UNAM Unico American Corp

Item 1.02. Termination of a Material Definitive Agreement.

On August 31, 2021, Crusader Insurance Company ("Crusader"), a subsidiary of Unico American Corporation (the “Company”), and United Specialty Insurance Company ("USIC"), terminated the Quota Share Reinsurance Agreement (the "Reinsurance Agreement"), effective April 1, 2020, by and between Crusader and USIC. Pursuant to the Reinsurance Agreement, Crusader agreed to reinsure all of USIC's liability for policies issued by USIC and produced by Unifax Insurance Systems, Inc. ("Unifax"), a subsidiary of the Company, for property, general liability, commercial multiple peril ("CMP"), CMP liability and other miscellaneous coverages, subject to certain maximum policy limits. Crusader’s obligations under the Reinsurance Agreement continue after termination for business in force at the time of termination, for policies with effective dates prior to the termination but issued after the termination date, and for policies that must be issued or renewed as a matter of law until the expiration of the policies.

On August 31, 2021, as a result of the termination of the Reinsurance Agreement, the Surplus Line Broker Agreement (the "Broker Agreement"), effective April 1, 2020, by and between Unifax and USIC, automatically terminated. Pursuant to the Broker Agreement, USIC authorized Unifax to act as its broker for the purpose of producing and administering certain specified classes of insurance policies, which are the subject of the Reinsurance Agreement. Unifax’s obligations under the Broker Agreement continue after termination for insurance business reinsured under the Broker Agreement. Unifax’s obligations include handling and servicing of all policies until their expiration.

On August 31, 2021, as a result of the termination of the Broker Agreement, the Surplus Line Broker Agreement (the "Claims Administration Agreement"), effective April 1, 2020, by and between U.S. Risk Managers, Inc. ("U.S. Risk") and USIC, automatically terminated. Pursuant to the Claims Administration Agreement, USIC appointed U.S. Risk to adjust and settle claims on its behalf in connection with the surplus lines policies issued by USIC in connection with the Reinsurance Agreement. Upon termination of the Claims Agreement, U.S. Risk is obligated (unless revoked by USIC) to continue to manage claims during the run-off of the business reinsured.

Following A.M. Best’s recent rating change of Crusader, the parties agreed to mutually terminate the Reinsurance Agreement. There are no early termination penalties incurred as a result of the termination. The Reinsurance Agreement provides for a minimum ceding fee and, upon termination of the Reinsurance Agreement, the minimum ceding fee shall be pro-rated to the date of termination unless there are policies issued after the termination of the Reinsurance Agreement. In such case, the minimum ceding fee shall continue past the termination of the Reinsurance Agreement until such time as no further policies are issued. Accordingly, the Company estimates that Crusader may pay an additional $276,000 to USIC for the minimum ceding fee in addition to the $120,000 previously paid.

The foregoing summaries of the Reinsurance Agreement, the Broker Agreement and the Claims Administration Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of such agreements, which were filed as Exhibit 10.8, 10.9 and 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2020.