EXHIBIT 10.2

 

ADDENDUM NUMBER ONE
to
INSURANCE CAPITAL BUILD-UP INCENTIVE PROGRAM SURPLUS NOTE
 
BETWEEN THE STATE BOARD OF ADMINISTRATION OF FLORIDA AND
UNIVERSAL PROPERTY & CASUALTY INSURANCE COMPANY

Effective: July 1, 2008

     During the 2008 legislative session, CS/CS/SB 2860 passed and became law on
July 1, 2008. Section 2 of the bill provides for changes to Section 215.5595,
F.S. As such, subsection 215.5595(10), F.S., allows the State Board of
Administration to “...renegotiate the terms of any surplus note issued by an
insurer prior to January 2008 under this program upon the agreement of the
insurer and the board and consistent with the requirements of this section as
amended in 2008.”
 
     Pursuant to the authorization provided in Section 215.5595, F.S., as
amended, the undersigned parties to this Surplus Note executed on November 9,
2006, between Universal Property & Casualty Insurance Company, (NAIC #I 0861)
and the State Board of Administration of Florida (“Board”) hereby agree to the
following amended terms arid conditions.
 
     Addendum Number One is not retroactive and does not change any provision of
the Surplus Note as executed on November 9. 2006, except that as of July 1.
2008, the following provisions of the Surplus Note are made effective and will
be applied only on a prospective basis. All other provisions of the Surplus Note
shall remain in full force and effect.
 

1.         Surplus Note page one, third paragraph shall be hereby amended
effective prospectively beginning on July 1, 2008 to read as follows:

For and in consideration of the mutual agreements as set forth, the Insurer
hereby makes a contribution to Surplus in New Capital of $25 million and
covenants to meet the Minimum Writing Ratio of Premium to Surplus as specified
in this Surplus Note Addendum Number One during the remaining term of this
Surplus Note beginning on July 1, 2008. Ail amounts due and invoiced under the
requirements of the original Surplus Note, including but not limited to
interest, additional interest charges for not meeting Minimum Writing Ratio
requirements, and any late fees; remain due until paid and are not affected by
this Addendum Number One.
 

2.        The following paragraphs in the Definitions section of the Surplus
Note shall be hereby amended effective prospectively beginning on July I. 2008
to read as follows:

(h) “Minimum Required Surplus” means that the Insurer’s Surplus equals at least
$50 million or for Insurers writing only manufactured housing policies, at least
$14 million.
(i) “Minimum Writing Ratio” is met by meeting either the Net Written Premium to
Surplus writing ratio or the Gross Written Premium to Surplus writing ratio
specified below for each quarter as certified quarterly by the Office.
 

1.        The Net Written Premium to Surplus writing ratio means a Net Written
Premium to Surplus ratio of at least 1:1 from July 1, 2008 through the end of
the first calendar year on December 31, 2008, a 1.5:1 ratio for the second
calendar year from January 1, 2009 through December 31, 2009, and a 2:1 ratio
for the third calendar year beginning on January 1, 2010 and thereafter for the
remaining term of the Surplus Note.

2.        The Gross Written Premium to Surplus writing ratio means a Gross
Written Premium to Surplus ratio of at least 3:1 from July 1, 2008 through the
end of the first calendar year on December 3 I, 2008, a 4.5: 1 ratio for the
second calendar year from January 1, 2009 through December 31, 2009, and a 6: l
ratio for the third calendar year beginning on January 1, 2010 and thereafter
for the remaining term of the Surplus Note.

(I) “Surplus Note” means the Surplus Note issued by the Board and Addendum
Number One thereto which provisions apply prospectively beginning on July 1,
2008.
 
(q) “Surplus” for purposes of determining the Writing Ratio means the Issurer’s
initial New Capital contribution for this Surplus Note and the outstanding
principal balance of the Surplus Note. For all other purposes, Surplus means the
Insurer’s admitted assets less the Insurer’s liabilities and refers to the
entire Surplus of the Insurer.

3.       The Definitions section of the Surplus Note shall be hereby amended as
follows to add the following paragraph (r) effective prospectively beginning on
July 1, 2008.

(r) “Gross Written Premium” means direct Premium plus assumed Premium.

4.       The following paragraphs in the Surplus Note shall be hereby amended
effective prospectively beginning on July 1, 2008 to read as follows:

(3)(e) Writing Ratio: The Insurer represents that it will meet the Minimum
Writing Ratio as defined in Addendum Number One to the Surplus Note effective
prospectively from July 1. 2008 as determined by the Office and certified to the
Board quarterly, beginning with the Quarterly Written Premium Report for the
quarter ending September 30. 2008 due to the Board by November 15, 2008.
 
(3)(f) The Insurer agrees that it will make all quarterly filings using Form SBA
15-3 as mended to the Office. This Form is available on the Board’s website,
www.sbafla.com, under “Insurance Capital Build-Up Incentive Program” then
“Quarterly Written Premium Report.”
 
(4)(d) Repayment Limitations: Any payment of principal or interest by the
Insurer on this Surplus Note must be approved by the Commissioner, who shall
approve the payment unless the Commissioner. determines that such payment will
Substantially Impair the financial condition of the Insurer. If such a
determination is made, the Commissioner shall approve such payment that will not
Substantially Impair the financial condition of the Insurer. The Hoard will seek
approval of payments from the Commissioner and will notify any Insurer if a
payment of principal and/or interest has been disapproved or, if a lower amount
has been approved, the amount by which the usual payment is to be reduced.
Interest shall continue to accrue until paid including during periods when
payment approval has not been granted.
 

5.        Paragraph (5)(a)l in the Surplus Note shall be stricken effective
prospectively beginning on July 1, 2008.

6.        Paragraphs (5)(a)2 and 3 in the Surplus Note shall be hereby amended
effective prospectively beginning on July 1, 2008 to read as follows:

(5)(a)2. Failure to submit quarterly filings of Form SBA 15-3 as amended to the
Office.
 
(5)(a)3. Failure to maintain the Minimum Required Surplus except for situations
involving the payment of Losses resulting from a catastrophic event or a series
of events resulting in catastrophic losses or where Minimum Required Surplus is
reduced as a result of the accounting treatment for deferred acquisition costs
or where the Minimum Required Surplus is reduced as a result of repayment of the
principal on this Surplus Note.

7.        Paragraph (5)(a) in the Surplus Note shall be hereby amended as
follows to add the following sub-paragraph 9 effective prospectively beginning
on July 1.2008:

(5)(a)9. Failure to maintain a level of Surplus and reinsurance sufficient to
cover in excess of the Insurer’s 1-in-100 year probable maximum loss as agreed
to in paragraph (9) of the Surplus Note as amended.

8.        Paragraph (6) in the Surplus Note shall be hereby amended effective
prospectively beginning on July 1, 2008 to read as follows:

(6) Reorganization, Dissolution, or Liquidation: In the event of reorganization,
dissolution, 100% reinsurance or liquidation of Insurer, pursuant to Section 21
5.5595(5), F.S., the Hoard shall be treated as a creditor pursuant to Section
631.271. F.S., for the unpaid principal and interest on this Surplus Note.
 

9.       Paragraphs (9)(a), (b), and (c) Supplemental Agreements shall be
stricken effective prospectively beginning on July 1, 2008.

10.      Paragraph (9)(d) Supplemental Agreements shall be hereby amended
effective prospectively beginning on July 1, 2008 to read as follows:

(9)(d) Increase in interest rate for failure to meet the Minimum Writing Ratio.
(See the Minimum Writing Ratio and Interest Rate Charges Table below).
 

1.        From July 1, 2008 through December 31, 2008, each quarter the
Insurer’s writing ratio based on Net Written Premium to Surplus drops between
.5:1 and 1:1, the Board and the Insurer agree that the interest rate as
specified in provision (4)(b) will be increased by 25 basis points until the 1:l
Net Written Premium to Surplus writing ratio is met. From January 1, 2009
through December 31, 2009, the interest rate will be increased by 25 basis
points each quarter the Net Written Premium to Surplus writing ratio drops
between 1:1 and 1.5: 1 until the 1.5:l ratio is met. Beginning January 1, 2010
and continuing for the term of the Surplus Note, the interest rate will be
increased by 25 basis points each quarter the Net Written Premium to Surplus
writing ratio drops between I .5:1 and 2:l until the 2: 1 ratio is met.

From July 1, 2008 through December 3 1,2008, each quarter the Insurer’s writing
ratio based on Net Written Premium to Surplus drops below .5:l, the Board and
the insurer agree that the interest rate as specified in provision (4)(b) will
be increased by 450 basis points until the .5:1 Net Written Premium to Surplus
writing ratio is met. From January 1, 2009 through December 31, 2009, the
interest rate will he increased by 450 basis points each quarter the Net Written
Premium to Surplus writing ratio drops below I:I until the 1:1 ratio is met.
Beginning January 1, 2010 arid continuing for the term of the Surplus Note, the
interest rate will be increased by 450 basis points each quarter the Net Written
Premium to Surplus writing ratio drops below 1.5:l until the 1.5:l ratio is met.

2.         From July 1, 2008 through December 31, 2008, each quarter the
Insurer’s writing ratio based on Gross Written Premium to Surplus drops between
2: 1 and 3:1, the Board and the Insurer agree that the interest rate as
specified in provision (4)(b) will be increased by 25 basis points until the 3:l
Gross Written Premium to Surplus writing ratio is met. From January 1, 2009
through December 31, 2009, the interest rate will be increased by 25 basis
points each quarter the Gross Written Premium to Surplus writing ratio drops
between 3:l and 4.5:l until the 4.5:l ratio is met. Beginning January 1, 2010
and continuing for the term of the Surplus Note, the interest rate will be
increased by 25 basis points each quarter the Gross Written Premium to Surplus
writing ratio drops between 4.5:l and 6:l until the 6:l ratio is met.

From July 1, 2008 through December 3 1,2008, each quarter the Insurer’s writing
ratio based on Gross Written Premium to Surplus drops below 2:1, the Board and
the Insurer agree that the interest rate as specified in provision (4)(b) will
be increased by 450 basis points until the 2:l Gross Written Premium to Surplus
writing ratio is met. From January 1. 2009 through December 31, 2009, the
interest rate will be increased by 450 basis points each quarter the Gross
Written Premium to Surplus writing ratio drops below 3:l until the 3:l ratio is
met. Beginning January 1, 2010 and continuing for the ten11 of the Surplus Note,
the interest rate will be increased by 450 basis points each quarter the Gross
Written Premium to Surplus writing ratio drops below 4.5:l until the 4.5: 1
ratio is met.

Minimum Writing Ratio and Interest Rate Charges Table

Calendar
Year

Increase
in
Interest
Rate

Net Written
Premium to
Surplus
Ratio Range

Net Written
Premium to
Surplus
Requirement

Gross Written
Premium to
Surplus Ratio
Range

Gross Written
Premium to
Surplus
Requirement

1
7/1/08 -
12/31/08

25 bps

.5:1 < 1:1

1:1

2:1 < 3:1

3:1

450 bps

< .5:1

<2:1

2
1/1/09 -
12/31/09

25 bps

1:1 < 1.5:1

1.5:1

3:1 < 4.5:1

4.5:1

 

450 bps

<1:1

 

<3:1

 

3
1/1/10 -
thereafter

25 bps

1.5:1 < 2:1

2:1

4.5:1 < 6:1

6:1

 

450 bps

<1.5:1

 

< 4.5:1

 

bps = basic points

3.        The Insurer agrees to repay the Surplus Note or that portion of the
Surplus Note such that the Minimum Writing Ratio will be obtained the following
quarter if conditions a, and b. below exists provided that the Insurer is
capable of repayment without creating a financially hazardous condition. The
Board will consult with the Office in order to avoid financially hazardous
issues and, as a result, may direct the Insurer to follow an alternative
accelerated repayment plan acceptable to the Office.

a.        The issurer’s writing ratio based on Net Written Premium to Surplus
drops below 1:1 for three consecutive quarters beginning January 1, 2010.

b.        The Insurer’s writing ratio based on Gross Written Premium to Surplus
drops below 3:l for three consecutive quarters beginning January 1, 2010.

11.      Paragraph (9)(g) Supplemental Agreements shall be hereby amended
effective prospectively beginning on July 1, 2008 to read as follows:

(9)(g) A late fee in the amount of 5% of the invoiced amount will be charged if
a payment is received five days after the due date. A late fee will not be
charged if it results fi0111 a delay beyond the control of the Issuer arising
from the Office’s disapproval of the payment or delay in issuing approval of the
payment of interest or principal. Late fees may be charged for late payments or
other late remittances.
 

12.      Paragraph (9) Supplemental Agreements shall be hereby amended to add
the following sub-paragraphs (h) and (i) effective prospectively beginning on
July 1, 2008:

(9)(h) Any other surplus notes not issued in conjunction with the Insurance
Capital Build-Up Incentive Program will be subordinated to this Surplus Note.
 
(9)(i) The Insurer agrees to maintain a level of Surplus and reinsurance
sufficient to cover in excess of its 1-in-100 year probable maximum loss, as
determined by a hurricane loss model accepted by the Florida Commission on
Hurricane Loss Projection Methodology as certified by the Office annually.
 

13.      Except as otherwise noted in this Addendum Number One, all the duties,
responsibilities, and obligations agreed to ill the Surplus Note executed on
November 9, 2006 shall continue it1 fill1 force and effect.

IN WITNESS WHEREOF, this Addendum Number One to the Surplus Note has been
executed as of the dates below.
 
We are each, respectively, executive officers of the Insurer and are acting
within our authority in executing this Surplus Note Addendum.
 
Attest to:
 
 

By:

/s/ Bradley I. Meier

 

Bradley I. Meier

 

11/5/08

 

Name

 

Print Name & Title

 

Date

 

STATE OF

Florida

}

 

COUNTY OF

Broward

}

The foregoing instrument was acknowledged before me by Bradley I Meier
personally known to me     X     or who presented an identification
              .
This 5th day of November, 2008.
 

         /s/ Janet Conde          
NOTARY PUBLIC
My Commission Expires June 26, 2011

 

--------------------------------------------------------------------------------

By:

/s/ Sean Downes

 

Sean Downes, COO

 

11/5/2008

 

Name

 

Print Name & Title

 

Date

 

STATE OF

Florida

}

 

COUNTY OF

Broward

}

The foregoing instrument was acknowledged before me by Sean Downes personally
known to me     X     or who presented an identification               .
This 5th day of November, 2008.
 

         /s/ Berluth Wallace          
NOTARY PUBLIC
My Commission Expires: November 1, 2010
 
 
 
The State Board of Administration of Florida
 

By:

 /s/ Ashbel C. Williams  

11/6/08

 

Ashbel C. Williams

 

Date

 

Executive Director & CIO

   

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