Addendum Number One to Insurance Capital Build-Up Incentive Program Surplus Note



 EXHIBIT 10.1 
 ADDENDUM NUMBER ONE 
 to 
 INSURANCE CAPITAL BUILD-UP INCENTIVE PROGRAM SURPLUS NOTE 
 BETWEEN THE STATE
BOARD OF ADMINISTRATION OF FLORIDA AND 
 UNITED 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 September 22, 2006, between United Property & Casualty Insurance Company, (NAIC #10969) and the State Board of Administration of Florida (“Board”) hereby agree to the following amended terms and
conditions. 
 Addendum Number One is not retroactive and does not change any provision of the Surplus Note as executed on
September 22, 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 $20 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. All
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 1, 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 31, 2008, a 4.5:1 ratio for the second calendar year from January 1, 2009 through December 31, 2009, and a 6:1 ratio for the third calendar year beginning on January 1, 2010 and thereafter for the
remaining term of the Surplus Note. 


 (l) “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 Insurer’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 amended 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 

  

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Board 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 (4)(e) in the Surplus Note shall be stricken effective prospectively beginning on July 1, 2008. 


  

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


  

	7.	 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. 
  

	8.	 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. 
  

	9.	 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 215.5595(5), F.S., the Board shall be treated as a creditor pursuant to Section 631.271, F.S., for the unpaid principal and interest on this Surplus Note. 
  

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



  

	11.	 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 



  

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Insurer agree that the interest rate as specified in provision (4)(b) will be increased by 25 basis points until the 1:1 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 1.5:1 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 1.5:1 and 2:1 until the 2:1 ratio
is met. 


 From July 1, 2008 through December 31, 2008, each quarter the Insurer’s writing
ratio based on Net Written Premium to Surplus drops below .5:1, 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 .5:1 Net 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 Net Written Premium to Surplus writing ratio drops below 1:1 until the 1:1 ratio is met. Beginning
January 1, 2010 and 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 1.5:1 until the 1.5:1 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 3:1 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 3:1 and 4.5:1 until the 4.5:1 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 4.5:1 and 6:1 until the 6:1 ratio is met. 


 From July 1, 2008 through December 31, 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 2:1 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 3:1 until the 3:1 ratio is met. Beginning January 1, 2010 and continuing
for the term 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 4.5:1 until the 4.5:1 ratio is met. 
  

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	 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 = basis 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 Insurer’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 3:1 for three consecutive quarters beginning January 1, 2010.



  

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


 (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 from a delay beyond the control of the Insurer 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. 
  

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 (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 in the Surplus Note executed on
September 22, 2006 shall continue in full 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. 
 Attested to: 
  

											
	By: 	 	 	 		  	 	  		 	 
		 	Name	 		  	Print Name & Title	  		 	Date

  

					
	 STATE OF ________________________________
	  	}	  	
	 COUNTY OF ______________________________
	  	}	  	

 The foregoing instrument was acknowledged before me by
                        , personally known to me
             or who presented an identification. 
 This
         day of                     , 2008. 
  

	
	
	  
	NOTARY PUBLIC
	My Commission Expires:

  

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	By: 	 	 	 		  	 	  		 	 
		 	Name	 		  	Print Name & Title	  		 	Date

  

					
	 STATE OF ________________________________
	  	}	  	
	 COUNTY OF ______________________________
	  	}	  	

 The foregoing instrument was acknowledged before me by
                    , personally known to me          or who presented an identification.

 This          day of
                    , 2008. 
  

	
	
	  
	NOTARY PUBLIC
	My Commission Expires:

  

											
	The State Board of Administration of Florida	 		  		  		 	
						
	By: 	 	 	 		  	 	  		 	
		 	     Ashbel C. Williams
	 		  	Date	  		 	
		 	     Executive Director & CIO
	 		  		  		 	

  

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