applicable Domiciliary State’s insurance
department or the Fleet’s independent auditors) falls below the Specified
Minimum Percentage of the Fleet’s projected year-end Authorized Control Level
RBC (in each case as estimated by Chartis as of the end of each such first and
third fiscal quarters, as the case may be, taking into account (for purposes of
such estimation) facts and

 

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circumstances occurring after the end of such fiscal quarter but before such
time as AIG would be obligated pursuant to paragraph 4 to make a contribution to
Chartis), AIG shall, within the respective time periods set forth under
paragraph 4, in accordance with paragraph 5 and in compliance with applicable
law, provide to Chartis cash, cash equivalents, securities or other instruments
that qualify (as admitted assets in the appropriate jurisdiction) for purposes
of calculating the Fleet’s Total Adjusted Capital, as a contribution and not as
a loan, in an amount such that the Fleet’s Total Adjusted Capital as of the end
of each of the Fleet’s second and fourth fiscal quarter, as the case may be,
will be projected at year-end to be at least equal to the Specified Minimum
Percentage of the Fleet’s Authorized Control Level RBC.  Notwithstanding the
foregoing, AIG may, at any time as it deems necessary in its sole discretion and
in compliance with applicable law, make a contribution to Chartis in such amount
as is required for the Fleet’s Total Adjusted Capital to equal a percentage of
its Authorized Control Level RBC determined to be appropriate by Chartis and
AIG.

 

2.             Dividends.  In the event that the Fleet’s Total Adjusted Capital
(a) for each of the Fleet’s first, second and third fiscal quarters (as
determined based on each Company’s first, second and third fiscal quarterly
filed statutory financial statements, respectively, subject to any adjustments
or modifications thereto required by the applicable Domiciliary State’s
insurance department or the Fleet’s independent auditors) is in excess of the
Specified Minimum Percentage of the Fleet’s projected Authorized Control Level
RBC (in each case as estimated by Chartis as of the end of each such first,
second and third fiscal quarters, as the case may be) or (b) as of each fiscal
year end (as determined based on each Company’s fiscal year-end filed statutory
financial statements, together with any adjustments or modifications thereto
required by the applicable Domiciliary State’s insurance department or the
Fleet’s independent auditors) is in excess of the Specified Minimum Percentage
of the Fleet’s Authorized Control Level RBC (as determined based on each
Company’s fiscal year-end statutory financial statements),  each Company shall,
within the respective time periods set forth under paragraph 4, in accordance
with paragraph 5 and subject to approval by each applicable Company’s board of
directors as required by the laws of such Company’s Domiciliary State, declare
and pay dividends ratably to its equity holders in an aggregate amount equal to
the lesser of (i) the amount (to be determined by Chartis) necessary to reduce
the Fleet’s projected or actual Total Adjusted Capital as of each of the end of
the Fleet’s fiscal quarter or fiscal year, as the case may be, to a level equal
to or not materially greater than the Specified Minimum Percentage of the
Fleet’s Authorized Control Level RBC or (ii) the maximum amount permitted by the
applicable Domiciliary State’s law to be paid as an ordinary dividend less an
amount that the Company and AIG agree is appropriate to protect the Company from
exceeding such maximum amount allowed by such Domiciliary State’s law as a
result of potential audit adjustments or adjustments to the projections on which
such dividend amount is based.  For the avoidance of doubt, this paragraph shall
only require each Company to pay ordinary dividends subject to the other
applicable conditions set forth in this

 

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paragraph being satisfied; under no circumstances shall any Company be required
to pay any dividend which would trigger the extraordinary dividend provisions of
the applicable Domiciliary State or that is otherwise prohibited by such
Domiciliary State.  Notwithstanding the foregoing, this Agreement does not
prohibit the payment of extraordinary dividends to reduce the Fleet’s projected
or actual Total Adjusted Capital to a level equal to or not materially greater
than the Specified Minimum Percentage of the Fleet’s Authorized Control Level
RBC.

 

3.             Defined Terms.  For the avoidance of doubt, the terms “Total
Adjusted Capital” and “Authorized Control Level RBC” shall have the meanings
ascribed thereto under the insurance laws and regulations of the applicable
Domiciliary State, or, if not defined therein, shall have the meanings ascribed
thereto in the risk-based capital (“RBC”) instructions promulgated by the
National Association of Insurance Commissioners (“NAIC”). The term “Specified
Minimum Percentage” shall be equal to the percentage set forth on Schedule 2
attached hereto, which shall be agreed to by AIG and Chartis at least once every
year beginning upon the date of the filing of each Company’s 2011 Annual
Statement with the applicable Domiciliary State’s insurance department and
following review against the capital adequacy standards and criteria (“Agency
Criteria”) of each of Standard & Poor’s Corp. (“S&P”), Moody’s Investors Service
(“Moody’s”) and A.M. Best Company (“A.M. Best”).  Notwithstanding the obligation
of Chartis and AIG to review the Specified Minimum Percentage on an annual
basis, the parties hereto agree to review and revise the Specified Minimum
Percentage on a more frequent basis, if the parties agree it is appropriate, to
take into account (a) any material changes after the date hereof to any Agency
Criteria adopted by any of S&P, Moody’s or A.M. Best, on the one hand, or to the
law of any applicable Domiciliary State or NAIC RBC rules or instructions, on
the other hand, which causes the results under the Agency Criteria to diverge
from that under the law of any applicable Domiciliary State or NAIC RBC rules or
instructions, (b) any Company completes a material transaction that is treated
materially differently by the Agency Criteria, on the one hand, and the NAIC RBC
rules or instructions, on the other hand, or (c) any other material development
or circumstance affecting the Fleet or any Company which AIG and Chartis agree
merits a reevaluation of the Specified Minimum Percentage then in effect.

 

4.             Timing of Capital Contributions and Dividends.  Chartis and AIG
agree that any contribution to be made under paragraph 1 will take place within
the following two time periods per year, as applicable: (a) during the time
beginning on the first business day after the last filing of any Company’s first
fiscal quarterly statutory financial statements and ending on the last business
day prior to the end of the Fleet’s second fiscal quarter; and (b) during the
time beginning on the first business day after the last filing of any Company’s
third fiscal quarterly statutory financial statements and ending on the last
business day prior to the end of the Fleet’s fourth fiscal quarter.
Notwithstanding the foregoing, in compliance with applicable law, any capital
contribution provided for under paragraph 1 may be made by AIG after the close
of any fiscal quarter or fiscal

 

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year of the Fleet but prior to the last filing by any Company of its statutory
financial statements for such fiscal quarter or fiscal year, respectively, and
contributions of this nature shall be recognized as capital contributions
receivable as of the balance sheet date of the yet to be filed quarterly or
annual financial statement (as the case may be), pursuant to paragraph 8 of
Statement of Statutory Accounting Principles No. 72, to the extent approved by
the applicable Domiciliary State.  Chartis and AIG further agree that any
dividends to be made under paragraph 2 will take place as soon as practicable
after the filing by each Company of the relevant fiscal quarter-end or fiscal
year-end statutory financial statements or such earlier time as may be agreed by
Chartis and AIG.

 

5.             Funding Mechanics.  At the time that any contribution is due
under paragraph 4, AIG agrees that it will either (a) make such contribution to
Chartis and Chartis shall further contribute such funds, securities or
instruments to the applicable subsidiaries in furtherance of the purposes of
this Agreement and in the reasonable discretion of the management of Chartis, or
(b) make such contribution directly to any applicable Company without receiving
any capital stock or other ownership interest in exchange therefor, subject in
either case to any required regulatory approvals.  At any time any dividends are
due under paragraph 4, each Company agrees that it will make such dividend to
such Company’s direct parent and both Chartis and such Company will use their
best efforts to cause such direct parent to then dividend or otherwise provide
such funds to AIG.  All contributions and dividends contemplated under this
Agreement shall be approved, declared and made, as applicable, in compliance
with applicable law, including, without limitation, approval by the board of
directors of each applicable entity (including any applicable Company) and any
prior notice or approval requirements specified under applicable rules and
regulations of any applicable Domiciliary State.

 

6.             AIG Policies.  Subject to the requirements of applicable law and
the approval, to the extent required, by any or all of any Company’s or Chartis’
senior management, relevant management committees, board of directors, and of
any insurance regulator, each Company and Chartis hereby acknowledges that, in a
manner consistent with past practice and any other reasonable requirements of
AIG, it will comply with all financial and budgetary planning, risk mitigation,
derisking or pricing, corporate governance, investment, informational and
procedural requirements set forth by AIG.

 

7.             No Failure to Claim.  AIG hereby waives any failure or delay on
the part of Chartis or any Company in asserting or enforcing any of its rights
or in making any claims or demands hereunder.

 

8.             Termination.  Unless earlier terminated in accordance with this
paragraph 8, this Agreement shall continue indefinitely.  AIG shall have the
absolute right to terminate this Agreement upon thirty (30) days’ prior written
notice to Chartis and each applicable Company, which notice shall state the

 

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effective date of termination (the “Termination Date”); provided, however, that
AIG agrees not to terminate this Agreement unless (a) AIG significantly modifies
the corporate structure or ownership of Chartis or any Company, or (b) AIG sells
Chartis or any Company to an acquirer, in each case, (i) having a rating from at
least one of S&P, Moody’s, A.M. Best or a substitute agency, which is a
nationally recognized statistical rating organization, that is at least equal to
the lower of (x) AIG’s then-current rating from such agency or (y) the
then-current rating of Chartis or such Company, as applicable, being
restructured or sold as supported by this Agreement from such agency; or
(ii) such that, immediately on the effective date of the modification of the
corporate structure or sale by AIG of Chartis or such Company, Chartis’ or such
Company’s capitalization, as applicable, is consistent with the minimum capital
adequacy standards and criteria of at least one of S&P, Moody’s, A.M. Best or a
substitute agency, which is a nationally recognized statistical rating
organization, for a rating that is equal to or better than Chartis’ or such
Company’s, as applicable, then-current rating on the date immediately preceding
such modification of corporate structure or sale.  To the extent not terminated
previously by AIG pursuant to the foregoing, this Agreement will terminate
automatically, with respect to any particular Company, one year after the
closing of any sale of such Company by AIG, and all provisions hereof will be of
no further force and effect.  For the avoidance of doubt, the termination of
this Agreement pursuant to this paragraph 8 shall not relieve either party of
any obligation it may owe to the other party hereunder that existed prior to,
and remains outstanding as of, the Termination Date.

 

9.             Policyholder Rights.  Any policyholder holding a policy issued by
any Company prior to the termination of this Agreement shall have the right to
demand that such Company enforce such Company’s rights under paragraphs 1, 4 and
5 of this Agreement, and, if such Company fails or refuses to take timely action
to enforce such rights or such Company defaults in any claim or other payment
owed to any such policyholder when due, such policyholder may proceed directly
against AIG to enforce such Company’s rights under paragraphs 1, 4 and 5 of this
Agreement; provided, however, that no policyholder of any Company may take any
action authorized under this paragraph 9 unless and until (a) such policyholder
has given AIG written notice of its intent to enforce the terms of this
Agreement as provided in this paragraph 9, which notice shall specify in
reasonable detail the nature of and basis for the policyholder’s complaint and
(b) AIG has failed to comply with this Agreement within sixty (60) days after
such notice is given; and, provided, further, that upon termination of this
Agreement in accordance with paragraph 8 hereof, the rights of any policyholder
as provided for under this paragraph 9 shall terminate effective as of the
Termination Date, except with respect to the obligation of AIG (if any) to make
capital contributions to any Company pursuant to paragraphs 1, 4 and 5 of this
Agreement solely to the extent such obligation arose prior to, and remained
unsatisfied as of, the Termination Date (it being understood that upon AIG’s
satisfaction of all such obligations after the Termination Date, no such

 

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policyholder shall have any rights against Chartis or any Company or AIG, as the
case may be, under this paragraph 9).

 

10.          No Indebtedness; No Policyholder Recourse Against AIG.  This
Agreement is not, and nothing herein contained and nothing done pursuant hereto
by AIG shall constitute or be construed or deemed to constitute, an evidence of
indebtedness or an obligation or liability of AIG as guarantor, endorser, surety
or otherwise in respect of any obligation, indebtedness or liability, of any
kind whatsoever, of Chartis or any Company.  This Agreement does not provide,
and is not intended to be construed or deemed to provide, any policyholder of
any Company with recourse to or against any of the assets of AIG.

 

11.          Notices.  Any notice, instruction, request, consent, demand or
other communication required or contemplated by this Agreement shall be in
writing, shall be given or made or communicated by United States first class
mail, addressed as follows:

 

If to AIG:

 

 

American International Group, Inc.

 

180 Maiden Lane

 

New York, New York 10038

 

Attention: Secretary

 

 

If to Chartis:

 

 

Chartis Inc.

 

175 Water Street, 24th Floor

 

New York, NY 10038

 

Attention: Chief Financial Officer

 

 

with a copy (which shall not constitute notice) to:

 

 

Chartis U.S. Law Department

 

175 Water Street, 18th Floor

 

New York, NY 10038

 

Attention: Chartis U.S. General Counsel

 

12.          Fiscal Year.  Each of the Companies represents that its fiscal year
is the same as each other Company and covenants that it shall not change its
fiscal year without the prior written consent of AIG.

 

13.          Entire Agreement.  Effective upon the date of filing of each
Company’s 2011 Annual Statements with each applicable Domiciliary State, this
Agreement shall constitute the entire agreement among the parties hereto and

 

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supersedes and replaces each agreement, dated February 25, 2011, by and between
AIG, on the one hand, and each Company, on the other hand, regarding capital
maintenance without the need for any action.

 

14.          Successors.  The covenants, representations, warranties and
agreements herein set forth shall be mutually binding upon and inure to the
mutual benefit of AIG and its successors and each of Chartis and each Company
and its successors.

 

15.          Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of New York, without giving effect to the principles
of conflict of laws.

 

16.          Severability.  If any provision of this Agreement shall be declared
null, void or unenforceable in whole or in part by any court, arbitrator or
governmental agency, said provision shall survive to the extent it is not so
declared and all the other provisions of this Agreement shall remain in full
force and effect unless, in each case, such declaration shall serve to deprive
any of the parties hereto of the fundamental benefits of or rights under this
Agreement.

 

17.          Entire Agreement; Amendments.  This Agreement constitutes the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussion, whether oral or written, of the parties.  This
Agreement may be amended at any time by written agreement or instrument signed
by the parties hereto.

 

18.          Headings.  The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

 

19.          Counterparts.  This Agreement may be signed by the parties in one
or more counterparts which together shall constitute one and the same agreement
among the parties.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.

 

 

AMERICAN INTERNATIONAL GROUP, INC.

 

 

 

 

By:

/s/ David L. Herzog

 

 

Name:

David L. Herzog

 

Title:

Chief Financial Officer

 

 

 

 

 

 

By:

/s/ Jeffrey A. Welikson

 

 

Name:

Jeffrey A. Welikson

 

Title:

Corporate Secretary

 

 

 

 

 

 

CHARTIS INC.

 

 

 

 

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Chief Financial Officer and Senior Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Assistant Secretary

 

 

 

 

 

 

AIU INSURANCE COMPANY

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

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AMERICAN HOME ASSURANCE COMPANY

 

 

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

 

 

 

 

 

CHARTIS CASUALTY COMPANY

 

 

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

 

 

 

 

 

CHARTIS PROPERTY CASUALTY COMPANY

 

 

 

 

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

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CHARTIS SPECIALTY INSURANCE COMPANY

 

 

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

 

 

 

 

 

COMMERCE AND INDUSTRY INSURANCE COMPANY

 

 

 

 

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

 

 

 

 

 

GRANITE STATE INSURANCE COMPANY

 

 

 

 

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

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ILLINOIS NATIONAL INSURANCE CO.

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

 

 

 

 

 

LEXINGTON INSURANCE COMPANY

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

 

 

 

 

 

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

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NEW HAMPSHIRE INSURANCE COMPANY

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

 

 

 

 

 

THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA

 

 

By:

/s/ James Bracken

 

 

Name:

James Bracken

 

Title:

Executive Vice President

 

 

 

 

 

 

By:

/s/ Denis M. Butkovic

 

 

Name:

Denis M. Butkovic

 

Title:

Secretary

 

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SCHEDULE 1

 

 

 

Company

 

Domiciliary State

(a)

 

AIU Insurance Company

 

NY

(b)

 

American Home Assurance Company

 

NY

(c)

 

Chartis Casualty Company

 

PA

(d)

 

Chartis Property Casualty Company

 

PA

(e)

 

Chartis Specialty Insurance Company

 

IL

(f)

 

Commerce and Industry Insurance Company

 

NY

(g)

 

Granite State Insurance Company

 

PA

(h)

 

Illinois National Insurance Co.

 

IL

(i)

 

Lexington Insurance Company

 

DE

(j)

 

National Union Fire Insurance Company of Pittsburgh, Pa.

 

PA

(k)

 

New Hampshire Insurance Company

 

PA

(l)

 

The Insurance Company of the State of Pennsylvania

 

PA

 

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SCHEDULE 2

 

The Specified Minimum Percentage shall equal 350% of the Fleet’s Authorized
Control Level RBC.

 

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