NO. D-1-GV-12-001713 THE STATE OF TEXAS, IN THE …

COMPANION PROPERTY AND CASUALTY INSURANCE COMPANY’S MOTION FOR THE RELEASE OF WRONGFULLY RESTRAINED THIRD PARTY TRUST FUNDS - Page 1

NO. D-1-GV-12-001713

THE STATE OF TEXAS, Plaintiff, V. GRAMERCY INSURANCE COMPANY, Defendant.

§ § § § § § § § §

IN THE DISTRICT COURT OF

TRAVIS COUNTY, TEXAS

53RD JUDICIAL DISTRICT

COMPANION PROPERTY AND CASUALTY INSURANCE COMPANY’S

MOTION FOR THE RELEASE OF WRONGFULLY RESTRAINED THIRD PARTY TRUST FUNDS

TO THE HONORABLE JUDGE OF SAID COURT:

COMPANION PROPERTY AND CASUALTY INSURANCE COMPANY (“Companion”),

party in interest, submits its Motion for the Release of Wrongfully Restrained Third Party

Trust Funds (the “Motion”).

I. Introduction

1. On December 4, 2012, the State of Texas filed Plaintiff’s Original Petition,

Application for Order Appointing Rehabilitator and Request for Injunctive Relief (the “Petition”).

On that same date, this Court entered an Agreed Order Appointing Rehabilitator and Permanent

Injunction (the "Agreed Order"), placing Defendant, Gramercy Insurance Company

(“Gramercy”), into receivership and appointing the Texas Commissioner of Insurance as

Rehabilitator (the "Rehabilitator"). Rehabilitator designated Resolution Oversight Corporation

as acting Special Deputy Receiver (the "SDR") to act on behalf of Rehabilitator.

2. The Agreed Order permanently enjoined certain named third parties, including

Bank New York Mellon, NA (“BNYM”), as well as numerous categories of third parties, from

taking any action affecting Gramercy’s property, unless authorized by the Rehabilitator.


3. BNYM, as Trustee under a New York Regulation 114 trust agreement, has

possession of certain trust funds, held for the exclusive benefit of the sole trust beneficiary,

Companion. Gramercy has no right, title or interest in the trust funds. The trust funds are not

Gramercy’s property, as defined in TEX. INS. CODE, § 443.004(a)(20), and are not subject to the

permanent injunction contained in the Agreed Order. Nevertheless, SDR instructed BNYM that,

pursuant to the Agreed Order, BNYM is enjoined from releasing any trust funds to Companion,

thereby improperly restraining the release of the trust funds.

II. Relief Sought

4. Companion asks the Court to enter an order confirming that the subject trust

funds are not Gramercy property and are not subject to the Agreed Order, and expressly

authorizing BNYM to release the trust funds to Companion and to otherwise execute its duties

as trustee in accordance with the terms of the trust agreement.

III. Exhibits to the Motion

5. The following Exhibits are attached hereto and incorporated by this reference:

Ex. 1 Affidavit of Gregory Hoeg;

Ex. 2 General Liability Quota Share Reinsurance Agreement;

Ex. 3 Trust Agreement;

Ex. 4 First Amendment to Administrative Agreement;

Ex. 5 Notice of Withdrawal of Trust Assets;

Ex. 6 Copy of N. Y. COMP. CODES R. & REGS. tit. 11, §§ 126.1, et seq. (2000) (commonly known as "Regulation 114");

Ex. 7 New York Office of General Counsel Op. No. 08-10-09 (issued Oct. 27, 2008).

IV. Factual Background

6. In December 2008, Gramercy sought to market, sell, and administer insurance

policies for long term warranties on alternative energy electricity generating equipment,

specifically, solar panels and wind turbines (the “Policies”). At that time, Gramercy’s A.M. Best


rating was insufficient to enable it to insure corporate clients that required higher rated

insurance policies, and Gramercy sought access to insurance policies issued by an “A” rated

company. Gramercy entered into negotiations with Companion, an “A” rated insurer, to “front”

for it. In the arrangement, Companion would issue the Policies, then reinsure the liability

associated with the Policies completely, dollar-for-dollar, with Gramercy.

7. In furtherance of their arrangement, Companion and Gramercy executed a

General Liability Quota Share Reinsurance Agreement (the “Reinsurance Agreement”) (see

Ex. 2), a Trust Agreement (“Trust Agreement”) (see Ex. 3), and a First Amendment to

Administrative Agreement (“Administrative Agreement”) (see Ex. 4).

8. Companion and Gramercy agreed that Gramercy would undertake all the risk

selection, underwriting, pricing and accounting under the program and that Gramercy would use

Kemper Cost Management (“KCM”) as administrator. See Exs. 3 and 4. They further agreed

that Gramercy would fully reinsure Companion on all Policies. See Exs. 2 and 3. Accordingly,

Companion (as reinsured) ceded and Gramercy (as reinsurer) accepted 100% of the risk and

liability under and related to the Policies. See Ex. 2, pp. 2 (Art. 1), 3 (Art.5), 4 (Art.8), 8, and 9.

With regard to any risk relating to the Policies, Gramercy agreed to pay all losses, including not

only losses within the limits of the subject policies, but also all loss adjustment expenses, any

loss amount in excess of the applicable policy limit, and any extra-contractual obligations. See

Ex. 2, Arts. 5, 6 and 7. Gramercy is the sole “Reinsurer.” See Ex. 2, pp. 1, 2 & 9.1

9. To protect policyholders from the credit risk inherent in Gramercy’s credit rating

and to secure its obligations to Companion, Gramercy provided collateral consisting of all

premiums collected on the Policies, less earned premiums due Gramercy and certain specified

commissions and fees (the “Trust Assets”). See, e.g., Ex. 2, p. 9. The collateral was to be

1 Gramercy is also identified as the sole “Subscribing Reinsurer,” subscribed to a “100.00% share of the Interests and Liabilities of the ‘Reinsurers.’” See Ex. 2, p.8.


deposited into a trust account for the sole benefit of Companion (the “Trust Account”).

Accordingly, Companion, Gramercy, and BNYM executed a written trust agreement (the “Trust

Agreement”) establishing a New York Regulation 114 Trust (the “Trust”).2 See Ex. 3. Under the

terms of the Trust Agreement, Gramercy is the “Grantor,” Companion is the sole “Beneficiary,”

and BNYM is the “Trustee.” See Ex. 3, ¶ 1. The express purpose of Trust is for Gramercy “to

secure its obligations to the Beneficiary [Companion]” in connection with the parties’

Reinsurance Agreements and “for the sole benefit of the Beneficiary [Companion].” See Ex. 3,

Recitals A and B. The Trust Agreement also provides that “[t]his Trust Agreement has been

established for the sole use and benefit of the Beneficiary.” See Ex. 3, ¶ 2(a) (emphasis

added).

10. Based upon the most recent Trust accounting provide to Companion by

Gramercy, approximately $26,496,288 of premiums were collected on the Policies. Based upon

the terms of the parties’ agreements, the Trust should currently include trust assets of at least

$16,155,144. Due to Gramercy’s improper accounting and failure to comply with its obligations

under with the terms of the Reinsurance Agreement, including improper payments to itself and

KCM, the Trust balance is approximately $8,901,677, meaning the Trust is underfunded by at

least $7,253,467.3 Additionally, Gramercy failed to pay approximately $289,938 to Companion

for fees and commissions due under the terms of the Reinsurance Agreement.4

11. On November 30, 2012, in response to Gramercy’s ongoing failure to comply

with its obligations under the Reinsurance Agreement and in accordance with the provisions of 2 N. Y. COMP. CODES R. & REGS. tit. 11, §§ 126.1, et seq. (2000), commonly known as "Regulation 114," specifically provides for the creation of reinsurance trusts, such as the one at issue currently, to insure that reinsureds have unrestricted access to collateral placed in trust, regardless of the subsequent financial status of the reinsurer/trust grantor. 3 In light of the Agreed Order and resulting stay per Texas Insurance Code, Chapter 443, this Motion does not seek to recover the Trust deficiency, but rather, addresses only the existing Trust Assets. 4 In light of the Agreed Order and resulting stay per Texas Insurance Code, Chapter 443, this Motion does not seek to recover these outstanding fees and commissions, but rather, addresses only the existing Trust Assets.


the Trust Agreement, Companion delivered to BNYM written notice for the withdrawal of Trust

Assets. See Ex. 5. For reasons not currently known to Companion, BNYM failed to

“immediately take any and all steps necessary to transfer absolutely and unequivocally all right,

title, and interest in the Assets held in the Trust Account to the Beneficiary and deliver physical

custody of such Assets to the Beneficiary to the extent directed in the Withdrawal Notice,” as

required by the Trust Agreement. See Ex. 3, ¶ 3(b). Subsequently, on December 4, 2012, this

Court entered the Agreed Order and, thereafter, at the insistence of SDR, BNYM has refused to

release the Trust Assets to Companion.5

V. Arguments and Authorities

A. The Trust Assets Are Not Gramercy’s Property And Are Not Within The Scope Of The Agreed Order.

12. A trust is a method used to transfer property. See Jameson v. Bain, 693 S.W.2d

676, 680 (Tex. App.—San Antonio 1985, no writ). “[W]hen a valid trust is created, the

beneficiaries become the owners of the equitable or beneficial title to the trust property and are

considered the real owners.” City of Mesquite v. Malouf, 553 S.W.2d 639, 644 (Tex. Civ. App.—

Texarkana 1977, writ ref'd n.r.e.). The trustee is merely the depository of the bare legal title. Id.

The trustee is vested with legal title and right of possession of the trust property but holds it for

the benefit of the beneficiaries, who are vested with equitable title to the trust property.

Jameson, 693 S.W.2d at 680.

13. Pursuant to the Agreed Order, Rehabilitator is vested with “title to all of

Defendant’s property as defined by Tex. Ins. Code § 443.004(a)(20).” See Agreed Order, ¶¶ 2.4

and 3.2. In relevant part, § 443.004(a)(20) defines “[p]roperty of the insurer” to include “all right,

title and interest of the insurer in property, whether legal or equitable . . . .” TEX. INS. CODE,

§ 443.004(a)(20). Rehabilitator took only the rights of Gramercy, but no more. Neither the

5 In support of the facts set forth in Part IV of the Motion, see Ex. 1.


Agreed Order, nor the Texas Insurance Code, create or expand Gramercy’s pre-Petition

property rights regarding the Trust Assets.6 Similarly, neither the Agreed Order, nor the Texas

insurance Code, terminate or reduce the pre-Petition property rights of Companion (the Trust

Beneficiary) regarding Trust Assets.

14. On November 30, 2012, Companion delivered written notice to BNYM, in

compliance with the Trust Agreement, for the withdrawal of all Trust Assets. See Ex. 3, ¶ 3(a),

and Ex. 5. All legal right, title, and interest in the Trust Assets effectively and immediately

vested in Companion, joining the existing equitable right, title, and interest. See Ex. 3, ¶ 3(b).

On the date the Petition was filed, December 4, 2012, Gramercy had no right, title or interest in

the Trust Assets.7

15. For the foregoing reasons, the Trust Assets are not within the scope of property

over which the Agreed Order grants Rehabilitator possession or control. Therefore, neither the

Trust nor BNYM (as Trustee) are subject to the permanent injunction contained in the Agreed

Order, as relates to Companion’s withdrawal of Trust Assets to address risks and liabilities

under the Policies.

B. Companion Has The Exclusive Right To Withdraw And Use Trust Assets, Free Of Any Restraint By Gramercy (Or The Rehabilitator).

16. The purpose of the Trust is to ensure that Companion is not exposed to any risk

on the Policies, and is accomplished by providing readily available funds for Companion’s use in

paying any losses or expenses related to the Policies. See Exs. 2 and 3; see also discussion in

Part IV, ¶¶ 8 and 9, supra. Companion is the sole beneficiary of the Trust. See Ex.3; see also

discussion in Part IV, ¶ 9, supra. Companion has the exclusive right to withdraw and use Trust

6 Notably, “a receivership destroys no prior vested right, nor does it determine any right as between the parties by reason of an existing contract.” First S. Props., Inc. v. Vallone, 533 S.W.2d 339, 343 (Tex. 1976) (citing Ex parte Britton, 127 Tex. 85, 92 S.W.2d 224 (1936)). 7 For the reasons further discussed in Part V.A, infra, Companion contends that Gramercy had no right, title or interest in the Trust Assets even prior to the filing of the Petition.


Assets. Specifically, “[t]he Beneficiary shall have the right to withdraw any or all Assets from the

Trust Account at any time, without notice to the Grantor, upon delivery to the Trustee of a

written withdrawal notice (a ‘Withdrawal Notice’).” See Ex. 3, ¶ 3(a) (emphasis added).

Additionally, “[t]he Trustee shall not allow any withdrawals of Assets from the Trust Account

except upon receipt of a Written Notice from the Beneficiary.” See Ex. 3, ¶ 3(a) (emphasis

added). To ensure Companion’s unfettered access to the Trust Assets, the Trust Assets must

be kept in such form that “the Beneficiary, or the Trustee upon direction of the Beneficiary, may

whenever necessary negotiate any such Assets, without consent or signature from the Grantor

or any other entity.” See Ex. 3, ¶ 2(e) (emphasis added). Also, “[u]pon a receipt of a

Withdrawal Notice, the Trustee shall immediately take any and all steps necessary to transfer

absolutely and unequivocally all right, title, and interest in the Assets held in the Trust Account

to the Beneficiary . . . .” See Ex. 3, ¶ 3(b). Trust Assets cannot be subject to “diminution

because of the insolvency of . . . the Grantor. . . .” See Ex. 3, ¶ 3(d)(1).

17. The protection afforded Companion (and by extension, the insureds under the

Policies) continues even upon termination of the Trust Account. In the event of the termination

of the Trust Account, if Reinsurance Agreement obligations have not been liquidated and

discharged in their entirety, then Companion has the sole authority to “withdraw amounts equal

to such Obligations and deposit such amounts in a separate account, in the name of Beneficiary

[Companion]” for the eventual payment of such Obligations. See Ex. 3 ¶ 3(d)(3). “Obligations”

is defined to include any losses or loss expenses, whether known or unknown, including

reserves for unreported losses and for unearned premiums. See Ex. 3, ¶ 3(d)(3)(i)-(v).

18. The Trust Agreement terms expressly track the provisions of Regulation 114 for

creating a trust agreement to collateralize a reinsurance agreement. See N. Y. COMP. CODES R.

& REGS. tit. 11, § 126.1 et seq. (2000) (a copy attached as Ex. 6, for the Court’s convenience).

The requirement for the beneficiary’s unrestricted access to Regulation 114 trust assets is


clearly and unequivocally expressed in Regulation 114. See e.g., Ex. 6, § 126.2 (trust must be

for sole benefit of beneficiary); § 126.3(d) (beneficiary must have unrestricted right to withdraw

trust assets at any time without notice to or interference by grantor, and not subject to any

conditions or qualifications outside the terms of the trust agreement); § 126.3(e) (trust

established for sole use and benefit of beneficiary); § 126.3(f)(2) (trust assets to be maintained

in such form as to be immediately available to beneficiary on demand); § 126.3(f)(3) (no

withdrawal of trust assets permitted except on written instruction from beneficiary). The

intention and effect of these requirements are well illustrated by an Opinion issued by the Office

of General Counsel on behalf of the New York State Insurance Department. Specifically, to

comply with the purpose of Regulation 114, trust assets must be denominated in U.S dollars,

and not in any foreign currency denomination, because “Regulation 114 is intended to protect

domestic insures that have ceded business to unauthorized reinsurers by affording to cedants

unfettered access to readily liquidatable collateral” and exchange rate requirements would run

counter to this intent. See Ex. 7 (emphasis added). Similarly in the current case, permitting

Rehabilitator/SDR to restrain, in any way, Companion’s access to Trust Assets likewise violates

Regulation 114.

19. For the foregoing reasons, Companion’s access to the Trust Assets should not

be subject to restraint by Gramercy (or Rehabilitator/SDR). Therefore, BNYM, as Trustee of the

Trust, should be free to comply with its obligations and duties in accordance with the terms of

the Trust Agreement.

Prayer

WHEREFORE, PREMISES CONSIDERED, Companion prays that the Court enter an

Order confirming that the Trust Assets are not Gramercy property and are not subject to the

Agreed Order, and expressly authorizing BNYM to release the Trust Assets to Companion


and/or otherwise execute its duties as trustee in accordance with the terms of the Trust

Agreement, as well as award Companion such other relief as may be appropriate.

Respectfully submitted, MUNSCH HARDT KOPF & HARR, P.C. By: /s/ John L. Thompson ______________ John L. Thompson State Bar No. 90001820 3800 Lincoln Plaza 500 N. Akard Street Dallas, Texas 75201-6659 Tel: (214) 855-7500 Fax: (214) 855-7584 [email protected] ATTORNEYS FOR MOVANT COMPANION PROPERTY AND CASUALTY INSURANCE COMPANY

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing has been sent via E-MAIL and C.M.R.R.R. on this 18th day of June, 2013, to the following counsel of record:

Rachel J. Stroud STROUD, MARRERO & WELCH, PLLC 11824 Jollyville Road, Suite 200 · Austin, Texas 78759 Tel: (512) 482-9291 Fax: (512) 482-9211 [email protected] Tom Collins, Special Master c/o Texas Department of Insurance 333 Guadalupe, Tower III, 5th Fl., MC-305-1D Austin, Texas 78701 [email protected]

/s/ John L. Thompson ________________ John L. Thompson

mailto:[email protected]



Original Signed by

Original Signed by

Exhibit 2 (1)

Original Signed by

Exhibit 2 (2)

Exhibit 2 (3)

Exhibit 2 (4)

Exhibit 2 (5)

Exhibit 2 (6)

Exhibit 2 (7)

Exhibit 2 (8)

Exhibit 2 (9)

Original Signed by

Original Signed by

Exhibit 2 (10)

Exhibit 2 (11)

GRAMERCY INSURANCE CO PANY

Thursday, June 04, 2009

Lindsey Bailey Mellon The Forum- Suite 950 3290 Northside Parkway, NW Atlanta, GA 30327

Re: Trust Agreement

Lindsey,

Please find enclosed three copies of the signed and executed Trust Agreement by Gramercy and Companion. Once Greg has been able to sign, will you please be so kind and send one copy back to us for our files and another copy to Kevin Elmore at Companion for his files. Kevin's contact information is:

Kevin Elmore, CPCU, ARe Companion Property & Casualty Insurance Company

51 Clemson Road Columbia, SC 29229

Thank you and please let me know if you have any questions.

Kind regards,

Misty

Misty Reid Executive Assistant Gramercy Insurance Company P) 770-903-6226

31 09 Crossing Pork Rood Norcross, Georgia 30071 telephone 888.202.0422 fox 770.903.6228

Exhibit 3 (1)

Original Signed by

TRUST AGREEMENT

This Trust Agreement (the "Trust Agreement") is made and entered into as of this _1_ day of ~&~~~ E- , 2009_ among Companion Properly and Casualty Insurance Company, a South Carolina domiciled company (the "Beneficiary"), Gramercy Insurance Company a Texas domiciled company (the "Grantor") and BNY Mellon. NA as Trustee (the "Trustee").

RECITALS

A. The Beneficiary has entered into the reinsurance agreements listed on Exhibit A hereto (the "Reinsurance Agreements"), and the Grantor desires to secure its obligations to the Beneficiary in connection with such Reinsurance Agreements as provided in this Trust Agreement.

B. The Grantor desires to establish this Trust Agreement for the sole benefit the Beneficiary.

C. The Trustee desires to serve as Trustee in accordance with the terms and conditions set forth in this Trust Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Beneficiary, the Grantor, and the Trustee agree as follows:

1. Definitions. The following terms shall have the following meanings for all purposes of this Trust Agreement:

"Assets" means any assets deposited into the Trust Account by the Grantor, and shall consist only of Permitted Investments, but shall not mean or include any interest, dividends, or investment earnings thereon.

"Beneficiary" means Companion Property & Casualty Insurance Company and any successor of the Beneficiary by operation of law, including, without limitation, any liquidator, rehabilitator, receiver, or conservator.

"Grantor" means Gramercy Insurance Company and any successor of the Grantor.

"Income Account" means the account created and established with the Trustee pursuant to Section 4(c) hereof.

"Permitted Investments" means cash (United States legal tender), certificates of deposit (issued by a United States bank and payable in United States legal tender), and investments of the types specified in paragraphs (1 ), (2), (3), (8) and (10) of subsection (a) of section 1404 of the New York Insurance

1 Exhibit 3 (2)

Law, provided that such investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Grantor or the Beneficiary.

"Reinsurance Agreements" or "Reinsurance Agreement" means the reinsurance agreements or agreement identified on Exhibit A hereto.

"Termination Date" means the date this Trust Agreement shall be deemed terminated pursuant to the provisions of Section 8(a) hereof.

• "Trust Account" means the trust account created and established with the

Trustee pursuant to Section 2(b) hereof.

"Trustee" means BNY Mellon, NA or any successor serving as Trustee hereunder in accordance with Section 7(d) hereof.

2. Deposit of Assets.

(a) This Trust Agreement has been established for the sole use and benefit of the Beneficiary.

(b) There is hereby created and established by the Grantor with the Trustee a trust account (the "Trust Account") into which all assets to be deposited hereunder (the "Assets") shall be received and held by the Trustee.

(c) Upon execution of this Trust Agreement, the Grantor shall transfer to the Trustee, for deposit in the Trust Account, the Assets listed on Exhibit B hereto, and may transfer to the Trustee, for deposit to the Trust Account, such other Assets as it may from time to time desire.

(d) All Assets deposited with the Trustee shall be held in the Trust Account by the Trustee in a safe place at the Trustee's offices in The United States of America, including in any book-entry accounts maintained by the Trustee with any Federal Reserve Bank or with any nationally recognized securities depository such as the Depository Trust Company or the Participants Trust Company. Assets may be held in the name of a nominee maintained by the Trustee.

(e) Upon receipt of any Assets, the Trustee shall determine that the Assets are in such form that the Beneficiary or the Trustee, upon direction of the Beneficiary may, whenever necessary, negotiate any such Assets, without consent or signature from the Grantor or any other person or entity. The Grantor covenants and agrees that prior to depositing any Assets with the Trustee, it will have executed assignments, endorsements in blank, or transferred legal title to the Trustee of all shares, obligations, or any other Assets requiring assignments, in order that the Beneficiary, or the Trustee upon the direction of the Beneficiary, may whenever necessary negotiate any such Assets without consent or signature from the Grantor or any other entity.

2 Exhibit 3 (3)

(f) The Trustee shall notify the Grantor and the Beneficiary, within 1 0 days, of any deposit of Assets into the Trust Account.

(g) The Trustee shall furnish to the Grantor and the Beneficiary a statement of all Assets held in the Trust Account upon inception of this Trust Agreement and at intervals no less frequent than the end of each calendar quarter thereafter.

3. Withdrawal of Assets.

(a) The Beneficiary shall have the right to withdraw any or Assets from the Trust Account at any time, without notice to the Grantor, upon delivery to the Trustee of a written withdrawal notice (a "Withdrawal Notice"). No other statement or document need be presented by the Beneficiary in order to withdraw Assets from the Trust Account. The Trustee shall not allow any withdrawals of Assets from the Trust Account except upon receipt of a Withdrawal Notice from the Beneficiary.

(b) Upon a receipt of a Withdrawal Notice, the Trustee shall immediately take any and all steps necessary to transfer absolutely and unequivocally all right, title, and interest in the Assets held in the Trust Account to the Beneficiary and deliver physical custody of such Assets to the Beneficiary to the extent directed in the Withdrawal Notice. The Trustee shall be protected in relying upon any written demand of the Beneficiary for such withdrawal.

(c) The Trustee shall notify the Grantor and the Beneficiary, within 10 days, of any withdrawal of Assets from the Trust Account.

(d) The Beneficiary shall undertake to use and apply any amounts withdrawn from the Trust Account, without diminution because of the insolvency of the Beneficiary or the Grantor, for the following purposes:

(1) To pay or reimburse the Beneficiary for the Grantor's share under the specific Reinsurance Agreement regarding any losses and allocated loss expenses paid by the Beneficiary but not recovered from the Grantor or for unearned premiums due to the Beneficiary, if not otherwise paid by the Grantor in accordance with the terms of such Reinsurance Agreement;

(2) To make payment to the Grantor of any amounts held in the Trust Account that exceed 1 02 percent of the actual amount required to fund the Grantor's entire Obligations under the specific Reinsurance Agreement; or

(3) Where the Beneficiary has received notification of termination of the Trust Account, and where the Grantor's

3 Exhibit 3 (4)

entire Obligations under the specific Reinsurance Agreement remain unliquidated and undischarged 1 0 days prior to the Termination Date, to withdraw amounts equal to such Obligations and deposit such amounts in a separate account, in the name of the Beneficiary, in any United States bank or trust company, apart from its general assets, in trust for such uses and purposes specified in paragraphs (1) and (2) of this subdivision as may remain executory after such withdrawal and for any period after such Termination Date.

"Obligations" within the meaning of this subparagraph (d) shall include:

(i.) Losses and allocated loss expenses paid by the Beneficiary, but not recovered from the Grantor;

(ii.) Reserves for losses reported and outstanding;

(iii.) Reserves for losses incurred but not reported;

(iv.) Reserves for allocated loss expenses; and

(v.) Reserves for unearned premiums.

(e) The Trustee shall have no responsibility to determine whether any Assets withdrawn from the Trust Account have been or will be used and applied as provided in this Trust Agreement.

4. Investment and Substitution of Assets.

(a) The Trustee shall, at the prior written direction of the Grantor or the Grantor's designated investment advisor, invest Assets held in the Trust Account in Permitted Investments. Any deposit or investment directed by the Grantor or its designated investment advisor shall constitute a certification to the Trustee that the assets deposited or to be purchased pursuant to such directions are Permitted Investments. The Trustee shall be under no duty or responsibility to confirm that such investments constitute or continue to be Permitted Investments.

(b) The Trustee shall, at the written direction of the Grantor or its designated investment advisor, but only with the prior written approval of the Beneficiary, accept substitutions of any Assets held in the Trust Account. The Trustee shall not allow any other substitutions of Assets in the Trust Account. The Trustee shall have no responsibility whatsoever to determine the value of such substituted securities or that such substituted securities constitute Permitted Investments.

4 Exhibit 3 (5)

(c) The Grantor shall have the full and unqualified right to vote any shares of stock held by the Trustee in the Trust Account and to receive from time to time payments of any dividends or interest upon any shares of stock or obligations included in the Trust Account. Any such interest or dividends received by the Trustee shall be deposited by the Trustee in a separate account established in the Grantor's name (the "Income Account"). Subject to Section 6(c) hereof, the Trustee shall disburse funds held in the Income Account at the written direction of the Grantor. Any interest, dividends, or other income automatically posted on the payment date to the Income Account which is not subsequently received by the Trustee shall be reimbursed by the Grantor to the Trustee and the Trustee may debit the Income Account for this purpose.

(d) Assets deposited and held in the Trust Account shall be valued according to their current fair market value.

(e) The Grantor represents and warrants to the Trustee and the Beneficiary that any Assets delivered to the Trustee shall consist only of Permitted Investments, and that the Grantor, and its designated investment advisor, shall direct and instruct the Trustee in writing to invest any funds held in the Trust Account or the Income Account only in Permitted Investments.

(f) The Trustee shall have no responsibility or liability to the Grantor, the Beneficiary, or to any other person or entity for any investment losses resulting from any investment of Assets made in accordance with the terms of this Trust Agreement. Any loss incurred from any investment shall be borne exclusively by the Trust Account.

(g) The Trustee shall not be responsible for any act or omission, or for the solvency, of any designated investment advisor of the Grantor.

(h) Notwithstanding the requirements of Section 1 0 hereof, the Trustee is authorized to accept and act upon any investment direction from the Grantor or its designated investment advisor delivered electronically in accordance with generally accepted and standard practices in the financial services industry, including investment instructions delivered via the SWIFT or DTC 10 systems.

5. Concerning the Trustee. The Trustee hereby accepts the trusts imposed upon it by this Trust Agreement and agrees to perform said trusts, but only upon and subject to the following terms and conditions:

(a) The Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Trust Agreement and no implied duties or obligations shall be read into this Trust Agreement against the Trustee.

(b) No provision in this Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the

5 Exhibit 3 (6)

performance of any of its duties hereunder, or in the exercise of any of its rights or powers.

(c) The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder either directly or by or through attorneys or agents and shall be entitled to rely on advice of or on an opinion of counsel concerning all matters of trust and its duty hereunder, and shall not be liable for any action taken or not taken by it in reliance on such advice or on such opinion counsel.

(d) The Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution notice, request, consent, certificate, order, entitlement order, affidavit, letter, telegram, facsimile transmission, electronic mail, or other paper or document believed by it to be genuine and to have been signed or sent by the proper person or persons. The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, notice, consent, request, certificate, order, entitlement order, affidavit, letter, telegram, facsimile transmission, electronic mail, or other paper or document.

(e) The permissive right of the Trustee to do things enumerated in this Trust Agreement shall not be construed as a duty and it shall not be answerable for other than its negligence, willful misconduct, or lack of good faith. In no event shall the Trustee be liable for indirect, special, incidental, punitive, or consequential losses or damages, including but not limited to lost profits, whether or not foreseeable, even if the Trustee has been advised of the possibility thereof.

(f) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the matters referred to in this Trust Agreement.

(g) The Trustee shall not be accountable for the use or application by the Grantor or the Beneficiary or any other party of any funds or Assets which the Trustee has released in accordance with the terms of this Trust Agreement.

(h) The Trustee makes no representations as to the validity or sufficiency of the Assets and the Trust Account for any particular purpose and shall incur no responsibility in respect thereof, other than in connection with the duties or obligations assigned to or imposed upon it as provided herein.

(i) The Trustee shall not be responsible for the perfection, priority, or enforceability of any lien or security interest in any of the Assets or in the Trust Account.

0) In accepting the trusts hereby created, the Trustee acts solely as Trustee and not in its individual capacity and all persons having any claim against the Trustee arising from this Trust Agreement, shall look only to the funds

6 Exhibit 3 (7)

and accounts held by the Trustee hereunder for payment except as otherwise provided herein.

(k) The Trustee shall not be considered breach of or in default in its obligations hereunder in the event of delay in the performance of such obligations due to unforeseeable causes beyond its control (including, but not limited to, any act or provision of any present or future law or regulation or governmental authority, any act of God or war, civil unrest, local or national disturbance or disaster, any act of terrorism, or the unavailability of the Federal Reserve Bank wire or other wire or communication facility) or without its willful misconduct or negligence.

(I) Any corporation or association into which the Trustee may be merged or converted, or with which it may be consolidated, or to which it may sell or transfer all or substantially all of its corporate trust business (provided that such company shall be eligible under Section 7(a) hereof) shall be the successor to the Trustee without the execution or filing of any paper or further act.

(m) The Trustee shall accept and open all mail directed to Grantor or the Beneficiary in care of the Trustee.

(n) Upon the written request of the Grantor or the Beneficiary, the Trustee shall promptly permit the Grantor or the Beneficiary, their respective agents, employees, or independent auditors to examine, audit, excerpt, transcribe, and copy, during the Trustee's normal business hours, any books, documents, papers, and records relating to the Trust Account or the Assets.

(o) No provision of this Trust Agreement shall require the Trustee to take any action that in the Trustee's reasonable judgment would result in any violation of this Trust Agreement or applicable law.

(p) If, during the administration of the provision of this Trust Agreement, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action to be taken hereunder, then such matter shall be deemed to be conclusively proved and established by a certificate signed by the Beneficiary's or Grantor's officers, as the case may be, and delivered to the Trustee. The Trustee shall not be liable for any action taken, suffered, or omitted by it in reliance on such certificate.

6. Fees. Charges. and Expenses of Trustee; Indemnification of Trustee.

(a) The Trustee shall: (i) receive fees for its services at rates determined by the Trustee and communicated in writing to the Grantor from time to time; and (ii) be paid or reimbursed for any expenses (including reasonable fees and expenses of its counsel) incurred in connection with the regular administration of this Trust Agreement. All such amounts shall be paid by Grantor. The fees and charges set forth above for the Trustee's services will be

7 Exhibit 3 (8)

considered compensation for its ordinary services as contemplated by this Trust Agreement. The Trustee's compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust.

(b) In consideration of the Trustee's acceptance of this Trust Agreement, or if any controversy arises in connection with it, or if the Trustee renders any service not provided for in this Trust Agreement, the Grantor and the Beneficiary shall, jointly and severally, reasonably compensate the Trustee for such extraordinary services, reimburse the Trustee for all reasonable costs, attorneys' fees, and expenses occasioned thereby, and indemnify, defend, and hold the Trustee (and its directors, officers, and employees) harmless from and against any loss, liability, damage, cost, and expense of any nature arising out of or in connection with this Trust Agreement or with the performance of its duties hereunder, including, among other things, reasonable attorneys' fees and court costs, except to the extent such loss, liability, damage, cost, and expense shall be caused by the Trustee's own negligence, willful misconduct, or lack of good faith.

(c) The Trustee shall have a first lien, and shall be entitled to deduct its compensation and expenses, on any funds held in the Income Account to secure the payment of any amounts owing to it under this Section 6; provided, however, in no event shall the Trustee have a lien on or be able to invade the corpus of the Assets or the Trust Account for the purpose of paying compensation to, or reimbursing the expenses of, the Trustee. The Grantor and the Beneficiary acknowledge that the rights and indemnities of the Trustee set forth in this Section 6 shall survive the resignation or removal of the Trustee or the termination of this Trust Agreement.

7. Trustee Qualifications. Resignation. and Removal.

(a) The Trustee and any successor thereto shall be a member of the Federal Reserve System, or a New York State-chartered bank or trust company. The Trustee shall not be a parent, subsidiary, or affiliate of the Grantor or the Beneficiary.

(b) The Trustee may resign upon delivery of a written notice of resignation, effective not less than 90 days after receipt by the Beneficiary and the Grantor of such written notice.

(c) The Trustee may be removed by the Grantor by delivery to the Trustee and the Beneficiary of written notice of removal, effective not less than 90 days after receipt by the Trustee and the Beneficiary of such written notice.

(d) No resignation or removal of the Trustee shall be effective hereunder until a successor trustee has been duly appointed and approved by the Beneficiary and the Grantor, all Assets in the Trust Account have been duly

8 Exhibit 3 (9)

transferred to the successor Trustee and all outstanding fees and expenses of the Trustee are paid to the Trustee in full.

8. Termination.

(a) This Trust Agreement may be terminated by either the Grantor or the Beneficiary delivering written notice to the Trustee and the other party of its intention to terminate the Trust Agreement and specifying a proposed termination date (the "Termination Date"), which notice shall be delivered to the Trustee not less than 45 days prior to the proposed Termination Date. Upon receipt of such written notice, the Trustee shall, at least 30 days, but not more than 45 days, prior to the Termination Date, deliver written notification of such termination to the Grantor and Beneficiary.

(b) Upon termination of the Trust Agreement, all Assets not previously withdrawn by the Beneficiary shall, at the prior written direction and approval of the Beneficiary, be delivered by the Trustee to the Grantor.

9. Tax-Related Terms.

(a) Grantor and Beneficiary agree that, for tax reporting purposes, all interest or other income earned from the investment of the Assets in any tax year shall be allocated to Grantor.

(b) Grantor agrees to provide the Trustee with its tax identification number by signing and returning a Form W-9 (or Form W-8, in case of non-US persons) to the Trustee prior to the date on which any income earned on the investment of the Assets is credited to the Income Account. Grantor understands that, in the event its tax identification number is not provided to the Trustee, the Internal Revenue Code, as amended, may require withholding of a portion of any interest or other income earned on the investment of the Assets.

1 0. Notices.

(a) Any notice or communication required or permitted by this Trust Agreement shall be deemed sufficiently given if in writing and, if delivered personally, when it is delivered or, if delivered in another manner, the earlier of when it is actually received by the party to which it is directed, or when the period set forth below expires (whether or not it is actually received); provided, however, that, notwithstanding the foregoing, any notice or communication to the Trustee shall be deemed sufficiently given only upon Trustee's receipt thereof, provided further, that confirmation of receipt by the means provided below shall establish receipt the Trustee:

9 Exhibit 3 (10)

(1) If transmitted by telecopier, telex, or facsimile transmission, 24 hours after: (i) transmission to the party's fax number set forth below, with the party's name and address set forth below clearly shown on the page first transmitted; and (ii) receipt by the transmitting party of written confirmation of successful transmission, which confirmation may be produced by the transmitting party's equipment;

(2) If deposited with the US Postal Service, postage prepaid, and addressed to the party to receive it as set forth below, (i) four days after such deposit as registered or certified mail if addressed to a location in the US, or (ii) ten days after such deposit as registered or certified airmail if addressed to a location outside of the US; or

(3) If sent by Federal Express, or a similar delivery service in general usage for delivery to the address of the party to receive it as set forth below, 24 hours after the delivery time confirmed by the delivery service:

If to Grantor: Gramerc~ Insurance Come,an!{ 5000 Quorum Drivez Suite 111 Dallas, TX 75254 Phone: 1-888-202-0422 Fax: 972-233-6252 Attn: Todd M. Came_bell

If to Beneficiary: Companion Property & Insurance Company 51 Clemson Road Columbia, SC 29229 Phone: 1-800-922-1282 Fax: 1-800-27 4-497 4 Attn: Curtis C. Stewart

If to Trustee: BNY Mellon, NA The Forum, Suite 950 3290 Northside Parkway, N. W. Atlanta, GA 30327 Phone: 678-538-2073 Fax: 678-538-2070 Attn: Gregory L. Watkins

or to such other address as a party to whom notice is to be given has furnished to the other parties in the manner provided above. Payments by the Trustee from the Trust Account shall be sent by mail in the manner set

10

Casualty

Exhibit 3 (11)

forth above, addressed to Beneficiary in the case of payments to Beneficiary, or Grantor, in the case of payments to Grantor, unless the Trustee is otherwise directed in writing. Payments may also be made by wire transfer pursuant to instructions received in writing by the Trustee.

(b) Grantor and Beneficiary each agree to provide to, and maintain on file with, the Trustee a current incumbency certificate containing the specimen signature of all persons duly authorized by it to sign and act on its behalf under this Trust Agreement. The Trustee is authorized to follow and rely upon all instructions given by officers named in incumbency certificates furnished to the Trustee from time to time by the Grantor and the Beneficiary, respectively, and by the attorneys-in-fact acting under written authority furnished to the Trustee by the Grantor or Beneficiary, including, without limitation, instructions given by letter, facsimile transmission, or approved electronic media, if the Trustee believes such instructions to be genuine and to have been signed, sent, or presented by the proper party or parties. The Trustee shall not incur any liability to anyone resulting from actions taken by the Trustee in reliance in good faith on such instructions.

11 . Miscellaneous.

(a) This Trust Agreement is not subject to any conditions or qualifications outside of this Trust Agreement.

(b) This Trust Agreement shall be subject to and governed by the laws of the State of New York.

(c) Except as otherwise provided herein, neither this Trust Agreement nor any rights or obligations under this Trust Agreement may be assigned, hypothecated, or otherwise transferred by any party without the prior written consent of the other parties hereto.

(d) This Trust Agreement will be binding upon and inure to the benefit of the respective successors and permitted assigns of the parties hereto. The provisions of this Trust Agreement are for the sole benefit of the parties hereto, and their successors and permitted assigns.

(e) This Trust Agreement may be executed in one or more counterparts, each of which shall be deemed an original instrument and all of which together will constitute one and the same instrument. The exchange of copies of this Trust Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Trust Agreement as to the parties and may be used in lieu of the original for all purposes. Signatures of parties transmitted by facsimile shall be deemed to be their original signatures for any purpose whatsoever.

11 Exhibit 3 (12)

(f) Neither this Trust Agreement nor any prov1s1on hereof may be amended, waived, or modified without the prior written approval of all of the parties to this Trust Agreement. No course of conduct shall constitute a waiver of any of the terms and conditions of this Agreement, unless such waiver is specified in writing, and then only to the extent so specified. A waiver of any of the terms and conditions of this Trust Agreement on one occasion shall not constitute a waiver of the other terms of this Trust Agreement, or of such terms and conditions on any other occasion.

(g) Any provision of this Trust Agreement which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and such invalidity or unenforceability shall not invalidate or render unenforceable such provision.

(h) EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) IN ANYWAY ARISING OUT OF OR RELATED TO THIS TRUST AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THIS TRUST AGREEMENT.

Remainder of page intentionally left blank

12 Exhibit 3 (13)

IN WITNESS WHEREOF, the parties have caused this Trust Agreement to be executed as of the date first written above.

GRANTOR

Gramercy lnsurance,.Company

Name: pbelll~ Title: President/CEO

BENEFICIARY

TRUSTEE

Signature Page to Trust Agreement

13 Exhibit 3 (14)

Original Signed by

Original Signed by

Original Signed by

Exhibit A

LIST OF REINSURANCE AGREEMENTS

14 Exhibit 3 (15)

Exhibit B

LIST OF ASSETS TO BE DEPOSITED, WHICH MUST CONSIST ONLY OF PERMITTED INVESTMENTS

The below investments will be placed in the portfolio to secure the obligations in the Agreement.

Asset Allocation:

Cash/Liquidity: Five percent (5%) of the Portfolio's assets will be maintained in cash or cash equivalent investments.

Fixed Income: Investments in fixed income issues shall make up ninety-five to onehundred percent (95% - 1 00%) of the Portfolio's assets.

Cash Equivalent Investments:

1. Allowable Categories of Investments (Payable in United States legal tender):

• U.S. Treasury Bills • Short-term U.S. Treasury/Federal Agency obligations • Repurchase Agreements of U.S. Treasury and/or Federal Agency Securities • Money Market Funds with a minimum rating of Aa/AA by Moody's and S&P • Certificates of Deposit (Issued by United States Banks) • Cash

2. Investment Restrictions/Diversification:

• The maximum amount that may be invested in the securities of an individual issuer with the exception of U.S. Treasury and U.S. Federal Agency obligations is five percent (5%) of the assets of the portfolio.

Fixed Income Investments:

1. In compliance with section 1404 of the New York Insurance Law, with the exception of U.S. Treasury and U.S. Federal Agency obligations, the securities of any one issuer shall not exceed five percent (5%) of the portfolio's assets.

2. Allowable Categories of Investments (1404 of NY Insurance Law allows investments of the types specified in paragraphs (1) and (2), specifically (Payable in United States legal tender):

• U.S. Treasury • Federal Agency • Federally Insured Certificates of Deposit • Corporate debt obligations • Municipal Bonds

15

Exhibit 3 (16)

3. Maturity:

Fixed income maturities shall be of short to intermediate maturity. No holding of fixed income securities should have maturities in excess of 1 0 years and the average maturity of all fixed income holdings should not exceed 5 years.

4. Investment Restrictions/Diversification:

• Corporate obligations are restricted to a minimum rating in the AlA category from Moody's and/or S&P respectively.

• Municipal obligations, which includes states, counties, cities, districts and other political subdivisions shall require a minimum rating in the AlA category from Moody's and/or S&P respectively.

• The average quality of the portfolio will remain Aa/ AA or above. • Security derivatives, limited partnerships, options and futures contracts are

strictly prohibited.

16

Exhibit 3 (17)

Exhibit 4 (1)

Exhibit 4 (2)

Original Signed by

Original Signed by

Original Signed by

Exhibit 4 (3)

Exhibit 4 (4)

Exhibit 4 (5)

Exhibit 4 (6)

Exhibit 4 (7)

Exhibit 4 (8)

Exhibit 4 (9)

Exhibit 4 (10)

Exhibit 4 (11)

Exhibit 4 (12)

Exhibit 4 (13)

Exhibit 4 (14)

Exhibit 4 (15)

Exhibit 4 (16)

Exhibit 4 (17)

Exhibit 4 (18)

Exhibit 4 (19)

Exhibit 4 (20)

Exhibit 4 (21)

Exhibit 4 (22)

Exhibit 4 (23)

Original Signed by

Original Signed by

Exhibit 4 (24)

Exhibit 5 (1)

Original Signed by

Exhibit 5 (2)

Section 126.1. Purpose, 11 NY ADC 126.1

© 2013 Thomson Reuters. No claim to original U.S. Government Works. 1

Compilation of Codes, Rules and Regulations of the State of New York CurrentnessTitle 11. Insurance Department

Chapter IV. Financial Condition of Insurers and Reports to SuperintendentSubchapter D. Reinsurance

Part 126. Trust AgreementsRegulation No. 114. (Refs & Annos)

11 NYCRR 126.1

Section 126.1. Purpose

The department has recently reviewed the various conditions it has required in connection with the use of trust agreements and,by means of this Part, informs all licensed insurers that such agreements will not be acceptable to the department unless theymeet certain required conditions.

CreditsSec. filed Nov. 8, 1984 eff. Nov. 30, 1984.

Current with amendments included in the New York State Registers, Volume XXXV, Issue 24, dated June 12, 2013.

11 NYCRR 126.1, 11 NY ADC 126.1

End of Document © 2013 Thomson Reuters. No claim to original U.S. Government Works.

Exhibit 6 (1)

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Section 126.2. Definitions, 11 NY ADC 126.2





11 NYCRR 126.2

Section 126.2. Definitions

As used in this Part, the following terms shall have the following meanings:

(a) Beneficiary means the entity for whose sole benefit the trust has been established. The trust agreement shall contain aprovision that includes within the term beneficiary any successor of the beneficiary by operation of law, including, withoutlimitation, any liquidator, rehabilitator, receiver or conservator. When established in conjunction with a reinsurance agreement,the beneficiary is the licensed ceding insurer.

(b) Grantor means the entity that has established a trust for the sole benefit of the beneficiary. When established in conjunctionwith a reinsurance agreement, the grantor is the unlicensed, unaccredited reinsurer.

CreditsSec. filed Nov. 8, 1984; amd. filed March 14, 1988 eff. April 6, 1988. Amended (a)--(b), repealed (c).


11 NYCRR 126.2, 11 NY ADC 126.2


Exhibit 6 (2)







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Section 126.3. Required conditions, 11 NY ADC 126.3





11 NYCRR 126.3

Section 126.3. Required conditions

(a) The agreement must be in the form of a trust agreement made and entered into among the beneficiary, the grantor and abank. The bank must be either a member of the Federal Reserve System, or a New York State-chartered bank or trust company.Such bank shall be designated the trustee and shall not be a parent, subsidiary or affiliate of the grantor or the beneficiary.

(b) The trust agreement must create a trust account into which assets shall be deposited.

(c) All assets in the trust account must be held by the trustee at the trustee's office in the United States, except that a bank mayapply for the superintendent's permission to use a foreign branch office of such bank as trustee for trust agreements establishedpursuant to subdivision (k) of this section. If the superintendent approves the use of such foreign branch office as trustee, thenits use must be approved in writing by the beneficiary and the trust agreement must provide that the written notice describedin paragraph (d)(1) of this section must also be presentable, as a matter of legal right, at the trustee's principal office in theUnited States.

(d) The trust agreement must be clean and unconditional, in that:

(1) the trust agreement must stipulate that the beneficiary shall have the right to withdraw assets from the trust account atany time, without notice to the grantor, subject only to written notice from the beneficiary to the trustee;

(2) no other statement or document need be presented in order to withdraw assets, except the beneficiary may be requiredto acknowledge receipt of withdrawn assets;

(3) the trust agreement must indicate that it is not subject to any conditions or qualifications outside of the trust agreement;

(4) the trust agreement cannot contain references to any other agreements or documents; and

(5) no reference shall be made to the fact that these funds may represent reinsurance premiums or that such funds havebeen deposited for any specific purpose.

(e) The trust agreement must be established for the sole use and benefit of the beneficiary.

Exhibit 6 (3)







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(f) The trust agreement must provide for the trustee to:

(1) receive assets and hold all assets in a safe place;

(2) determine that all assets are in such form that the beneficiary or the trustee, upon direction by the beneficiary may,whenever necessary, negotiate any such assets, without consent or signature from the grantor or any other person or entity;

(3) furnish to the grantor and the beneficiary a statement of all assets in the trust account upon its inception and at intervalsno less frequent than the end of each calendar quarter;

(4) notify the grantor and the beneficiary, within 10 days, of any deposits to or withdrawals from the trust account;

(5) upon written demand of the beneficiary, immediately take any and all steps necessary to transfer absolutely andunequivocably all right, title and interest in the assets held in the trust account to the beneficiary and deliver physicalcustody of such assets to such beneficiary; and

(6) allow no substitutions or withdrawals of assets from the trust account, except on written instructions from thebeneficiary. This requirement shall not be deemed to prohibit substitutions permitted by section 126.4(c) of this Part.

(g) The trust agreement must provide that at least 30 days, but not more than 45 days, prior to termination of the trust account,written notification of termination shall be delivered by the trustee to the beneficiary.

(h) The trust agreement must be made subject to and governed by the laws of the State of New York, except that, when thebeneficiary is a licensed foreign insurer, such insurer's state of domicile may be substituted for New York.

(i) The trust agreement must prohibit invasion of the trust corpus for the purpose of paying compensation to, or reimbursingthe expenses of, the trustee.

(j) The trust agreement must provide that the trustee shall be liable for its own negligence, willful misconduct or lack of goodfaith.

(k) Notwithstanding the provisions of paragraphs (d)(3), (4) and (5) of this section or section 126.5(a)(5) of this Part, when atrust agreement is established in conjunction with a reinsurance agreement covering risks other than life, annuities and accidentand health, where it is customary practice to provide a trust agreement for a specific purpose, then such trust agreement mayprovide that the ceding company shall undertake to use and apply any amounts drawn upon the trust account, without diminutionbecause of the insolvency of the ceding company or the reinsurer, for the following purposes:

(1) to pay or reimburse such ceding company for the reinsurer's share under the specific reinsurance agreement regardingany losses and allocated loss expenses paid by the ceding company but not recovered from the reinsurer or for unearnedpremiums due to the ceding company, if not otherwise paid by the reinsurer in accordance with the terms of such agreement;

Exhibit 6 (4)



(2) to make payment to the reinsurer of any amounts held in the trust account that exceed 102 percent of the actual amountrequired to fund the reinsurer's entire “obligations” under the specific reinsurance agreement; or

(3) where the ceding company has received notification of termination of the trust account, and where the reinsurer'sentire “obligations” under the specific reinsurance agreement remain unliquidated and undischarged 10 days prior to suchtermination date, to withdraw amounts equal to such obligations and deposit such amounts in a separate account, in thename of the ceding company, in any United States bank or trust company, apart from its general assets, in trust for suchuses and purposes specified in paragraphs (1) and (2) of this subdivision as may remain executory after such withdrawaland for any period after such termination date. “Obligations” within the meaning of this subdivision shall include:

(i) losses and allocated loss expenses paid by the ceding company, but not recovered from the reinsurer;

(ii) reserves for losses reported and outstanding;

(iii) reserves for losses incurred but not reported;

(iv) reserves for allocated loss expenses; and

(v) reserves for unearned premiums.

The provisions to be included in the trust agreement pursuant to this subdivision may, in lieu thereof, be includedin the underlying reinsurance agreement.

CreditsSec. filed Nov. 8, 1984; amd. filed March 14, 1988 eff. April 6, 1988. Amended (c), (f) and (k). Amd. filed July 12, 2000 eff.Aug. 2, 2000. Amended (a).


11 NYCRR 126.3, 11 NY ADC 126.3


Exhibit 6 (5)

Section 126.4. Permitted conditions, 11 NY ADC 126.4





11 NYCRR 126.4

Section 126.4. Permitted conditions

(a) The trust agreement may provide that the trustee may resign upon delivery of a written notice of resignation, effective notless than 90 days after receipt by the beneficiary and grantor of the notice and that the trustee may be removed by the grantorby delivery to the trustee and the beneficiary of a written notice of removal, effective not less than 90 days after receipt by thetrustee and the beneficiary of the notice, provided that no such resignation or removal shall be effective until a successor trusteehas been duly appointed and approved by the beneficiary and the grantor and all assets in the trust have been duly transferredto the new trustee.

(b) The grantor may have the full and unqualified right to vote any shares of stock in the trust account and to receive fromtime to time payments of any dividends or interest upon any shares of stock or obligations included in the trust account. Anysuch interest or dividends shall be either forwarded promptly upon receipt to the grantor or deposited in a separate accountestablished in the grantor's name.

(c) The trustee may be given authority to invest and accept substitutions of any funds in the account, provided that no suchinvestment or substitution shall be made without prior approval of the beneficiary, unless the trust agreement specifies categoriesof investments acceptable to the beneficiary and authorizes the trustee to invest such funds and to accept such substitutionswhich the trustee determines are at least equal in market value to the assets withdrawn. Such categories shall be consistent withthe restrictions in section 126.5(a)(2) of this Part.

(d) The trust agreement may provide that the beneficiary may at any time designate a party to which all or part of the trust assetsare to be transferred. Such transfer may be conditioned upon the trustee receiving, simultaneously, other specified assets.

(e) The trust agreement may provide that, upon termination of the trust account, all assets not previously withdrawn by thebeneficiary shall, with written approval by the beneficiary, be delivered over to the grantor.

CreditsSec. filed Nov. 8, 1984; amd. filed March 14, 1988 eff. April 6, 1988. Amended (a)--(c).


11 NYCRR 126.4, 11 NY ADC 126.4


Exhibit 6 (6)







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Section 126.5. Additional conditions applicable to reinsurance..., 11 NY ADC 126.5





11 NYCRR 126.5

Section 126.5. Additional conditions applicable to reinsurance agreements

(a) A reinsurance agreement, which is entered into in conjunction with a trust agreement and the establishment of a trust account,must contain provisions that:

(1) require the reinsurer to enter into a trust agreement and to establish a trust account for the benefit of the reinsured, andspecifying what recoverables and/or reserves such agreement is to cover;

(2) stipulate that assets deposited in the trust account shall be valued according to their current fair market value, and shallconsist only of cash (United States legal tender), certificates of deposit (issued by a United States bank and payable inUnited States legal tender), and investments of the types specified in paragraphs (1), (2), (3), (8) and (10) of subsection (a)of section 1404 of the New York Insurance Law, provided that such investments are issued by an institution that is not theparent, subsidiary or affiliate of either the grantor or the beneficiary. The reinsurance agreement may further specify thetypes of investments to be deposited. Where a trust agreement is entered into in conjunction with a reinsurance agreementcovering risks other than life, annuities and accident and health, then such trust agreement may contain the provisionsrequired by this paragraph in lieu of including such provisions in the reinsurance agreement;

(3) require the reinsurer, prior to depositing assets with the trustee, to execute assignments, endorsements in blank, ortransfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the cedingcompany, or the trustee upon the direction of the ceding company, may whenever necessary negotiate any such assetswithout consent or signature from the reinsurer or any other entity;

(4) require that all settlements of account between the ceding company and the reinsurer be made in cash or its equivalent;and

(5) stipulate that the reinsurer and the ceding company agree that the assets in the trust account, established pursuant tothe provisions of the reinsurance agreement, may be withdrawn by the ceding company at any time, notwithstanding anyother provisions in the reinsurance agreement, and shall be utilized and applied by the ceding company or any successor byoperation of law of the ceding company, including, without limitation, any liquidator, rehabilitator, receiver or conservatorof such company, without diminution because of insolvency on the part of the ceding company or the reinsurer, only forthe following purposes:

(i) to reimburse the ceding company for the reinsurer's share of premiums returned to the owners of policies reinsurerunder the reinsurance agreement on account of cancellations of such policies;

Exhibit 6 (7)







http://www.westlaw.com/Link/Document/FullText?findType=l&cite=lk(11NYADCCIVSUBCDPT126R)&originatingDoc=I09BBCF10BD9A11DE9F5ECEFD6C354282&refType=CM&sourceCite=11+NYCRR+126.5&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.DocLink)

http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000090&cite=NYINS1404&originatingDoc=I09BBCF10BD9A11DE9F5ECEFD6C354282&refType=SP&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.DocLink)#co_pp_8b3b0000958a4








(ii) to reimburse the ceding company for the reinsurer's share of surrenders and benefits or losses paid by the cedingcompany pursuant to the provisions of the policies reinsured under the reinsurance agreement;

(iii) to fund an account with the ceding company in an amount at least equal to the deduction, for reinsurance ceded,from the ceding company's liabilities for policies ceded under the agreement. Such account shall include, but notbe limited to, amounts for policy reserves, reserves for claims and losses incurred (including losses incurred but notreported), loss adjustment expenses, and unearned premiums; and

(iv) to pay any other amounts the ceding company claims are due under the reinsurance agreement.

(b) The reinsurance agreement may contain provisions that:

(1) give the reinsurer the right to seek approval from the ceding company to withdraw from the aforementioned trustaccount all or any part of the assets contained therein and transfer such assets to the reinsurer, provided:

(i) the reinsurer shall, at the time of such withdrawal, replace the withdrawn assets with other qualified assets havinga market value equal to the market value of the assets withdrawn so as to maintain at all times the deposit in therequired amount; or

(ii) after such withdrawals and transfer, the market value of the trust account is no less than 102 percent of the requiredamount.

The ceding company shall be the sole judge as to the application of this provision, but shall not unreasonably norarbitrarily withhold its approval;

(2) provide for:

(i) the return of any amount withdrawn in excess of the actual amounts required for subparagraphs (a)(5)(i)--(iii) ofthis section or, in the case of subparagraph (a)(5)(iv), any amounts that are subsequently determined not to be due; and

(ii) interest payments, at a rate not in excess of the prime rate of interest, on the amounts held pursuant to subparagraph(a)(5)(iii) of this section; and

(3) permit the award, by any arbitration panel or court of competent jurisdiction, of:

(i) interest at a rate different from that provided in subparagraph (2)(ii) of this subdivision;

(ii) court or arbitration costs;

Exhibit 6 (8)



(iii) attorney's fees; and

(iv) any other reasonable expenses.

CreditsSec. filed Nov. 8, 1984; amds. filed: March 14, 1988; Jan. 12, 1993 eff. Jan. 27, 1993. Amended (a).


11 NYCRR 126.5, 11 NY ADC 126.5


Exhibit 6 (9)

Section 126.6. Financial reporting, 11 NY ADC 126.6





11 NYCRR 126.6

Section 126.6. Financial reporting

Funds withheld pursuant to a trust agreement may not be used to reduce any liability for reinsurance ceded to an unauthorizedreinsurer in financial statements required to be filed with this department, unless a trust account in compliance with theprovisions of this Part, has been established on or before the “as of date” of the financial statement of the ceding insurer. Further,the reduction for the existence of an acceptable trust account may be up to the current fair market value of acceptable assetsavailable to be withdrawn from the trust account at that time, but such reduction shall be no greater than the specific obligationsunder the reinsurance agreement that the trust account was established to secure or, as respects reinsurance agreements coveringlife, annuity and accident and health risks, the amount of reinsurance recoverables permitted in accordance with section 125.5of this Title (Regulation No. 20).

CreditsSec. filed Nov. 8, 1984; amd. filed March 14, 1988 eff. April 6, 1988.


11 NYCRR 126.6, 11 NY ADC 126.6


Exhibit 6 (10)







http://www.westlaw.com/Link/Document/FullText?findType=l&cite=lk(11NYADCCIVSUBCDPT126R)&originatingDoc=I0B2B1680BD9A11DE9F5ECEFD6C354282&refType=CM&sourceCite=11+NYCRR+126.6&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.DocLink)

Section 126.7. Existing agreements, 11 NY ADC 126.7





11 NYCRR 126.7

Section 126.7. Existing agreements

Notwithstanding the effective date of this Part, any trust agreement or underlying reinsurance agreement in existence prior toApril 6, 1988, which had previously been acceptable to this department:

(a) will continue to be acceptable, provided no new business is ceded under the reinsurance agreement; or

(b) will continue to be acceptable until January 1, 1989, at which time the agreements will have to be in full compliance withthis Part for the trust agreement to be acceptable. The failure of the trust agreement to specifically identify the beneficiary, asdefined in section 126.2(a) of this Part, shall not be construed to affect any actions or rights which the superintendent may takeor possess pursuant to the provisions of the Insurance Law or any other applicable statute.

CreditsSec. filed Nov. 8, 1984; amd. filed March 14, 1988 eff. April 6, 1988.


11 NYCRR 126.7, 11 NY ADC 126.7


Exhibit 6 (11)







http://www.westlaw.com/Link/Document/FullText?findType=l&cite=lk(11NYADCCIVSUBCDPT126R)&originatingDoc=I0B806270BD9A11DE9F5ECEFD6C354282&refType=CM&sourceCite=11+NYCRR+126.7&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.DocLink)

Section 126.8. Exemptions, 11 NY ADC 126.8





11 NYCRR 126.8

Section 126.8. Exemptions

The required conditions contained in this Part shall not apply to trust agreements:

(a) established by an alien insurer pursuant to the provisions of section 1315 of the New York Insurance Law; or

(b) entered into by unauthorized insurers pursuant to the provisions of:

(1) section 27.14 and section 27.15 of this Title (Regulation No. 41);

(2) section 125.4 of this Title (Regulation No. 20); or

(3) section 79.5 of this Title (Regulation No. 133).

CreditsSec. filed Nov. 8, 1984; amd. filed March 14, 1988 eff. April 6, 1988. Amended (b)(3); amd. filed June 7, 2002 eff. June 26, 2002.


11 NYCRR 126.8, 11 NY ADC 126.8


Exhibit 6 (12)







http://www.westlaw.com/Link/Document/FullText?findType=l&cite=lk(11NYADCCIVSUBCDPT126R)&originatingDoc=I0D70C0C0BD9A11DE9F5ECEFD6C354282&refType=CM&sourceCite=11+NYCRR+126.8&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.DocLink)

http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000090&cite=NYINS1315&originatingDoc=I0D70C0C0BD9A11DE9F5ECEFD6C354282&refType=LQ&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.DocLink)

STATE OF NEW YORKINSURANCE DEPARTMENT

25 BEAVER STREETNEW YORK, NEW YORK 10004

David A. PatersonGovernor

James J. Wrynn Superintendent

OGC Op. No. 09-09-06

The Office of General Counsel issued the following opinion on September 30, 2009 representing the positionof the New York State Insurance Department.

Re: N.Y. Ins. Law § 1401(b) and Regulation 114 Trusts

Question Presented:

Do the requirements set forth in New York Ins. Law § 1401(b) apply in the case of assets contained in aRegulation 114 Trust?

Conclusion:

Yes. The requirements set forth in N.Y. Ins. Law § 1401(b) apply in the case of assets contained in aRegulation 114 Trust.

Facts:

The inquirer reports that his organization manages the investments of insurance companies, including theassets held in Regulation 114 Trusts. He notes that Regulation 114 is silent as to the point in time at whichthe requisite rating requirement is applied with respect to assets contained in the trust and asks whetherN.Y. Ins. Law § 1401(b) applies to assets held in a Regulation 114 Trust.

Analysis:

Regulation 114 governs the funding and operation of credit for reinsurance trusts. The regulation, at 11NYCRR § 126.5(a)(2), limits the types of assets that may be contained in Regulation 114 Trusts to cash(United States legal tender), certificates of deposit, and investments of the types listed N. Y. Ins. Law§ 1404 (a) (1), (2), (3), (8) and (10). N.Y. Ins. Law § 1404(a)(2)(A)(ii) in turn requires that investments inthe obligations of American institutions must be rated the equivalent of “A” or higher by a securities ratingagency recognized by the Superintendent in order to be acceptable. The inquirer correctly notes thatnothing in Regulation 114 specifies the point in time in which the rating requirement is measured.

Article 14 of the N. Y. Insurance Law contains the rules governing investments by insurers. N.Y. Ins. Law§ 1401 sets forth definitions and the rules of general application for Article 14. N.Y. Ins. Law § 1401 (b)addresses the inquirer's specific issue, providing as follows:

(b) All financial tests and other requirements for the making of any investment aresatisfied if complied with on the date of acquisition by the insurer, except asotherwise permitted by this chapter or by regulation.

As is clear from the statute’s language, absent any express legal or regulatory authorization to the contrary,any financial requirement (such as the rating of a given security) is measured as of the date of theacquisition of the security. Accordingly, because nothing in Regulation 114 or elsewhere in the Insurance

Exhibit 7 (1)

Law specifies otherwise, any assets contributed to a Regulation 114 trust must meet any applicablestatutory rating requirement as of the asset’s acquisition date.

For further information you may contact Supervising Attorney Michael Campanelli at the New York CityOffice.

Exhibit 7 (2)

Original Signed by

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