Exhibit 10 (49)
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (“Agreement”) is made effective as of
January 1, 2010 by and between Continental Casualty Company (“CCC”), an Illinois
insurance company, and CNA Surety Corporation, a Delaware corporation
(“Surety”).
W I T N E S S E T H:
     WHEREAS, CNA Financial Corporation, a Delaware corporation (“CNAF”),
indirectly owns all of the issued and outstanding common stock of CCC and CCC
owns the majority of the issued and outstanding common stock of Surety;
     WHEREAS, CCC is the employer of the individuals who perform services for
CNAF, along with CNAF’s subsidiaries and affiliates (collectively, the “CNA
Companies”), and is the primary CNAF subsidiary that contracts with third
parties to obtain goods and services on behalf of the CNA Companies;
     WHEREAS, both parties acknowledge and agree that it is to their mutual
benefit to have CCC provide certain administrative services to Surety in
exchange for fair and reasonable compensation, all in accordance with the terms
and conditions set forth herein; and
     WHEREAS, both parties acknowledge and agree that it is to their mutual
benefit to have Surety provide certain administrative services to CCC in
exchange for fair and reasonable compensation, all in accordance with the terms
and conditions set forth herein;
     NOW THEREFORE, for and in consideration of the mutual covenants and
agreements set forth herein, the receipt and sufficiency of which the parties
hereby acknowledge, the parties agree as follows:
1. Administrative Services To Be Provided by CCC. In exchange for the CCC
Administrative Services Fee (as defined in Section 6), CCC shall provide to
Surety certain administrative services which shall include, but not be limited
to, the services described below (collectively, the “CCC Administrative
Services”):
     (a) Corporate Insurance. CCC will place certain corporate insurance
policies for the protection of the assets and revenues of CNAF and will assist
in coordinating coverage between CCC and Surety.
     (b) Internal Audit. CCC will perform various operating, claims,
underwriting, information technology systems, designated underwriting authority
and financial and premium audits annually or as otherwise mutually determined.
     (c) Financial Accounting & Reporting. CCC will assist Surety with various
accounting/financial reporting issues, including monthly and quarterly financial
close activities, as well as with other related matters as needed.
     (d) Information Technology. Where permitted by the underlying license or
use agreements, CCC will provide Surety access to CCC’s voice and data networks,
as well as access to CCC’s enterprise software, obtaining any necessary
permission or licensing as may be required.
     (e) Business Reports. Where permitted by the underlying license or
subscription agreements, CCC will provide Surety access to certain third party
business reports to which CCC subscribes, obtaining any necessary permission or
licensing as may be required.

 

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     (f) Compliance. CCC will assist Surety with its Sarbanes-Oxley compliance
program, as well as other compliance programs, and periodically provide
compliance auditing services. Surety may also utilize CCC’s online Risk Control
Tracking System (RCTS) for Sarbanes-Oxley compliance reporting purposes.
     (g) Contract Administration. CCC will provide contract administration
services to Surety, including, without limitation, sourcing, procurement and
negotiation services, as needed.
     (h) Real Estate Services. CCC will procure and provide office space to
Surety including the negotiation of rents and lease terms, as well as the
provision of facilities planning and management services, all as needed.
     (i) Human Resources. CCC will provide associate survey and compensation
survey materials and other various human resource materials to Surety on an
annual basis. In addition, CCC will make available to Surety CCC’s web-based
training.
     (j) Legal. CCC will provide contract review and legal counsel to Surety as
needed.
     (k) Marketing. CCC will provide marketing services to Surety as needed.
     (l) Organizational Development and Training. CCC will provide Surety with
access to hard-copy and on-line training materials and standard talent review
tools for succession planning.
     (m) Tax Preparation. CCC will assist Surety with state and federal income
tax preparation and provide tax consulting services as needed.
Surety may, from time to time, elect to expand or otherwise modify the specific
CCC Administrative Services enumerated above at mutually acceptable rates
determined in accordance with the methodologies applicable to the calculation of
the CCC Administrative Services Fee, as further described in Section 6.
2. Services To Be Provided By Surety. In exchange for the Surety Administrative
Services Fee (as defined in Section 7), Surety, through its subsidiary Western
Surety Company, shall provide to CCC certain administrative services which shall
include, but not be limited to, the services described below (collectively, the
“Surety Administrative Services”):
     (a) Agency Licensing Services. Surety will assist CCC, along with other
subsidiaries and affiliates of CCC, with the provision of certain agency
licensing, appointment and related agent record-keeping services, as needed.
     (b) Agency Contracts. Surety will assist CCC, along with other subsidiaries
and affiliates of CCC, with the maintenance of agency contracts, as needed.
CCC may, from time to time, elect to expand or otherwise modify the specific
Surety Administrative Services enumerated above at mutually acceptable rates
determined in accordance with the methodologies applicable to the calculation of
the Surety Administrative Services Fee, as further described in Section 7.
3. Employees. CCC authorizes its employees (collectively, the “CCC Employees”)
to perform the CCC Administrative Services for Surety and Surety consents to
receive the CCC Administrative Services through the CCC Employees. Similarly,
Surety authorizes its employees (collectively, the “Surety Employees”) to
perform the Surety Administrative Services for CCC and CCC consents to receive
the Surety Administrative Services through the Surety Employees. Notwithstanding
any provision in this Agreement to the contrary, however, CCC shall continue to
remain the sole employer of the CCC Employees and Surety shall continue to
remain the sole employer of the Surety Employees.

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4. Control & Responsibility. CCC shall provide all CCC Administrative Services
under the sole ultimate direction and control of Surety’s senior management.
Similarly, Surety shall provide all Surety Administrative Services under the
sole ultimate direction and control of CCC’s senior management. As a result,
notwithstanding any provision in this Agreement to the contrary, Surety shall
retain ultimate liability and responsibility for the CCC Administrative Services
and CCC shall retain ultimate liability and responsibility for the Surety
Administrative Services.
5. Term. The term of this Agreement (“Term”) shall commence effective as of
January 1, 2010 and shall automatically renew each year until the earlier to
occur of the following: (a) either party elects to terminate this Agreement by
providing written notice to the remaining party at least thirty (30) days in
advance of the date on which the termination is to take effect; or (b) a change
in control occurs as to either party such that it is no longer ultimately owned,
in whole or in part, by CNAF, in which event this Agreement shall automatically
terminate immediately upon the date on which the change in control takes effect.
6. CCC Administrative Services Fee.
     (a) In exchange for the CCC Administrative Services, Surety hereby
covenants and agrees to remit to CCC compensation in the manner set forth in
Appendix A attached hereto and incorporated herein (“CCC Administrative Services
Fee”). The CCC Administrative Services Fee shall be: (1) substantially
equivalent to the parties’ good faith estimate of Surety’s anticipated usage of
the then current definition of the CCC Administrative Services; (2) based on an
equitable allocation of the actual costs incurred by CCC in providing the CCC
Administrative Services including, without limitation, salaries, rent, utility
charges, legal expenses and auditing fees, as well as sales, excise, value added
and real estate taxes; and (3) in conformity with customary insurance accounting
practices consistently applied in compliance with applicable governmental rules
and regulations in a manner that reflects the reasonable, customary and usual
charges for the CCC Administrative Services established in accordance with
prudent and rational cost accounting methodologies and in conformity with
applicable arm’s length pricing regulations. The CCC Administrative Services Fee
shall also include reimbursement to CCC for any and all third party charges CCC
incurs in connection with the CCC Administrative Services, plus an arm’s length
markup of certain costs to the extent they involve any of the CCC Administrative
Services that are not eligible for allocation to Surety under the services cost
method (SCM), as defined by the U.S. Internal Revenue Service from time to time
(see e.g., Treasury Regulation §1.482-9T(b)).
     (b) The portion of the CCC Administrative Services Fee related to procuring
and providing office space, along with related real estate services, to Surety
pursuant to Section 1(h) (“CCC Real Estate Services Fee”) is initially
calculated based on Surety’s percentage of rentable square feet in each office
location as negotiated between both parties at the time the lease is executed.
For the purpose of calculating the CCC Real Estate Services Fee, Surety’s
percentage of rentable square feet will remain unchanged until any one of the
following conditions is met: (1) Surety request to occupy and subsequently
occupies additional space in the office location; (2) the percentage is
renegotiated between both parties due to a significant change in the number of
occupants in the office location; (3) the lease term is modified; or (4) the
lease expires. Although CCC shall monitor periodic changes to Surety’s
percentage of rentable square feet, for administrative convenience, the parties
shall true up the CCC Real Estate Services Fee on an annual basis through the
ordinary course of reconciling accounts between the parties. The results of the
true up shall be mutually agreed by the parties, as evidenced by the approval of
CCC’s Controller and Surety’s Chief Financial Officer (or their respective
designees), which approval need not be in writing. Except as provided in this
Section 6(b) and Sections 6(c) and 6(d), the CCC Administrative Services Fee
shall be fixed and shall not be subject to any true up or other modification,
regardless of Surety’s use or non-use of the CCC Administrative Services.

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     (c) The addition or deletion of any recurring CCC Administrative Services
that are material in nature or dollar amount shall be provided at mutually
acceptable rates determined in accordance with the methodologies applicable to
the calculation of the CCC Administrative Services Fee, as described in this
Section 6. The adjustment to the CCC Administrative Services Fee shall be
evidenced by a mutually executed updated version of Appendix A which shall
automatically supersede and replace in its entirety the then current version of
Appendix A.
     (d) The addition or deletion of any non-recurring CCC Administrative
Services, whether or not material in nature or dollar amount, shall be provided
at mutually acceptable rates determined in accordance with the methodologies
applicable to the calculation of the CCC Administrative Services Fee, as
described in this Section 6. The adjustment to the CCC Administrative Services
Fee shall be mutually approved by CCC’s Controller and Surety’s Chief Financial
Officer (or their respective designees), which approval need not be in writing.
7. Surety Administrative Services Fee.
     (a) In exchange for the Surety Administrative Services, CCC hereby
covenants and agrees to remit to Surety compensation in the manner set forth in
Appendix B attached hereto and incorporated herein (“Surety Administrative
Services Fee”). The Surety Administrative Services Fee shall be:
(1) substantially equivalent to the parties’ good faith estimate of CCC’s
anticipated usage of the then current definition of the Surety Administrative
Services; (2) based on an equitable allocation of the actual costs incurred by
Surety in providing the Surety Administrative Services including, without
limitation, salaries, rent, utility charges, legal expenses and auditing fees,
as well as sales, excise, value added and real estate taxes; and (3) in
conformity with customary insurance accounting practices consistently applied in
compliance with applicable governmental rules and regulations in a manner that
reflects the reasonable, customary and usual charges for the Surety
Administrative Services established in accordance with prudent and rational cost
accounting methodologies. The Surety Administrative Services Fee shall also
include reimbursement to Surety for any and all third party charges Surety
incurs in connection with the Surety Administrative Services including, but not
limited to, those imposed by state insurance regulators, plus an arm’s length
markup of certain costs to the extent they involve any of the Surety
Administrative Services that are not eligible for allocation to CCC at cost.
Except as provided in Sections 7(b) and 7(c), the Surety Administrative Services
Fee shall be fixed and shall not be subject to any true up or other
modification, regardless of CCC’s use or non-use of the Surety Administrative
Services.
     (b) The addition or deletion of any recurring Surety Administrative
Services that are material in nature or dollar amount shall be provided at
mutually acceptable rates determined in accordance with the methodologies
applicable to the calculation of the Surety Administrative Services Fee, as
described in this Section 7. The adjustment to the Surety Administrative
Services Fee shall be evidenced by a mutually executed updated version of
Appendix B which shall automatically supersede and replace in its entirety the
then current version of Appendix B.
     (c) The addition or deletion of any non-recurring Surety Administrative
Services, whether or not material in nature or dollar amount, shall be provided
at mutually acceptable rates determined in accordance with the methodologies
applicable to the calculation of the Surety Administrative Services Fee, as
described in this Section 7. The adjustment to the Surety Administrative
Services Fee shall be mutually approved by CCC’s Controller and Surety’s Chief
Financial Officer (or their respective designees), which approval need not be in
writing.
8. Compliance with Laws. Both parties shall comply with applicable laws in
effect from time to time including, without limitation, the Foreign Corrupt
Practices Act of 1977 and the Patriot Act, as well as regulations and
restrictions imposed by the U.S. Treasury’s Office of Foreign Assets Control.

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9. Choice of Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the state of Illinois without regard to
conflict or choice of law principles. If any covenant, condition, or provision
herein is held to be invalid, the invalidity thereof shall be severable from the
remainder of this Agreement and shall not in any way affect any other covenant,
condition or provision herein.
10. Entire Agreement. This Agreement constitutes the entire agreement between
CCC and Surety relating to the administrative services they provide to one
another, and any prior agreements whether verbal or written have been
superseded, merged and integrated into this Agreement including, without
limitation, that certain Restated Administrative Services Agreement, dated as of
July 1, 2004, by and between the parties, which agreement shall be automatically
be terminated and of no further force and effect immediately upon the date upon
which this Agreement takes effect. Notwithstanding the foregoing, however, any
reinsurance agreements between the parties shall continue to remain in full
force and effect and shall not be superseded, merged or integrated into this
Agreement.
11. Successors & Assigns; No Third Party Beneficiaries. This Agreement shall be
binding on and inure to the benefit of both parties and their respective
successors and permitted assigns and may not be modified or amended orally, but
only in a writing signed by all parties. Surety may not assign its rights or
obligations under this Agreement without the prior written consent of CCC, which
consent may be withheld in CCC’s sole and absolute discretion. This Agreement
shall be solely for the benefit of the parties hereto and no other person or
entity (with the exception of successors and permitted assigns) shall be a
third-party beneficiary.
12. Non-Waiver. No failure or delay by either party in exercising any right with
respect to this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right.
13. Counterparts. This Agreement may be executed in counterparts, each of which
shall constitute an original, but all of which together shall constitute one and
the same instrument. In addition, this Agreement may be executed via facsimile
and that facsimile signatures shall be valid and binding for all purposes
     IN WITNESS WHEREOF, the parties have executed and delivered this
Administrative Services Agreement as of the date first above written.

                      Continental Casualty Company       CNA Surety Corporation
   
 
                   
By:
   
 
      By:    
 
   
Printed Name:
          Printed Name:        
 
                   
Title:
   
 
      Title:    
 
   

          Attest:    
 
       
By:
   
 
   
Printed Name:
   
 
   
Title:
   
 
   

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Appendix A
Administrative Services Agreement by and between Continental Casualty Company
and
CNA Surety Corporation (“Agreement”)
Administrative Services Fee
Pursuant to Section 6 of the Agreement, the CCC Administrative Services Fee
shall be four million four hundred sixty-nine thousand one hundred forty dollars
($4,469,140). The CCC Administrative Services Fee shall be payable in twelve
(12) equal installments on or before the last day of each month during the Term,
either through cash or an inter-company credit. If the Term ends during the
course of a calendar year, the CCC Administrative Services Fee shall be
equitably pro-rated.
Based on surveys conducted by CCC to identify all planned activities to be
performed by CCC for the benefit of Surety, the estimated cost of providing the
CCC Administrative Services was determined by using time and cost estimates
developed by subject matter experts during the 2010 annual corporate planning
cycle. Hourly cost rates are based on average employee cost rates by pay grade
and include, without limitation, the cost of employee salaries, benefits,
payroll taxes, space utilization, end-user computing, corporate insurance, and
human resources support.
As provided in Section 6(b) of the Agreement, the parties shall true up the CCC
Real Estate Services Fee on an annual basis through the ordinary course of
reconciling accounts between the parties. The results of the true up shall be
mutually agreed by the parties, as evidenced by the approval of CCC’s Controller
and Surety’s Chief Financial Officer (or their respective designees), which
approval need not be in writing. Except as provided in Section 6(b) and Sections
6(c) and 6(d) of the Agreement, the CCC Administrative Services Fee shall be
fixed and shall not be subject to any true up or other modification, regardless
of Surety’s use or non-use of the CCC Administrative Services.
The expansion or other modification of the specific CCC Administrative Services
shall be provided at mutually acceptable rates determined in accordance with the
methodologies applicable to the calculation of the CCC Administrative Services
Fee, as further described in Section 6 of the Agreement. The addition or
deletion of any non-recurring CCC Administrative Services shall be mutually
approved by CCC’s Controller and Surety’s Chief Financial Officer (or their
respective designees), which approval need not be in writing, but the addition
or deletion of any recurring CCC Administrative Services that are material in
nature or dollar amount shall be evidenced by a mutually executed updated
version of Appendix A which shall automatically supersede and replace in its
entirety the then current version of Appendix A.

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Appendix B
Administrative Services Agreement by and between Continental Casualty Company
and
CNA Surety Corporation (“Agreement”)
Surety Administrative Services Fee
Pursuant to Section 7 of the Agreement, the Surety Administrative Services Fee
shall initially be set at one million three hundred thirty-five thousand
fifty-five dollars ($1,335,055).
The Surety Administrative Services Fee shall be payable in twelve (12) equal
installments on or before the last day of each month during the Term, either
through cash or an inter-company credit. If the Term ends during the course of a
calendar year, the Surety Administrative Services Fee shall be equitably
pro-rated. On or before the last day of each month, Surety shall provide CCC
with a statement of all third party fees it incurred during such month in
connection with the Surety Administrative Services. Reimbursement of such fees
shall be payable, either through cash or an inter-company credit, within ten
(10) business days.
Based on surveys conducted by Surety to identify all planned activities to be
performed by Surety for the benefit of CCC, the estimated cost of providing the
Surety Administrative Services was determined by using time and cost estimates
developed by subject matter experts during the 2010 annual corporate planning
cycle. Hourly cost rates are based on an average employee cost rate, and
include, without limitation, the cost of employee salaries, benefits, payroll
taxes, space utilization, end-user computing, corporate insurance, and human
resources support.
Except as provided in Sections 7(b) and 7(c) of the Agreement, the Surety
Administrative Services Fee shall be fixed and shall not be subject to any true
up or other modification, regardless of CCC’s use or non-use of the Surety
Administrative Services.
The expansion or other modification of the specific Surety Administrative
Services shall be provided at mutually acceptable rates determined in accordance
with the methodologies applicable to the calculation of the Surety
Administrative Services Fee, as further described in Section 7 of the Agreement.
The addition or deletion of any non-recurring Surety Administrative Services
shall be mutually approved by CCC’s Controller and Surety’s Chief Financial
Officer (or their respective designees), which approval need not be in writing,
but the addition or deletion of any recurring Surety Administrative Services
that are material in nature or dollar amount shall be evidenced by a mutually
executed updated version of Appendix B which shall automatically supersede and
replace in its entirety the then current version of Appendix B.

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