Exhibit 10.4 Property Excess Of Loss Agreement of Reinsurance No. TP1600E with
Swiss Reinsurance America Corporation effective January 1, 2003

 

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TABLE OF CONTENTS

to
AGREEMENT OF REINSURANCE
NO. 9034
between
PHILADELPHIA INDEMNITY COMPANY
PHILADELPHIA INSURANCE COMPANY
and
GENERAL REINSURANCE CORPORATION

                      Page GENERAL ARTICLES   Article I   SCOPE OF AGREEMENT   1
Article II   PARTIES TO THE AGREEMENT   1 Article III   MANAGEMENT OF CLAIMS AND
LOSSES   2 Article IV   RECOVERIES   2 Article V   TRIA INUREMENT   2 Article VI
  PREMIUM REPORTS AND REMITTANCES   3 Article VII   ERRORS AND OMISSIONS   3
Article VIII   SPECIAL ACCEPTANCES   3 Article IX   RESERVES AND TAXES   4
Article X   OFFSET   4 Article XI   INSPECTION OF RECORDS   4 Article XII  
ARBITRATION   4 Article XIII   INSOLVENCY OF THE COMPANY   5 EXHIBIT A - EXCESS
OF LOSS REINSURANCE (Per Risk) of Property Business     Section 1   BUSINESS
SUBJECT TO THIS EXHIBIT   A-1 Section 2   COMMENCEMENT   A-1 Section 3  
LIABILITY OF THE REINSURER   A-1 Section 4   DEFINITIONS   A-2 Section 5  
EXCLUSIONS   A-5 Section 6   OTHER REINSURANCE   A-8 Section 7   REINSURANCE
PREMIUM   A-9 Section 8   REPORTS AND REMITTANCES   A-9 Section 9   AUTOMATIC
REINSTATEMENT   A-10 Section 10   TERMINATION   A-11 Section 11   MORTGAGEE
REINSURANCE ENDORSEMENT   A-11 EXHIBIT B - EXCESS OF LOSS REINSURANCE (Per Risk)
of Property Business (Coverage for Terrorism Only)     Section 1   BUSINESS
SUBJECT TO THIS EXHIBIT   B-1 Section 2   TERM   B-1 Section 3   LIABILITY OF
THE REINSURER   B-1 Section 4   DEFINITIONS   B-2 Section 5   EXCLUSIONS   B-5
Section 6   REINSURANCE PREMIUM   B-6 Section 7   REPORTS AND REMITTANCES   B-6

GENERAL REINSURANCE CORPORATION

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PROPERTY EXCESS OF LOSS
AGREEMENT OF REINSURANCE
NO. TP1600E

EFFECTIVE: JANUARY 1, 2003

between

PHILADELPHIA INDEMNITY COMPANY
PHILADELPHIA INSURANCE COMPANY
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004

and

SWISS REINSURANCE AMERICA CORPORATION
Armonk, New York

 

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PROPERTY EXCESS OF LOSS AGREEMENT OF REINSURANCE NO. TP1600E

                  ARTICLE   CONTENTS   PAGE

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PREAMBLE
    1     I    
SCOPE OF AGREEMENT
    1   II  
PARTIES TO THE AGREEMENT
    1   III  
COMMENCEMENT AND TERMINATION
    2   IV  
LIMIT AND RETENTION
    2     V    
DEFINITIONS
    3   VI  
OTHER REINSURANCE
    7   VII  
EXCLUSIONS
    7   VIII  
REINSURANCE PREMIUM
    10   IX  
REPORTS AND REMITTANCES
    10     X    
MANAGEMENT OF CLAIMS AND LOSSES
    11   XI  
RECOVERIES
    12   XII  
TERRORISM EXCESS RECOVERY
    12   XIII  
ERRORS AND OMISSIONS
    13   XIV  
SPECIAL ACCEPTANCES
    14     XV    
RESERVES AND TAXES
    14   XVI  
OFFSET
    14   XVII  
INSPECTION OF RECORDS
    14   XVIII  
ARBITRATION
    14   XIX  
INSOLVENCY OF THE COMPANY
    15          
SIGNATURES
    16  

      ATTACHMENTS:   INSOLVENCY FUNDS EXCLUSION CLAUSE
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -
       REINSURANCE - U.S.A.
LARGE INSURABLE VALUES EXCLUSION CLAUSE

 

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PROPERTY EXCESS OF LOSS
AGREEMENT OF REINSURANCE
NO. TP1600E
(hereinafter referred to as the “Agreement”)

between

PHILADELPHIA INDEMNITY COMPANY
PHILADELPHIA INSURANCE COMPANY
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
(hereinafter referred to as the “Company”)

and

SWISS REINSURANCE AMERICA CORPORATION
Armonk, New York
(hereinafter referred to as the “Reinsurer”)

In consideration of the promises set forth in this Agreement, the parties agree
as follows:

ARTICLE I – SCOPE OF AGREEMENT

A.   As a condition precedent to the Reinsurer’s obligations under this
Agreement, the Company shall cede to the Reinsurer the business described in
this Agreement, and the Reinsurer shall accept such business as reinsurance from
the Company.   B.   This Agreement shall apply to Property Business written by
the Company, which is defined as insurance and classified in the NAIC form of
annual statement as fire, allied lines, inland marine, commercial multiple peril
(property coverages), homeowners multiple peril (property coverages) or
automobile physical damage (comprehensive and collision) when written on a
garage open lot basis, plate glass, and burglary and theft, except those lines
specifically excluded in the section entitled Exclusions, on Risks wherever
located in the United States of America, its territories and possessions. On
policies which provide coverage beyond these territorial limits, the territorial
limits of this Agreement shall be identical with those of the Company’s
policies.

ARTICLE II – PARTIES TO THE AGREEMENT

This Agreement is solely between the Company and the Reinsurer. When more than
one Company is named as a party to this Agreement, the first Company named shall
be the agent of the other companies as to all

1. No. TP1600E

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matters pertaining to this Agreement. Performance of the obligations of each
party under this Agreement shall be rendered solely to the other party. However,
if the Company becomes insolvent, the liability of the Reinsurer shall be
modified to the extent set forth in the article entitled Insolvency of the
Company. In no instance shall any insured of the Company or any claimant against
an insured of the Company have any rights under this Agreement.

ARTICLE III – COMMENCEMENT AND TERMINATION

A.   This Agreement shall apply to new and renewal policies of the Company
becoming effective at and after 12:01 a.m., January 1, 2003, and to policies of
the Company in force at 12:01 a.m., January 1, 2003, with respect to claims and
losses resulting from Occurrences taking place at and after the aforesaid time
and date, and shall continue in force until terminated in accordance with the
provisions set forth in Paragraph B. below.   B.   Either party may terminate
this Agreement at any calendar quarter by sending to the other, by registered
mail to its principal office, notice stating the time and date when, not less
than 90 days after the date of mailing of such notice, termination shall be
effective. Upon termination of this Agreement at the Company’s option:

  1.   The Reinsurer shall continue to be liable, with respect to policies in
force at the time and date of termination, for claims and losses resulting from
Occurrences taking place until the expiration, cancellation, or next anniversary
date, not to exceed one year, of each such policy of the Company, whichever
occurs first. The reinsurance premium for policies in force at the time and date
of termination shall be calculated by applying the provisions of the Article
entitled Reinsurance Premium to the monthly earned premiums that derive from the
unearned premium applicable to policies in force at the time and date of
termination.     2.   The Reinsurer shall not be liable for any claims or losses
resulting from Occurrences taking place at and after the effective time and date
of termination.

Prior to the termination date, the Company shall advise the Reinsurer as to
which of the above options shall apply.

ARTICLE IV – LIMIT AND RETENTION

A.   As respects one or more than one Line of Business covered under this
Agreement, the Company shall retain the first $10,000,000 of Net Loss as
respects each risk in any one Loss Occurrence. The Reinsurer shall then be
liable for the amount by which the Company’s Net Loss exceeds the Company’s
retention of $10,000,000, but the liability of

2. No. TP1600E

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    the Reinsurer shall never exceed $5,000,000 each risk any one Loss
Occurrence, nor shall the Reinsurer’s liability from all Risks in each
Occurrence exceed $15,000,000.   B.   It is understood that the liability of the
Reinsurer shall not exceed $5,000,000 with respect to all Net Loss and
Adjustment Expenses combined arising out of all loss or damage or indirectly
arising out of, caused by or resulting from all Terrorism Loss Occurrences
taking place during each calendar year regardless of any other cause or event
contributing to such loss or damage in any way or at any time, or whether such
loss or damage is accidental or intentional.   C.   Reinsurance of the Company’s
retention, set forth above, shall not be deducted in arriving at the Company’s
Net Loss herein.

ARTICLE V – DEFINITIONS

A.   Company Retention       This term shall mean the amount the Company and its
underlying reinsurer shall retain for their own account; however, this
requirement shall be satisfied if this amount is retained by the Company or its
affiliated companies under common management or common ownership.   B.   Net
Loss       This term shall mean all payments by the Company within the terms and
limits of its policies in settlement of claims or losses, after deduction of
salvage and other recoveries and after deduction of amounts due from all other
reinsurance, except underlying reinsurance and catastrophe reinsurance, whether
collectible or not. This term shall include Adjustment Expense. If the Company
becomes insolvent, this definition shall be modified to the extent set forth in
the article entitled Insolvency of the Company.       Notwithstanding the
provisions of the article entitled Management of Claims and Losses, this term
shall also include 100% of Losses in Excess of Policy Limits and 100% of Extra
Contractual Obligations.       Nothing in this definition shall imply that
losses are not recoverable hereunder until the Company’s Net Loss has been
finally ascertained.   C.   Adjustment Expense       This term shall mean
expenditures by the Company within the terms of its policies in the direct
defense of claims and in connection with Losses in Excess of Policy Limits and
in connection with Extra Contractual Obligations and as allocated to an
individual claim or

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    loss (other than for office expenses and for the salaries and expenses of
employees of the Company or of any subsidiary or related or wholly owned company
of the Company) made in connection with the disposition of a claim, loss, or
legal proceeding including investigation, negotiation, and legal expenses; court
costs; prejudgment interest; and postjudgment interest.       Notwithstanding
the provisions of the article entitled Management of Claims and Loses, this term
shall also be deemed to include any expenses incurred by the Company in bringing
or in defending a declaratory judgment action brought to determine the Company’s
obligations to its insured with respect to a specific claim under a policy (or
coverage part thereof) reinsured hereunder. However, the amount of any
declaratory judgment expense that may be included in computation of Adjustment
Expense shall not exceed the lesser of the amount of insurance under the policy
or the Reinsurer’s Limit of Liability for each Risk under this Agreement.      
The date on which a declaratory judgment expense is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original
Occurrence.   D.   Losses in Excess of Policy Limits and Extra Contractual
Obligations

  1.   The term “Loss in Excess of Policy Limits” shall mean a payment made to a
third party claimant in excess of policy limit which the Company is legally
obligated to pay resulting from an action taken by the insured or assignee
arising from a third party claimant being awarded an amount in excess of the
Company’s policy limit as a result of the Company’s failure to settle within the
policy limit of the Company’s alleged or actual negligence or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or in the preparation or prosecution of
an appeal consequent upon such action.     2.   The term “Extra Contractual
Obligation” shall mean a loss which the Company is legally obligated to pay,
which is not covered under any other provision of this Agreement and which
arises from the Company’s handling of any claim on the policies reinsured
hereunder which have limits of liability greater than the Company Retention.

    The date on which a Loss in Excess of Policy Limits or an Extra Contractual
Obligation is incurred by the Company shall be deemed, in all circumstances, to
be the date of the original Occurrence.       There shall be no coverage
hereunder where the Loss in Excess of the Policy Limit or the Extra Contractual
Obligation has been incurred due to the fraud or criminal conduct of a member of
the Board of Directors, a corporate officer of the Company, or any other
employee of the Company, acting individually or collectively or in collusion

4. No. TP1600E

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    with any individual or corporation or any other organization or party
involved in the investigation, defense or settlement of any claim covered
hereunder.       Any insurance or reinsurance, whether collectible or not, which
indemnifies or protects the Company against claims which are the subject matter
of this definition and any contribution, subrogation, or recovery shall inure to
the benefit of the Reinsurer and shall be deducted to arrive at the amount of
the Company’s Net Loss.   E.   Risk       The Company shall establish what
constitutes one Risk, provided:

  1.   A Building and its contents, including time element coverages, shall
never be considered more than one Risk;     2.   When two or more Buildings and
their contents are situated at the same general location, the Company shall
identify on its records at the time of acceptance by the Company those
individual Buildings and their contents that are considered to constitute each
Risk; if such identification is not made, all of the Buildings and their
contents situated at the same general location shall be considered one Risk.

F.   Building       This term shall mean each separately roofed structure
enclosed within exterior walls.   G.   Loss Occurrence

  A.   The term “Loss Occurrence” shall mean the sum of all individual losses
directly occasioned by any one disaster, accident or loss or series of
disasters, accidents or losses arising out of one event which occurs within the
area of one state of the United States or province of Canada and states or
provinces contiguous thereto and to one another. However, the duration and
extent of any one Loss Occurrence shall be limited to all individual losses
sustained by the Company occurring during any period of 168 consecutive hours
arising out of and directly occasioned by the same event except that the term
“Loss Occurrence” shall be further defined as follows:  

  1.   As regards windstorm, hail, tornado, hurricane, cyclone, including
ensuing collapse and water damage, all individual losses sustained by the
Company occurring during any period of 72 consecutive hours arising out of and
directly occasioned by the same event. However, the event need not be limited to
one state or province or states or provinces contiguous thereto.

5. No. TP1600E

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  2.   As regards riot, riot attending a strike, civil commotion, vandism and
malicious mischief, all individual losses sustained by the Company, occurring
during any period of 72 consecutive hours within the area of one municipality or
county and the municipalities or counties contiguous thereto arising out of and
directly occasioned by the same event. The maximum duration of 72 consecutive
hours may be extended in respect of individual losses which occur beyond such 72
consecutive hours during the continued occupation of an assured’s premises by
strikers, provided such occupation commenced during the aforesaid period.     3.
  As regards earthquake (the epicentre of which need not necessarily be within
the territorial confines referred to in the opening paragraph of this Article)
and fire following directly occasioned by the earthquake, only those individual
fire losses which commence during the period of 168 consecutive hours may be
included in the Company’s Loss Occurrence.     4.   As regards Freeze, only
individual losses directly occasioned by collapse, breakage of glass and water
damage (caused by bursting of frozen pipes and tanks) may be included in the
Company’s Loss Occurrence.     5.   As regards Terrorism, all individual losses
sustained by the Company occurring during any period of 72 consecutive hours
arising out of and directly occasioned by the same event. Should such an event
of Terrorism give rise to other perils which, in an unbroken chain of causation,
have occasioned the losses, the cause of the losses is understood to be that
event of Terrorism.

  a.   “Terrorism,” for purposes of this Agreement, shall mean any actual or
threatened violent act or act harmful to human life, tangible or intangible
property or infrastructure directed towards or having the effect of (i)
influencing or protesting against any de jure or de facto government or policy
thereof, (ii) intimidating, coercing or putting in fear a civilian population or
section thereof for the purpose of establishing or advancing a specific
ideological, religious or political system of thought, perpetrated by a specific
individual or group directly or indirectly through agents acting on behalf of
said individual or group or (iii) retaliating against any country for direct or
vicarious support by that country of any other government or political system.  
  b.   Any act declared pursuant to the Terrorism Risk Insurance Act of 2002
shall also be considered “Terrorism” for purposes of this Agreement.

6. No. TP1600E

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  B.   For all Loss Occurrences the Company may choose the date and time when
any such period of consecutive hours commences provided that it is not earlier
than the date and time of the occurrence of the first recorded individual loss
sustained by the Company arising out of that disaster, accident or loss and
provided that only one such period of 168 consecutive hours shall apply with
respect to one event except for those Loss Occurrences referred to in 1., 2. and
5. above, where only one such period of 72 consecutive hours shall apply with
respect to one event, regardless of the duration of the event.     C.   No
individual losses occasioned by an event that would be covered by 72 hours
clauses may be included in any Loss Occurrence claimed under the 168 hours
provision.

H.   Company’s Subject Earned Premium       This term shall mean the premium
earned by the Company on the business reinsured hereunder, after deduction from
such earned premium of the portion paid for reinsurance which inures to the
benefit of the Reinsurer.

ARTICLE VI – OTHER REINSURANCE

The obligations of the Company to reinsure business falling within the scope of
this Agreement and of the Reinsurer to accept such reinsurance are mandatory and
no other reinsurance (either facultative or treaty) is permitted, except as
provided for below.

The Company may purchase facultative excess of loss reinsurance or facultative
share reinsurance within the liability of the Reinsurer, if, in the underwriting
judgment of the Company, the Reinsurer will be benefited thereby. In no event,
however, shall the amount required with respect to the Company Retention be
reduced.

Recoveries from catastrophe reinsurance shall be deemed not to reduce the amount
required with respect to the Company Retention.

ARTICLE VII – EXCLUSIONS

This Exhibit shall not apply to:

A.   Reinsurance assumed by the Company other than reinsurance of primary
business assumed from affiliated companies;   B.   Nuclear incident per the
Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance attached
hereto;   C.   “Self-insurance” or “self-insured obligations”, howsoever styled,
of the Company, its affiliates or subsidiaries, or any insurance

7. No. TP1600E

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    wherein the Company, its affiliates or subsidiaries, are named as the
insured party, either alone or jointly with some other party, notwithstanding
that no legal liability may arise in respect thereof by reason of the fact that
the Company, its affiliates or subsidiaries, may not be obligated by law to pay
a claim to itself, its affiliates or subsidiaries;   D.   Any loss or liability
accruing to the Company directly or indirectly from any insurance written by or
through any pool or association including pools or associations in which
membership by the Company is required under any statutes or regulations;   E.  
Any liability of the Company arising from its participation or membership in any
insolvency fund;   F.   Any loss or damage which is occasioned by war, including
undeclared or civil war, warlike action by a military force, including action in
hindering or defending against an actual or expected attack, by any government,
sovereign or other authority using military personnel or other agents; or
insurrection, rebellion, revolution, usurped power or action taken by
governmental authority in hindering or defending against any of these; however,
this exclusion shall not apply to any policy which contains a standard war
exclusion;   G.   Risks written on a layered basis, whether primary or excess of
loss, or policies written with a deductible or franchise of more than $500,000;
however, this exclusion shall not apply to policies which provide a percentage
deductible or franchise in connection with windstorm, earthquake or flood;   H.
  Pollution to the extent excluded in the Company’s policies. Nevertheless, if
the insured elects to purchase any “buy back” or additional coverage options,
such options shall not be covered hereunder;   I.   Insurance against
earthquake, except when written in conjunction with fire and otherwise eligible
perils;   J.   Insurance on growing crops;   K.   Insurance against flood,
waves, tidal waves, overflow of any body of water, or their spray, all whether
driven by wind or not, except when written in conjunction with fire and
otherwise eligible perils;   L.   Business classified as fidelity, however this
exclusion shall not apply to crime and fidelity with limits no greater than
$1,000,000 when written as such;   M.   Credit insurance;   N.   Business
classified as boiler and machinery;

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O.   Mortgage impairment insurance and similar kinds of insurance, howsoever
styled, providing coverage to an insured with respect to its mortgagee interest
in property or its owner interest in foreclosed property;   P.   Difference in
conditions insurance and similar kinds of insurance, howsoever styled;   Q.  
Risks which have a total insurable value of more than $250,000,000; however,
this exclusion shall not apply if the Company writes 100% of the Risk;   R.  
Losses with respect to overhead transmission and distribution lines and their
supporting structures, other than those on or within 1,000 feet of the insured
premises. However, public utilities extension and/or suppliers extension and/or
contingent business interruption coverage are not subject to this exclusion,
provided these are not part of a transmitters’ or distributors’ policy.   S.  
Offshore property Risks;   T.   Inland marine business with respect to the
following:

  1.   Cargo insurance when written as such with respect to ocean vessels;    
2.   Faulty film, tape, processing and editing insurance and cast insurance;    
3.   Drilling rigs for natural fuels;     4.   Furriers’ customers policies;    
5.   Insurance on livestock under so-called “mortality policies”,     6.  
Mining equipment while underground;     7.   Registered mail and armored car
insurance;

U.   Loss of, damage to, or failure of, or consequential loss resulting
therewith (including but not limited to earnings and extra expense) of
satellites, spacecraft, and launch vehicles, including cargo and freight carried
therein, in all phases of operation (including but not limited to pre-launch,
launch, and in-orbit).   V.   Ex-gratia payments made by the Company, however
this exclusion shall not apply if the Reinsurer give its prior approval.   W.  
Mobile homes unless written as part of a commercial multiple peril policy.

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X.   Large Insurable Values as per the attached Large Insurable Values Exclusion
Clause, which is made part of this Agreement.

If the Company is bound without knowledge of or contrary to the instructions of
the Company’s supervisory underwriting personnel, or any business falling within
the scope of one or more of the exclusions set forth in this section, these
exclusions, except A. through F., H., J., L., M. and O. shall suspend with
respect to such business until 60 days after an underwriting supervisor of the
Company acquires knowledge of such business.

ARTICLE VIII – REINSURANCE PREMIUM

A.   The Company shall pay to the Reinsurer a premium for the reinsurance
provided hereunder at a rate of 1.23%. Such rate shall be applied to the
Company’s Subject Earned Premium for the calendar year under calculation.   B.  
The term “Subject Earned Premium” as used herein is equal to the sum of the Net
Premiums Written on the business covered hereunder during the period under
consideration, plus the unearned premium reserve as respects premiums in force
at the beginning of such period, less the unearned premium reserve as respects
premiums in force at the end of the period, said unearned premium is to be
calculated on an actual daily basis or in accordance with the Company’s
methodology, as agreed.   C.   The term “Net Premiums Written” shall mean gross
premiums written less returns, allowances and reinsurances which inure to the
benefit of the Reinsurer.   D.   The following percentages of the Company’s
premium shall be allocated to the business covered under this Agreement: 100%
Businessowners.

ARTICLE IX – REPORTS AND REMITTANCES

A.   Reinsurance Premium       Within 25 days after the close of each calendar
quarter, the Company shall render to the Reinsurer a report of the reinsurance
premium for the quarter with respect to the Company’s Subject Earned Premium
during the quarter, summarizing the reinsurance premium by line of insurance;
and the amount due the Reinsurer shall be remitted with 25 days after the close
of the quarter.   B.   Claims and Losses       The Company shall report promptly
to the Reinsurer, but within no more than 25 days after the Company becomes
aware of the claim or

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    loss, each claim or loss which, in the Company’s opinion, may involve the
reinsurance afforded by this Agreement. The Company shall also report promptly
to the Reinsurer, but within no more than the 25 day time period stipulated
above, any action alleging Extra Contractual Obligations against the Company or
any declaratory judgment action brought by or against the Company on the
business reinsured hereunder. The Company shall advise the Reinsurer of the
estimated amount of Net Loss and Adjustment Expense in connection with each such
claim or loss and of any subsequent changes in such estimates.       Promptly
upon receipt of a definitive statement of Net Loss and Adjustment Expense from
the Company, but within no more than 25 days after receipt of such statement,
the Reinsurer shall pay to the Company the Reinsurer’s portion of Net Loss and
the Reinsurer’s portion of Adjustment Expense, if any. The Company shall report
to the Reinsurer any subsequent changes in the amount of Net Loss and/or
Adjustment Expense, and the amount due either party shall be remitted promptly,
but within no more than 25 days after receipt of such report.   C.   P.C.S.
Catastrophe Bulletins       The Company shall furnish to the Reinsurer, upon
request, the following information with respect to each catastrophe set forth in
the Catastrophe Bulletins published by the Property Claim Services:

  1.   The preliminary estimates of the amount recoverable from the Reinsurer;  
  2.   The Reinsurer’s portion of claims, losses, and Adjustment Expenses paid
less salvage recovered during each calendar quarter;     3.   The Reinsurer’s
portion of reserves for claims, losses, and Adjustment Expenses at the end of
each calendar quarter.

D.   General       In addition to the reports required by (a), (b), and
(c) above, the Company shall furnish such other information as may be required
by the Reinsurer for the completion of the Reinsurer’s quarterly and annual
statements and internal records.       All reports shall be rendered on forms or
in format acceptable to the Company and the Reinsurer.

ARTICLE X – MANAGEMENT OF CLAIMS AND LOSSES

The Company shall investigate and settle or defend all claims and losses. When
requested by the Reinsurer, the Company shall permit the

11. No. TP1600E

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Reinsurer, at the expense of the Reinsurer, to be associated with the Company in
the defense or settlement of any claim, loss, or legal proceeding which involves
or is likely to involve the Reinsurer. All payments of claims or losses by the
Company within the terms and limits of its polices which are within the limits
set forth in the Article entitled Limits and Retention shall be binding on the
Reinsurer, subject to the terms of this Agreement.

ARTICLE XI – RECOVERIES

The Company shall pay to or credit the Reinsurer with the Reinsurer’s portion of
any recovery obtained from salvage, subrogation, or other insurance. Adjustment
Expense for recoveries shall be deducted from the amount recovered. However, if
the Adjustment Expense incurred in obtaining recoveries exceeds the amount
recovered, if any, the excess Adjustment Expense shall be apportioned between
the parties in proportion to the liability of each party for the loss before the
recovery was obtained.

The Reinsurer shall be subrogated to the rights of the Company to the extent of
its loss payments to the Company. The Company agrees to enforce its rights of
salvage, subrogation, and its rights against insurers or to assign these rights
to the Reinsurer.

If the reinsurance hereunder is on a share basis, the recoveries shall be
apportioned between the parties in the same ratio as the amounts of their
liabilities bear to the loss. If the reinsurance hereunder is on an excess
basis, recoveries shall be distributed to the parties in an order inverse to
that in which their liabilities accrued.

ARTICLE XII – TERRORISM EXCESS RECOVERY

A.   For purposes of this Article:

  1.   “Act” shall mean the Terrorism Risk Insurance Act of 2002, any amendments
thereto and any regulations promulgated thereunder.     2.   “Affiliate,”
“Insured Losses,” and “Program Year” shall have the meanings provided in the
Act.     3.   “Company” shall include the Company and all affiliates.

B.   To the extent that an Insured Loss is otherwise payable hereunder, the
reinsurance provided by this Agreement shall apply only to the portion of
liability, loss, cost and/or expense retained by the Company net of any federal
assistance pursuant to the Act. This reinsurance shall not apply to any fines,
civil penalties or surcharges assessed pursuant to the Act.

12. No. TP1600E

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C.   The respective liability of the Reinsurer and of the Company for Insured
Losses in any Program Year under this Agreement shall each be reduced by the
ratio that the financial assistance available to the Company under the Act for
that Program Year bears to the Company’s total Insured Losses for the same
Program Year.   D.   The parties recognize that, for any Program Year, the
Reinsurer may without waiver of the foregoing Paragraphs make payments for
Insured Losses which, together with available financial assistance under the Act
and the Company retentions and/or deductibles hereunder, exceed the Company’s
Insured Losses. In such event, the Reinsurer’s proportional share of all such
excess recovery (hereafter “Reinsurer’s Excess Share”) shall inure to the
benefit of the Reinsurer. All excess recovery described in this Paragraph shall
be allocated to the Reinsurer and the Company in proportion to the respective
liability of each for Insured Losses, net of federal assistance under the Act,
salvage, subrogation and other similar recoveries, as applicable.   E.   In the
event of a Reinsurer’s Excess Share, the Company shall:

  1.   Promptly pay the Reinsurer’s Excess Share to the Reinsurer; or     2.  
Upon request of the Reinsurer at any time and at the Reinsurer’s sole
discretion, instead assign to the Reinsurer its rights to recover directly from
the federal government any portion of Reinsurer’s Excess Share not already paid
to the Reinsurer. The Company shall cooperate with and assist the Reinsurer, at
its own expense, to the extent reasonably necessary for the Reinsurer to
exercise those rights. If the Reinsurer is unable, for any reason, to exercise
any right assigned to it by the Company pursuant to this Article, the Company
shall pay the Reinsurer’s Excess Share to the Reinsurer as if no assignment had
taken place.

F.   In the event of an Insured Loss, the Company shall provide the Reinsurer
with a monthly report detailing claim settlement activities and financial
assistance under the Act. Calculations for each Program Year shall continue to
be made until the settlement of all Insured Losses covered hereunder. To the
extent that the Company allocates Insured Losses and/or federal assistance under
the Act among affiliates, claims, contracts or otherwise in any manner which
impacts the reinsurance provided hereunder, the Company shall apply a reasonable
allocation method acceptable to the Reinsurer.

ARTICLE XIII – ERRORS AND OMISSIONS

The Reinsurer shall not be relieved of liability because of an error or
accidental omission of the Company in reporting any claim or loss or any
business reinsured under this Agreement, provided that the error or omission is
rectified promptly after discovery. The Reinsurer shall be

13. No. TP1600E

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obligated only for the return of the premium paid for business reported but not
reinsured under this Agreement.

ARTICLE XIV – SPECIAL ACCEPTANCES

Business not within the terms of this Agreement may be submitted to the
Reinsurer for special acceptance and, if accepted by the Reinsurer, shall be
subject to all of the terms of this Agreement except as modified by the special
acceptance.

ARTICLE XV – RESERVES AND TAXES

The Reinsurer shall maintain the required reserves as to the Reinsurer’s portion
of unearned premium, if any, claims, losses, and Adjustment Expense.

The Company shall be liable for all premium taxes on premium ceded to the
Reinsurer under this Agreement. If the Reinsurer are obligated to pay any
premium taxes on this premium, the Company shall reimburse the Reinsurer,
however, the Company shall not be required to pay taxes twice on the same
premium.

ARTICLE XVI – OFFSET

The Company or the Reinsurer may offset any balance, whether on account of
premium, commission, claims or loses, Adjustment Expense, salvage, or otherwise,
due from one party to the other under this Agreement or under any other
agreement heretofore or hereafter entered into between the Company and the
Reinsurer.

ARTICLE XVII – INSPECTION OF RECORDS

The Company shall allow the Reinsurer to inspect, at reasonable times, the
records of the Company relevant to the business reinsured under this Agreement,
including the Company’s files concerning claims, losses, or legal proceedings
which involve or are likely to involve the Reinsurer. The Reinsurer’s right of
inspection shall continue after the termination of this Agreement.

ARTICLE XVIII – ARBITRATION

All unresolved differences of opinion between the Company and the Reinsurer
relating to this Agreement, including its formation and validity, shall be
submitted to arbitration consisting of one arbitrator chosen by the Company, one
arbitrator chosen by the Reinsurer(s), and a third arbitrator chosen by the
first two arbitrators.

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The party demanding arbitration shall communicate its demand for arbitration to
the other party by registered or certified mail, identifying the nature of the
dispute and the name of its arbitrator, and the other party shall then be bound
to name its arbitrator within 30 days after receipt of the demand.

Failure or refusal of the other party to so name its arbitrator shall empower
the demanding party to name the second arbitrator. If the first two arbitrators
are unable to agree upon a third arbitrator after the second arbitrator is
named, each arbitrator shall name three candidates, two of whom shall be
declined by the other arbitrator, and the choice shall be made between the two
remaining candidates by drawing lots. The arbitrators shall be impartial and
shall be active or retired officers of property or casualty insurance or
reinsurance companies.

The arbitrators shall adopt their own rules and procedures and are relieved from
judicial formalities. In addition to considering the rules of law and the
customs and practices of the insurance and reinsurance business, the arbitrators
shall make their award with a view to effecting the intent of this Agreement.

The decision of the majority of the arbitrators shall be in writing and shall be
final and binding upon the parties.

Each party shall bear the cost of its own arbitrator and shall jointly and
equally bear with the other party the expense of the third arbitrator and other
costs of the arbitration. In the event both arbitrators are chosen by one party,
the fees of all arbitrators shall be equally divided between the parties.

The arbitration shall be held at the times and places agreed upon by the
arbitrators.

ARTICLE XIX – INSOLVENCY OF THE COMPANY

In the event of the insolvency of the Company, the reinsurance proceeds will be
paid to the Company or the liquidator, with reasonable provision for
verification, on the basis of the claim allowed in the insolvency proceeding
without diminution by reason of the inability of the Company to pay all or part
of the claim, except as otherwise specified in the statutes of any state having
jurisdiction of the insolvency proceedings or except where the Agreement, or
other written agreement, specially provides another payee of such reinsurance in
the event of insolvency.

The Reinsurer shall be given written notice of the pendency of each claim
against the Company of the policy(ies) reinsured hereunder within a reasonable
time after such claim is filed in the insolvency proceedings. The Reinsurer
shall have the right to investigate each such claim and to interpose, at their
own expense, in the proceeding where such claim is to be adjudicated, any
defenses which they may deem available to the Company or its liquidator. The
expense thus incurred

15. No. TP1600E

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by the Reinsurer shall be chargeable, subject to court approval, against the
insolvent Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Company solely as a
result of the defense undertaken by the Reinsurer.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate, by their duly authorized representatives as of the following
dates:

In Bala Cynwyd, Pennsylvania, this 18th day of AUGUST, 2003.

      ATTEST:   PHILADELPHIA INDEMNITY COMPANY
PHILADELPHIA INSURANCE COMPANY       FLORENCE R. MCCALLUM   CHRISTOPHER J.
MAGUIRE

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And in Armonk, New York, this   8th day of AUGUST, 2003.       ATTEST:   SWISS
REINSURANCE AMERICA CORPORATION       PETER THOMSON   MATTHIAS WEBER

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Member of Management   Member of Senior Management

BH: jh
PHIL IDEMN-1600E

16. No. TP1600E

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SUPPLEMENT TO THE ATTACHMENTS

    DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS   A.  
Wherever the term “Company” or “Reinsured” or “Reassured” or whatever other term
is used to designate the reinsured company or companies within the various
attachments to the reinsurance agreement, the term shall be understood to mean
Company or Reinsured or Reassured or whatever other term is used in the attached
reinsurance agreement to designate the reinsured company or companies.   B.  
Wherever the term “Agreement” or “Contract” or “Policy” or whatever other term
is used to designate the attached reinsurance agreement within the various
attachments to the reinsurance agreement, the term shall be understood to mean
Agreement or Contract or Policy or whatever other term is used to designate the
attached reinsurance agreement.   C.   Wherever the term “Reinsurer” or
“Reinsurers” or “Underwriters” or whatever other term is used to designate the
reinsurer or reinsurers in the various attachments to the reinsurance agreement,
the term shall be understood to mean Reinsurer or Reinsurers or Underwriters or
whatever other term is used to designate the reinsuring company or companies.

INSOLVENCY FUNDS EXCLUSION CLAUSE

This Agreement excludes all liability of the Company arising by contract,
operation of law, or otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund or from reimbursement of any
person for any such liability. “Insolvency fund” includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any assessment of or
payment or assumption by any person of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.

 

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NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A.

N.M.A. 1119

1.   This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.   2.   Without in any way restricting the operation of
paragraph 1. of this Clause, this Reinsurance does not cover any loss or
liability accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance against Physical Damage (including
business interruption or consequential loss arising out of such Physical Damage)
to:

  I.   Nuclear reactor power plants including all auxiliary property on the
site, or     II.   Any other nuclear reactor installation, including
laboratories handling radioactive materials in connection with reactor
installations, and critical facilities as such, or     III.   Installations for
fabricating complete fuel elements or for processing substantial quantities of
“special nuclear material,” and for reprocessing, salvaging, chemically
separating, storing or disposing of spent nuclear fuel or waste materials, or  
  IV.   Installations other than those listed in paragraph 2. III. above using
substantial quantities of radioactive isotopes or other products of nuclear
fission.

3.   Without in any way restricting the operation of paragraphs 1. and 2. of
this Clause, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly, and
whether as Insurer or Reinsurer, from any insurance on property which is on the
same site as a nuclear reactor power plant or other nuclear installation and
which normally would be insured therewith, except that this paragraph 3. shall
not operate:

  (a)   where the Reassured does not have knowledge of such nuclear reactor
power plant or nuclear installation, or     (b)   where the said insurance
contains a provision excluding coverage for damage to property caused by or
resulting from radioactive contamination, however caused. However, on and after
1st January, 1960, this sub-paragraph (b) shall only apply provided the said
radioactive contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof.

- 1 -

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4.   Without in any way restricting the operation of paragraphs 1., 2. and 3. of
this Clause, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly, and
whether as Insurer or Reinsurer, when such radioactive contamination is a named
hazard specifically insured against.   5.   It is understood and agreed this
Clause shall not extend to risks using radioactive isotopes in any form where
the nuclear exposure is not considered by the Reassured to be the primary
hazard.   6.   The term “special nuclear material” shall have the meaning given
to it by the Atomic Energy Act of 1954 or by any law amendatory thereof.   7.  
Reassured to be sole judge of what constitutes:

  (a)   substantial quantities, and     (b)   the extent of installation, plant
or site.

NOTE: - Without in any way restricting the operation of paragraph 1. hereof, it
is understood and agreed that

  (a)   all policies issued by the Reassured on or before 31st December, 1957
shall be free from the application of the other provisions of this Clause until
expiry date or 31st December, 1960 whichever first occurs whereupon all the
provisions of this Clause shall apply,     (b)   with respect to any risk
located in Canada policies issued by the Reassured on or before 31st December,
1958 shall be free from the application of the other provisions of this Clause
until expiry date or 31st December, 1960 whichever first occurs whereupon all
the provisions of this Clause shall apply.

- 2 -

N.M.A. 1119

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LARGE INSURABLE VALUES EXCLUSION CLAUSE

(Applies to Loss Occurrences involving an event of Terrorism)

This Agreement does not cover Policies issued to a company or group of companies
where the sum of:

1.   total full values, whether insured or not, for all buildings and contents,
and   2.   total sums insured for Business Interruption and/or Extra Expenses,

exceeds a limit of $500,000,000 each location at the time when reinsurance
coverage would have attached, but for this exclusion.