Exhibit 10.22

 

Net Quota Share

Reinsurance Contract

Effective: July 1, 2005

 

issued to

 

VESTA FIRE INSURANCE CORPORATION

SHELBY INSURANCE COMPANY

THE HAWAIIAN INSURANCE AND GUARANTY COMPANY, LTD.

FLORIDA SELECT INSURANCE COMPANY

SHELBY CASUALTY INSURANCE COMPANY

VESTA INSURANCE CORPORATION

TEXAS SELECT LLOYDS INSURANCE COMPANY

and

any other insurance companies which are now or

hereafter come under the ownership, control or management of

Vesta Fire Insurance Corporation and agreed to be included in advance by the
Reinsurer

 

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Table of Contents

 

Article

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        Page

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I

   Definitions    1

II

   Business Reinsured    5

III

   Commencement and Termination    5

IV

   Territory    7

V

   Exclusions    7

VI

   Inuring Reinsurance    8

VII

   Terrorism    8

VIII

   Retention and Limit    9

IX

   Loss in Excess of Policy Limits/ECO    9

X

   Losses and Loss Adjustment Expense    10

XI

   Ceding Commission    11

XII

   Reports and Remittances    12

XIII

   Salvage and Subrogation    12

XIV

   Original Conditions    12

XV

   Late Payments    13

XVI

   Offset (BRMA 36C)    14

XVII

   Access to Records (BRMA 1D)    14

XVIII

   Errors and Omissions (BRMA 14F)    14

XIX

   Taxes (BRMA 50B)    14

XX

   Funding Requirements    15

XXI

   Insolvency    16

XXII

   Arbitration    17

XXIII

   Service of Suit (BRMA 49C)    17

XXIV

   Governing Law    18

XXV

   Federal Excise Tax    18

XXVI

   Confidentiality (BRMA 69E)    18

XXVII

   Currency (BRMA 12A)    19

XXVIII

   Agency Agreement / Combined Results    19

XXIV

   Entire Agreement    19

XXX

   Intermediary (BRMA 23A)    19

 

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Net Quota Share

Reinsurance Contract

Effective: July 1, 2005

 

issued to

 

VESTA FIRE INSURANCE CORPORATION

SHELBY INSURANCE COMPANY

THE HAWAIIAN INSURANCE AND GUARANTY COMPANY, LTD.

FLORIDA SELECT INSURANCE COMPANY

SHELBY CASUALTY INSURANCE COMPANY

VESTA INSURANCE CORPORATION

and

TEXAS SELECT LLOYDS INSURANCE COMPANY

and

any other insurance companies which are now or

hereafter come under the ownership, control or management of

Vesta Fire Insurance Corporation and agreed to be included in advance by the
Reinsurer

(hereinafter referred to collectively as the “Company”)

 

by

 

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the “Reinsurer” and individually as the “Subscribing
Reinsurer”)

 

Article I - Definitions

 

A. “Contract Year” as used herein shall mean the period from July 1, 2005
through June 30, 2006, both days inclusive. If this Contract is terminated prior
to June 30, 2006, the Contract Year shall be from July 1, 2005 through the date
of termination.

 

B. “Contract Quarter” as used herein shall mean the period from July 1, 2005
through September 30, 2005, both days inclusive, and each subsequent three-month
period shall be a separate Contract Quarter.

 

C. “Net Written Premium” as used herein shall mean the Company’s gross written
premium (including unearned premium on policies in force at the inception of
this contract) for the classes of business reinsured hereunder, less
cancellations and return premiums, less inuring reinsurance premium, and less
fees collected and retained by any general agent or the Company.

 

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D. “Net Earned Premium” as used herein shall mean the net unearned premium at
the inception of the Contract Year, plus Net Written Premium during the Contract
Year, less net unearned premium at the end of the Contract Year.

 

E. “Net Liability” as used herein means the actual loss, including Loss
Adjustment Expense and Shock Losses, paid or to be paid by the Company after
making deductions for all recoveries, salvages, subrogations and all claims on
inuring reinsurance, whether collectible or not; provided, however, that in the
event of the insolvency of the Company, payment by the Reinsurer shall be made
in accordance wit the provisions of the Insolvency Article. Nothing herein shall
be construed to mean that losses under this Agreement are not recoverable until
the Company’s Net Liability has been ascertained.

 

The amount of the Reinsurer’s liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Company to
collect from any other Reinsurer(s), whether specific or general, any amounts
which may have become due from such Reinsurer(s), whether such inability arises
from the insolvency of such other Reinsurer(s), dispute with such other
Reinsurer(s), or otherwise.

 

F. “Loss Occurrence”

 

Property Business

 

As respects Property business, “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 96 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.

 

  2. As regards riot, riot attending a strike, civil commotion, vandalism 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 epicenter 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

 

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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 frozen pipes
and tanks and melting snow) may be included in the Company’s “Loss Occurrence.”

 

  5. As regards firestorms, brush fires and other fires or series of fires,
irrespective of origin, that spread through trees, grasslands or other
vegetation, all individual losses, involving two or more individual risks,
sustained by the Company and designated by the Company as forming part of one
“Loss Occurrence,” which occur during any period of 168 consecutive hours with a
150-mile radius of any one fixed point selected by the Company may be included
in the Company’s “Loss Occurrence.” However, an individual loss subject to this
subparagraph cannot be included in more than one “Loss Occurrence.”

 

Except for those “Loss Occurrences” referred to in subparagraphs 1 and 2 of
paragraph F above, 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.

 

In respect of those “Loss Occurrences” referred to in subparagraph 1 of
paragraph F above only one such period of 96 consecutive hours shall apply with
respect to one event, regardless of the duration of the event.

 

In respect of those “Loss Occurrences” referred to in subparagraph 2 of
paragraph F above, if the disaster, accident or loss occasioned by the event is
of greater duration than 72 consecutive hours, then the Company may divide that
disaster, accident or loss into two or more “Loss Occurrences,” provided no two
periods overlap and no individual loss is included in more than one such period
and provided that no period commences 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.

 

It is understood and agreed that losses arising from a combination of two or
more perils as a result of the same event shall be considered as having arisen
from one “Loss Occurrence.” Notwithstanding the foregoing, the hourly
limitations as stated above shall not be exceeded as respects the applicable
perils and no single “Loss Occurrence” shall encompass a time period greater
than 168 consecutive hours.

 

Casualty Business

 

As respects Casualty business, “Loss Occurrence” shall mean an accident or
occurrence or a series of accidents or occurrences arising out of or caused by
one event.

 

G.

“Loss Adjustment Expense” as used herein shall mean expenses assignable to the
investigation, defense and/or settlement of specific claims, regardless of how
such expenses are classified for statutory reporting purposes. Loss Adjustment
Expense shall include, but not be limited to, litigation expenses, claims
adjusting expenses, expert witness

 

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expenses, consultants, interest on settlements or judgments, Declaratory
Judgment Expense and a pro rate share of salaries and expenses of the Company
field employees, and expenses of other company employees who have been
temporarily diverted from their normal and customary duties and assigned to the
field adjustment of losses covered by this Contract. Loss Adjustment Expense
shall not include office expenses or salaries of the Company’s regular
employees.

 

H. “Declaratory Judgment Expense” as used herein shall mean all court costs,
attorneys’ fees and expenses incurred by the Company in contesting insurance
coverage and allocable to a specific claim on Policies reinsured hereunder.
Declaratory Judgment Expense shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the Policy involved.

 

I. “Ceded Loss and Loss Adjustment Expense Ratio” as used herein shall mean
ceded Net Liability divided by ceded Net Earned Premium.

 

J. “Policy” or “Policies” as used herein shall mean the Company’s binders,
policies and contracts providing insurance and reinsurance on the lines of
business covered under this Contract.

 

K. “Notice” as used herein shall mean notice provided by certified or registered
mail, or by a nationally or internationally recognized delivery service of the
mailer’s choosing or by a recognized overnight delivery service providing the
mailer with a receipt for delivery and notice shall be deemed to have been
provided on the date of mailing.

 

L. “Shock Losses” as used herein shall mean only Net Liability resulting from a
Loss Occurrence which is greater than $1,000,000 for property or $500,000 for
Casualty or any loss which results from two or more risks involved in the same
Loss Occurrence or any loss resulting from Terrorism, Class Actions, Extra
Contractual Obligations or Excess of Policy Limits.

 

M. “Class Action” shall mean a representative action wherein one or more
plaintiffs actually named in the complaint, along with their counsel, pursue a
case for themselves and the defined class against one or more defendants. The
claims of the “class representatives” must arise from facts or law common to the
class members. Most Class Actions are called “plaintiff class actions”; however,
in limited circumstances, a Class Action can be filed against one or more
defendants representing a group of defendants, i.e. a “defendant class” action.
The class must be certified by the relevant court and meet the requisite
elements for certification as a class. This definition shall apply only to the
Net Liability to the Company which results in aggregate loss for all class
members of at least $1,000,000 (one million dollars).

 

N. “Terrorism” as used herein shall mean any act, or preparation in respect of
action, or threat of action designed to influence the government de jure or de
facto of any nation or any political division thereof, or in pursuit of
political, religious, ideological, or similar purposes to intimidate the public
or a section of the public of any nation by any person or group(s) of persons
whether acting alone or on behalf of or in connection with any organization(s)
or government(s) de jure or de facto, and which:

 

  1. Involves violence against one or more persons; or

 

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  2. Involves damage to property; or

 

  3. Endangers life other than that of the person committing the action; or

 

  4. Creates a risk to health or safety of the public or a section of the
public; or

 

  5. Is designed to interfere with or to disrupt an electronic system.

 

O. “Mold” as used herein shall mean any organic causative agents of disease and
organic irritants or contaminants including but not limited to bacteria, fungi,
mold, mildew, mycotoxins, or their spores, scent, byproducts or biogenic
aerosol.

 

Article II - Business Reinsured

 

A. By this Contract the Company obligates itself to cede to the Reinsurer and
the Reinsurer obligates itself to accept quota share reinsurance of the
Company’s Net Liability under Policies in force at the effective date hereof or
issued or renewed during the Contract Year, and classified by the Company as
Residential Property and Casualty business, including, but not limited to, Fire,
Allied Lines, Inland Marine, Earthquake and Homeowners Multiple Peril business
in the following states: Alabama, Alaska, Arizona, California, Connecticut,
Florida, Hawaii, Massachusetts, New Jersey, New York, Pennsylvania, Rhode
Island, South Carolina, Tennessee, Texas, and West Virginia.

 

B. The liability of the Reinsurer with respect to each cession hereunder shall
commence obligatorily and simultaneously with that of the Company, subject to
the terms, conditions and limitations hereinafter set forth.

 

Article III - Commencement and Termination

 

A. This Contract shall become effective at 12:01 a.m., Local Standard Time, at
the subject loss location on July 1, 2005, with respect to losses arising out of
Loss Occurrences commencing on or after that date, and shall remain in force
until June 30, 2006, both days inclusive.

 

B. The Company may terminate this Contract on December 31, 2005 by giving the
Reinsurer not less than seven days prior written Notice provided the Ceded Loss
and Loss Adjustment Expenses are not greater than 62.0% of the ceded Net Earned
Premium. The Company shall remit an amount equal to 4.0% of the ceded Net Earned
Premium to the Reinsurer within 30 days of termination. This amount shall be an
additional consideration and remitted in addition to and in accordance with
Article XII.

 

C.

The Company shall reassume the unexpired liability for inforce business as of
the effective date of termination and the Reinsurer shall return their share of
the unearned ceded premium applicable to the unexpired liability, less ceding
commission, unless mutually agreed otherwise and then the reinsurance hereunder
on business in force on the effective date of termination shall remain in full
force and effect until expiration, cancellation or next

 

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premium anniversary of such business, whichever first occurs, but in no event
beyond 12 months following the effective date of termination.

 

D. Notwithstanding the provisions of paragraph B above, the Company may
terminate the Subscribing Reinsurer’s percentage share in this Contract at any
time by giving 30 days prior written Notice to the Subscribing Reinsurer in the
event any of the following circumstances occur:

 

  1. The Subscribing Reinsurer has, without the written consent of the Company,
become merged with, acquired by or controlled by any other company, corporation
or individual(s) not controlling the Subscribing Reinsurer’s operations
previously; or

 

  2. A State Insurance Department or other governmental, legal or regulatory
authority, or court of competent jurisdiction has ordered the Subscribing
Reinsurer to cease or suspend writing business; or

 

  3. The Subscribing Reinsurer has become insolvent or has been placed into
liquidation or receivership (whether voluntary or involuntary) or proceedings
have been instituted against the Subscribing Reinsurer for the appointment of a
receiver, liquidator, rehabilitator, conservator or trustee in bankruptcy, or
other agent known by whatever name, to take possession of its assets or control
of its operations; or

 

  4. The Subscribing Reinsurer has reinsured its entire liability under this
Contract, excepting internal reinsurance, without the Company’s prior written
consent; or

 

  5. The Subscribing Reinsurer has ceased assuming new and renewal Property
and/or Casualty treaty reinsurance business; or

 

  6. The Subscribing Reinsurer fails to remit undisputed funds in accordance
with the terms herein.

 

E. Notwithstanding the provisions of paragraph B above, the Subscribing
Reinsurer may terminate its percentage share in this Contract at any time by
giving 30 days prior written Notice to the Company in the event any of the
following circumstances occur:

 

  1. The Company’s statutory capital and surplus, as calculated on a statutorily
filed basis at June 30, 2005, has been reduced by more than 50.0% of the amount
of statutory capital and surplus at any time during the Contract Year; or

 

  2. A State Insurance Department or other governmental, legal or regulatory
authority, or court of competent jurisdiction has ordered the Company to cease
or suspend writing business; or

 

  3. The Company has become insolvent or has been placed into liquidation or
receivership (whether voluntary or involuntary) or proceedings have been
instituted against the Company for the appointment of a receiver, liquidator,
rehabilitator, conservator or trustee in bankruptcy, or other agent known by
whatever name, to take possession of its assets or control of its operations; or

 

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  4. The Company has become merged with, acquired by or controlled by any other
company, corporation or individual(s) not controlling the Company’s operations
previously; or

 

  5. The Company ceases writing its entire Residential Property and/or Casualty
business; or

 

  6. The Company fails to remit funds in accordance with the terms herein; or

 

  7. The Company’s A.M. Best rating falls below “C” or “Not Rated”.

 

F. In the event that any Policy is required by statute or departmental
regulation or order to be continued in force, the Reinsurer shall continue to
remain liable with respect to each such Policy until the Company may legally
cancel, non-renew or otherwise eliminate liability under such Policy or Policies
at the earliest time possible.

 

Article IV - Territory

 

The territorial limits of this Contract shall be identical with those of the
Company’s Policies.

 

Article V - Exclusions

 

This Contract does not apply to and specifically excludes the following:

 

  1. Reinsurance and reinsurance assumed by the Company under obligatory
reinsurance agreements, except intercompany and agency reinsurance where the
Policies involved are to be reunderwritten in accordance with the underwriting
standards of the Company and reissued as Company Policies at the next
anniversary or expiration date.

 

  2. Nuclear Incident as provided in the Nuclear Incident Exclusion Clause -
Physical Damage - Reinsurance and the Nuclear Incident Exclusion Clause -
Liability - Reinsurance, which is attached to and made a part of this Contract.

 

  3. Loss or damage caused by or resulting from war, invasion, hostilities, acts
of foreign enemies, civil war, rebellion, insurrection, military or usurped
power, or martial law or confiscation by order of any government or public
authority, but this exclusion shall not apply to loss or damage covered under a
standard Policy with a standard War Exclusion Clause.

 

  4.

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. “Insolvency fund” includes any guaranty
fund, insolvency fund, plan, pool, association, fund or other arrangement,
however denominated, established or governed, which provides for any assessment
of or payment or assumption by the Company 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

 

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which is otherwise deemed unable to meet any claim, debt, charge, fee or other
obligation in whole or in part.

 

  5. Flood, when written as such.

 

  6. Seepage and Pollution.

 

  7. Asbestos.

 

  8. Loss, damage, cost or expense arising out of an Act of Terrorism involving
the use of any biological, chemical or nuclear agent, material, device or
weapon.

 

  9. Assigned Risks, Pools and Fair Plans

 

Article VI - Inuring Reinsurance

 

A. The Company shall purchase inuring excess reinsurance to limit its loss
subject hereto from any one coverage, any one Policy (exclusive of Loss in
Excess of Policy Limits and Extra Contractual Obligation) to the following
amounts:

 

  1. As respects Fire, Allied Lines, Inland Marine, Earthquake and Section I of
Homeowners, $1,000,000 each risk;

 

  2. As respects Section II of Homeowners, $500,000 each Policy, each Loss
Occurrence.

 

B. In addition, the Company shall purchase catastrophe excess reinsurance to
limit its loss from any one Loss Occurrence. Catastrophe excess reinsurance that
is in force or effective on July 1, 2005, or renewals of such reinsurance, shall
inure to the benefit of this Contract. Other catastrophe excess reinsurance must
be approved by the Reinsurer.

 

C. The Company shall be the sole judge as to what constitutes “one risk.” The
above reinsurance shall be deemed in place and fully recoverable, whether or not
collectable by reason of insolvency, dispute or otherwise.

 

Article VII - Terrorism

 

A. Any loss reimbursement the Company receives from the United States Government
under the Terrorism Risk Insurance Act of 2002 (the “Terrorism Act”) as a result
of a Loss Occurrence commencing during the term of this Contract shall inure to
the benefit of this Contract in the proportion that the Company’s insured losses
(as defined in the Terrorism Act) in that Loss Occurrence under policies
reinsured under this Contract bear to the Company’s total insured losses in that
Loss Occurrence.

 

B.

If a loss reimbursement received by the Company under the Terrorism Act is based
on the Company’s insured losses in more than one Loss Occurrence and the United
States Government does not designate the amount allocable to each Loss
Occurrence, the reimbursement shall be prorated in the proportion that the
Company’s insured losses in

 

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each Loss Occurrence bear to the Company’s total insured losses arising out of
all Loss Occurrences to which the recovery applies.

 

Article VIII - Retention and Limit

 

A. The Company shall cede to the Reinsurer and the Reinsurer agrees to accept
50% of the Company’s Net Liability under Policies in force at the effective date
hereof or issued or renewed during the Contract Year. Further The Company shall
cede to the Reinsurer 50% of the Net Unearned Premium Reserves at inception of
this Agreement and 50% of the Net Written Premium on all Policies subject to
this Contract.

 

B. The liability of the Reinsurer for loss and Loss Adjustment Expense for the
Contract Year arising out of all Shock Losses shall not exceed 25.0% of ceded
Net Earned Premium actually received by the Reinsurer for the Contract Year.

 

C. The liability of the Reinsurer for any Loss Adjustment Expense for the
Contract Year shall not exceed 10.0% of ceded Net Earned Premium actually
received by the Reinsurer for the Contract Year.

 

D. The liability of the Reinsurer from Mold related losses for the Contract Year
shall not exceed 5.0% of ceded Net Earned Premium actually received by the
Reinsurer for the Contract Year.

 

E. The total liability of the Reinsurer for loss and Loss Adjustment Expense for
the Contract Year shall not exceed 120.0% of ceded Net Earned Premium actually
received by the Reinsurer for the Contract Year.

 

F. It is understood and agreed that in no event shall the Company’s gross
written premium from policies during any one Contract Year exceed $400,000,000.
However, in the event the foregoing gross written premium limit is exceeded, the
Reinsurer shall remain liable for all polices that would have otherwise been
ceded hereunder were it not for such net written premium limit, but only for
policies issued or renewed through and including the month when the net written
premium limit was exceeded. The Reinsurer shall have no liability for policies
issued or renewed at or after 12:01 a.m., on the first day of the month
subsequent to the month when the net written premium limit was exceeded.

 

Article IX - Loss in Excess of Policy Limits/Extra Contractual Obligations

 

A.

In the event the Company pays or is held liable to pay an amount of loss in
excess of its Policy limit, but otherwise within the terms of its Policy
(hereinafter called “Loss in Excess of Policy Limits”) or any punitive,
exemplary, compensatory or consequential damages, other than Loss in Excess of
Policy Limits (hereinafter called “Extra Contractual Obligations”) because of
alleged or actual bad faith, negligence on its part in rejecting an offer or
settlement within Policy limits, or in preparation of the defense or in the
trial of an action against its insured or reinsured or in preparation or
prosecution of an appeal consequent upon such an action, or in otherwise
handling a claim under a Policy subject to this Contract, 90.0% of the Loss in
Excess of Policy Limits and/or 90.0% of the Extra

 

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Contractual Obligations shall be added to the Company’s loss, if any, under the
Policy involved.

 

B. A Loss in Excess of Policy Limits and/or an Extra Contractual Obligation
shall be deemed to have occurred on the same date as the loss covered or alleged
to be covered under the Policy.

 

C. Notwithstanding anything stated herein, this Contract shall not apply to any
Loss in Excess of Policy Limits or any Extra Contractual Obligation incurred by
the Company as a result of any fraudulent and/or criminal act by any officer or
director of the Company acting individually or collectively or in collusion with
any individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.

 

D. Recoveries from any form of insurance or reinsurance which protects the
Company against claims the subject matter of this Article shall inure to the
benefit of this Contract.

 

E. If any provision of this Article shall be rendered illegal or unenforceable
by the laws, regulations or public policy of any state, such provision shall be
considered void in such state, but this shall not affect the validity or
enforceability of any other provision of this Contract or the enforceability of
such provision in any other jurisdiction.

 

F. Savings Clause (Applicable only to a Subscribing Reinsurer who is domiciled
in the State of New York): In no event shall coverage be provided to the extent
that such coverage is not permitted under New York law.

 

Article X - Losses and Loss Adjustment Expense

 

A. Losses shall be reported by the Company in summary form as provided in
Article XII, but the Company shall notify the Reinsurer immediately when, in the
sole judgment of the Company, a specific case involves unusual circumstances or
large loss possibilities. The Reinsurer shall have the right to participate, at
its own expense, in the adjustment of any such losses.

 

B. All loss settlements made by the Company, whether under strict Policy
conditions or by way of compromise (excluding any Ex-Gratia payments), shall be
binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the
case may be, its proportion of each such settlement in accordance with
Article XII.

 

C. In the event of a claim under a Policy subject hereto, the Reinsurer shall be
liable for its proportionate share of Loss Adjustment Expense incurred by the
Company in connection therewith, and shall be credited with its proportionate
share of any recoveries of such expense.

 

D. If the ceded loss from any event that is recognized by the Property Claims
Services (PCS) and identified by a PCS catastrophe number exceeds $2,500,000,
the Reinsurer shall pay the ceded loss (i.e., “cash call”) within 15 days after
the Reinsurer has received evidence of the amount paid by the Company.

 

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Article XI - Ceding Commission

 

A. The Reinsurer shall allow the Company a 37.0% provisional commission on all
premiums ceded to the Reinsurer. The Company shall allow the Reinsurer return
commission on return premiums at the same rate.

 

B. The provisional commission allowed the Company shall be adjusted periodically
in accordance with the provisions set forth herein.

 

C. The adjusted commission rate shall be calculated as follows:

 

  1. If the Ceded Loss and Loss Adjustment Expense Ratio is 62.0% or greater,
the adjusted commission rate for the Contract Year shall be 30.0%.

 

  2. If the Ceded Loss and Loss Adjustment Expense Ratio is less than 62.0%, but
not less than 30.0%, the adjusted commission rate for the Contract Year shall be
30.0%, plus 100% of the absolute value of the difference in percentage points
between 62.0% and the ceded loss and Loss Adjustment Expense Ratio.

 

  3. If the Ceded Loss and Loss Adjustment Expense Ratio is 30.0% or less, the
adjusted commission rate for the Contract Year shall be 62.0%.

 

  4. Notwithstanding the provisions of subparagraphs (1), (2) and (3) above, if
the effective date of calculation of the adjusted commission rate is within 18
months of the end of the Contract Year then the adjusted commission rate for the
Contract Year shall not exceed 37.0%.

 

D. Within 60 days after the end of the Contract Year, the Company shall
calculate and report the adjusted commission for the Contract Year. If the
adjusted commission is less than commissions previously allowed by the Reinsurer
(Provisional Commission), the Company shall remit the difference to the
Reinsurer with its report.

 

E. The adjusted commission shall be recalculated within 60 days of the end of
each subsequent Contract Quarter after the end of the Contract Year until all
losses subject hereto have been settled. Any balance shown to be due either
party as a result of any such recalculation shall be remitted by the other party
within 30 days after receipt and verification of the Company’s report.

 

F. Notwithstanding the provisions of paragraph E above, if 18 months after the
end of the Contract Year the adjusted commission is greater than the commissions
previously allowed by the Reinsurer, the Reinsurer shall remit the difference to
the Company within 30 days after receipt and verification of the Company’s
report. Upon such adjustment, the Company shall advise the Reinsurer of any
outstanding losses arising during the Contract, which has not been finally
settled and which may cause a recovery under this Contract and, unless mutually
agreed otherwise, release the Reinsurer from all liabilities that attach
hereunder for any losses not reported to the Reinsurer within 18 months after
the end of the Contract Year.

 

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Article XII - Reports and Remittances

 

A. At inception or upon execution, whichever is later, of this Contract, the
Company shall report to the Reinsurer the ceded unearned premium (net of inuring
reinsurance as set forth in Article VI) with respect to business in force as of
the effective date of the Contract. The Company shall remit payment of this
amount, less Ceding Commission, with the report.

 

B. Within 20 days after the end of each month, the Company shall report to the
Reinsurer:

 

  1. Ceded Net Written Premium for the month;

 

  2. Provisional commission thereon;

 

  3. Ceded Net Earned Premium for the month;

 

  4. Ceded losses paid during the month, segregated by losses assigned a
catastrophe number by PCS (net of any recoveries during the month under the
“cash call” provisions of Article X), Loss Adjustment Expense, Shock Losses,
Mold losses and all other losses; and

 

  5. Ceded unearned premiums and case outstanding reserves for ceded losses as
of the end of the month.

 

C. The positive balance of (B1) less (B2) less (B4) shall be remitted by the
Company with its report. Any balance shown to be due the Company shall be
remitted by the Reinsurer within 15 days after receipt and verification of the
Company’s report.

 

D. The Company shall furnish the Reinsurer with such information as the
Reinsurer may require to complete its Annual Convention Statement.

 

E. Reports shall follow the format shown in Schedule A attached to this
contract.

 

Article XIII - Salvage and Subrogation

 

The Reinsurer shall be credited with its proportionate share of salvage (i.e.,
reimbursement obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and sums paid to
attorneys as retainer, of obtaining such reimbursement or making such recovery)
on account of claims and settlements involving reinsurance hereunder. The
Company hereby agrees to enforce its rights to salvage or subrogation relating
to any loss, a part of which loss was sustained by the Reinsurer, and to
prosecute all claims arising out of such rights.

 

Article XIV - Original Conditions

 

A.

All reinsurance under this Contract shall be subject to the same rates, terms,
conditions, waivers and interpretations and to the same modifications and
alterations as the respective Policies of the Company. However, in no event
shall this be construed in any way to

 

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provide coverage outside the terms and conditions set forth in this Contract.
The Reinsurer shall be credited with its exact proportion of the original
premiums received by the Company, prior to disbursement of any dividends, but
after deduction of premiums, if any, ceded by the Company for inuring
reinsurance.

 

B. Nothing herein shall in any manner create any obligations or establish any
rights against the Reinsurer in favor of any third party or any persons not
parties to this Contract.

 

C. The Company has not relied on the Reinsurer for accounting, legal or tax
advice pertaining to this Contract.

 

Article XV - Late Payments

 

A. The provisions of this Article shall not be implemented unless specifically
invoked, in writing, by one of the parties to this Contract.

 

B. In the event any premium, loss or other payment due either party is not
received by the intermediary named in the Article XXX (hereinafter referred to
as the “Intermediary”) by the payment due date, the party to whom payment is due
may, by notifying the Intermediary in writing, require the debtor party to pay,
and the debtor party agrees to pay, an interest penalty on the amount past due
calculated for each such payment on the last business day of each month as
follows:

 

  1. The number of full days which have expired since the due date or the last
monthly calculation, whichever the lesser; times

 

  2. 1/365ths of the six-month United States Treasury Bill rate as quoted in The
Wall Street Journal on the first business day of the month for which the
calculation is made; times

 

  3. The amount past due, including accrued interest.

 

It is agreed that interest shall accumulate until payment of the original amount
due plus interest penalties have been received by the Intermediary.

 

C. The establishment of the due date shall, for purposes of this Article, be
determined as follows:

 

  1. As respects any routine payment, adjustment or return due either party, the
due date shall be as provided for in the applicable section of this Contract. In
the event a due date is not specifically stated for a given payment, it shall be
deemed due 45 business days after the date of transmittal by the Intermediary of
the initial billing for each such payment.

 

  2. As respects any payment, adjustment or return due either party not
otherwise provided for in subparagraph 1 of this paragraph, the due date shall
be deemed as 45 business days following transmittal of written notification that
the provisions of this Article have been invoked.

 

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For purposes of interest calculations only, amounts due hereunder shall be
deemed paid upon receipt by the Intermediary.

 

D. Nothing herein shall be construed as limiting or prohibiting a Subscribing
Reinsurer from contesting the validity of any claim, or from participating in
the defense of any claim or suit, or prohibiting either party from contesting
the validity of any payment or from initiating any arbitration or other
proceeding in accordance with the provisions of this Contract. If the debtor
party prevails in an arbitration or other proceeding, then any interest
penalties due hereunder on the amount in dispute shall be null and void. If the
debtor party loses in such proceeding, then the interest penalty on the amount
determined to be due hereunder shall be calculated in accordance with the
provisions set forth above unless otherwise determined by such proceedings. If a
debtor party advances payment of any amount it is contesting, and proves to be
correct in its contestation, either in whole or in part, the other party shall
reimburse the debtor party for any such excess payment made plus interest on the
excess amount calculated in accordance with this Article.

 

E. Interest penalties arising out of the application of this Article that are
$100 or less from any party shall be waived unless there is a pattern of late
payments consisting of three or more items over the course of any 12-month
period.

 

Article XVI - Offset (BRMA 36C)

 

The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.

 

Article XVII - Access to Records

 

The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance. The Reinsurer shall be able to inspect and copy any pertinent
records and shall be responsible for all such related expenses.

 

Article XVIII - Errors and Omissions (BRMA 14F)

 

Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.

 

Article XIX - Taxes (BRMA 50B)

 

In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or

 

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profits tax returns, to any state or territory of the United States of America
or the District of Columbia.

 

Article XX - Funding Requirements

 

A. The Reinsurer agrees to fund its share of the Company’s ceded unearned
premium, outstanding loss and Loss Adjustment Expense reserves (including
incurred but not reported loss reserves) by:

 

  1. Clean, irrevocable and unconditional letters of credit issued or confirmed
by a bank or banks meeting the NAIC Securities Valuation Office credit standards
for issuers of letters of credit and acceptable to the Company; and/or

 

  2. Escrow accounts for the benefit of the Company; and/or

 

  3. Cash advances;

 

only if the Reinsurer is unauthorized in any state of the United States of
America or the District of Columbia having jurisdiction over the Company and if,
without such funding, a penalty would accrue to the Company on any financial
statement it is required to file with the insurance regulatory authorities
involved.

 

The Reinsurer, at its sole option, may fund in other than cash if its method and
form of funding are acceptable to the Company and to the insurance regulatory
authorities involved. For the purposes of this Contract the Lloyd’s United
States Credit for Reinsurance Trust Fund shall be considered an acceptable
funding instrument.

 

B. With regard to funding in whole or in part by letters of credit, it is agreed
that each letter of credit will be in a form acceptable to insurance regulatory
authorities involved, will be issued for a term of at least one year and will
include an “evergreen clause,” which automatically extends the term for at least
one additional year at each expiration date unless written Notice of non­renewal
is given to the Company not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding anything to the
contrary in this Contract, that said letters of credit may be drawn upon by the
Company or its successors in interest at any time, without diminution because of
the insolvency of the Company or the Reinsurer, but only for one or more of the
following purposes:

 

  1. To reimburse itself for the Reinsurer’s share of unearned premiums returned
to insureds on account of Policy cancellations, unless paid in cash by the
Reinsurer;

 

  2. To reimburse itself for the Reinsurer’s share of losses and/or Loss
Adjustment Expense paid under the terms of Policies reinsured hereunder, unless
paid in cash by the Reinsurer;

 

  3. To reimburse itself for the Reinsurer’s share of any other amounts claimed
to be due hereunder, unless paid in cash by the Reinsurer;

 

  4.

To fund a cash account in an amount equal to the Reinsurer’s share of any ceded
unearned premium, outstanding loss and Loss Adjustment Expense reserves

 

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(including incurred but not reported loss reserves) funded by means of a letter
of credit which is under non­renewal Notice, if said letter of credit has not
been renewed or replaced by the Reinsurer 10 days prior to its expiration date;

 

  5. To refund to the Reinsurer any sum in excess of the actual amount required
to fund the Reinsurer’s share of the Company’s ceded outstanding loss and Loss
Adjustment Expense reserves (including incurred but not reported loss reserves),
if so requested by the Reinsurer.

 

In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(1), B(2) or B(4), or in the case of
B(3), the actual amount determined to be due, the Company shall promptly return
to the Reinsurer the excess amount so drawn.

 

Article XXI - Insolvency

 

A. In the event of the insolvency of one or more of the reinsured companies,
this reinsurance shall be payable directly to the company or to its liquidator,
receiver, conservator or statutory successor on the basis of the liability of
the company without diminution because of the insolvency of the company or
because the liquidator, receiver, conservator or statutory successor of the
company has failed to pay all or a portion of any claim. It is agreed, however,
that the liquidator, receiver, conservator or statutory successor of the company
shall give written Notice to the Reinsurer of the pendency of a claim against
the company indicating the Policy or bond reinsured which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time after
such claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may deem
available to the company or its liquidator, receiver, conservator or statutory
successor. The expense thus incurred by the Reinsurer shall be chargeable,
subject to the approval of the Court, against the company as part of the expense
of conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the company solely as a result of the defense undertaken by
the Reinsurer.

 

B. Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such expense
had been incurred by the company.

 

C. It is further understood and agreed that, in the event of the insolvency of
one or more of the reinsured companies, the reinsurance under this Contract
shall be payable directly by the Reinsurer to the company or to its liquidator,
receiver or statutory successor, except as provided by Section 4118(a) of the
New York Insurance Law or except (1) where this Contract specifically provides
another payee of such reinsurance in the event of the insolvency of the company
or (2) where the Reinsurer with the consent of the direct insured or insureds
has assumed such Policy obligations of the company as direct obligations of the
Reinsurer to the payees under such policies and in substitution for the
obligations of the company to such payees.

 

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Article XXII - Arbitration

 

A. As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to this
Contract, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be chosen by the two
Arbiters before they enter upon arbitration, all of whom shall be active or
retired disinterested executive officers of insurance or reinsurance companies
or Lloyd’s London Underwriters. In the event that either party should fail to
choose an Arbiter within 30 days following a written request by the other party
to do so, the requesting party may choose two Arbiters who shall in turn choose
an Umpire before entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their appointment, each
Arbiter shall nominate three candidates within 10 days thereafter, two of whom
the other shall decline, and the decision shall be made by drawing lots.

 

B. Each party shall present its case to the Arbiters within 30 days following
the date of appointment of the Umpire. The Arbiters shall consider this Contract
as an honorable engagement rather than merely as a legal obligation and they are
relieved of all judicial formalities and may abstain from following the strict
rules of law. The decision of the Arbiters shall be final and binding on both
parties; but failing to agree, they shall call in the Umpire and the decision of
the majority shall be final and binding upon both parties. Judgment upon the
final decision of the Arbiters may be entered in any court of competent
jurisdiction.

 

C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this Article
and communications shall be made by the Company to each of the reinsurers
constituting one party, provided, however, that nothing herein shall impair the
rights of such reinsurers to assert several, rather than joint, defenses or
claims, nor be construed as changing the liability of the reinsurers
participating under the terms of this Contract from several to joint.

 

D. Each party shall bear the expense of its own Arbiter, and shall jointly and
equally bear with the other the expense of the Umpire and of the arbitration. In
the event that the two Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall be equally divided
between the two parties.

 

E. Any arbitration proceedings shall take place at a location mutually agreed
upon by the parties to this Contract, but notwithstanding the location of the
arbitration, all proceedings pursuant hereto shall be governed by the law of the
State of Illinois.

 

Article XXIII - Service of Suit (BRMA 49C)

 

(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)

 

A.

It is agreed that in the event the Reinsurer fails to pay any amount claimed to
be due hereunder, the Reinsurer, at the request of the Company, will submit to
the jurisdiction of a

 

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court of competent jurisdiction within the United States. Nothing in this
Article constitutes or should be understood to constitute a waiver of the
Reinsurer’s rights to commence an action in any court of competent jurisdiction
in the United States, to remove an action to a United States District Court, or
to seek a transfer of a case to another court as permitted by the laws of the
United States or of any state in the United States.

 

B. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereby designates
the party named in its Interests and Liabilities Agreement, or if no party is
named therein, the Superintendent, Commissioner or Director of Insurance or
other officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Contract.

 

Article XXIV - Governing Law

 

This Contract shall be governed by and construed in accordance with the laws of
the State of Illinois.

 

Article XXV - Federal Excise Tax

 

A. The Reinsurer has agreed to allow for the purpose of paying the Federal
Excise Tax the applicable percentage of the premium payable hereon (as imposed
under Section 4371 of the Internal Revenue Code) to the extent such premium is
subject to the Federal Excise Tax.

 

B. In the event of any return of premium becoming due hereunder the Reinsurer
will deduct the applicable percentage from the return premium payable hereon and
the Company or its agent should take steps to recover the tax from the United
States Government.

 

Article XXVI - Confidentiality (BRMA 69E)

 

The parties acknowledge there may be portions of this Contract, the treaty
prospectus or the marketing package that may contain confidential, proprietary
information of the Company. The Reinsurer shall maintain the confidentiality of
such information concerning the Company or its business and shall not disclose
it to any third person without prior written approval; provided, however, that
the Reinsurer may be required and is permitted under this Contract to disclose
such information in answers to interrogatories, subpoenas or other
legal/arbitration processes as well as to the Company’s Intermediaries, to the
Reinsurer’s retrocessionaires, and applicable intermediaries, or in response to
requests by governmental and regulatory agencies. In addition, the Reinsurer may
disclose such information to its accountants and to its outside legal counsel as
may be necessary.

 

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Article XXVII - Currency (BRMA 12A)

 

A. Whenever the word “Dollars” or the “$” sign appears in this Contract, they
shall be construed to mean United States Dollars and all transactions under this
Contract shall be in United States Dollars.

 

B. Amounts paid or received by the Company in any other currency shall be
converted to United States Dollars at the rate of exchange at the date such
transaction is entered on the books of the Company.

 

Article XXVIII - Agency Agreement / Combined Results

 

Vesta Fire Insurance Corporation shall be the agent for the Company for purposes
of sending or receiving Notices required by the terms and conditions of this
Contract, and for purposes of remitting or receiving any monies due any party.
All calculations, including but not limited to commission adjustment and limit
of liability shall be on the combined sum of all named companies in this
Contract that are included as the Company.

 

Article XXIV - Entire Agreement

 

This Contract supersedes all prior discussions and agreements between the
parties with respect to the subject matter of this Contract. This Contract,
including the schedules attached hereto (if any), contains the sole and entire
Contract between the parties with respect to the subject matter hereof. Any and
all changes to this Contract will not be valid unless and until they are
submitted in writing and are properly executed by all parties.

 

Article XXX - Intermediary (BRMA 23A)

 

Benfield Inc. is hereby recognized as the Intermediary negotiating this Contract
for all business hereunder. All communications (including but not limited to
notices, statements, premium, return premium, commissions, taxes, losses, Loss
Adjustment Expense, salvages and loss settlements) relating thereto shall be
transmitted to the Company or the Reinsurer through Benfield Inc. Payments by
the Company to the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to
constitute payment to the Company only to the extent that such payments are
actually received by the Company.

 

In Witness Whereof, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:

 

Birmingham, Alabama, this                      day of
                                                      in the year
                .

 

  Vesta Fire Insurance Corporation

 

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U.S.A.

 

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE

 

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 operations of paragraphs (1) and
(2) hereof, 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 Reassured does not have knowledge of such nuclear reactor power
plant or nuclear installation, or

 

  (b) where 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.

 

4. Without in any way restricting the operations of paragraphs (1), (2) and
(3) hereof, 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 that 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 it in 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.

 

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  (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.

 

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U.S.A.

 

NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE

(Approved by Lloyd’s Underwriters’ Fire and Non-Marine Association)

 

(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.

 

(2) Without in any way restricting the operation of paragraph (1) of this Clause
it is understood and agreed that for all purposes of this reinsurance all the
original policies of the Reassured (new, renewal and replacement) of the classes
specified in Clause II of this paragraph (2) from the time specified in Clause
III in this paragraph (2) shall be deemed to include the following provision
(specified as the Limited Exclusion Provision):

 

Limited Exclusion Provision.*

 

  I. It is agreed that the policy does not apply under any liability coverage,

 

to    (injury, sickness, disease, death or destruction    with respect to which
an insured under the      (bodily injury or property damage   

 

policy is also an insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or would be an insured
under any such policy but for its termination upon exhaustion of its limit of
liability.

 

  II. Family Automobile Policies (liability only), Special Automobile Policies
(private passenger automobiles, liability only), Farmers Comprehensive Personal
Liability Policies (liability only), Comprehensive Personal Liability Policies
(liability only) or policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated above, such as
the Comprehensive Dwelling Policy and the applicable types of Homeowners
Policies.

 

  III. The inception dates and thereafter of all original policies as described
in II above, whether new, renewal or replacement, being policies which either

 

  (a) become effective on or after 1st May, 1960, or

 

  (b) become effective before that date and contain the Limited Exclusion
Provision set out above;

 

provided this paragraph (2) shall not be applicable to Family Automobile
Policies, Special Automobile Policies, or policies or combination policies of a
similar nature, issued by the Reassured on New York risks, until 90 days
following approval of the Limited Exclusion Provision by the Governmental
Authority having jurisdiction thereof.

 

(3) Except for those classes of policies specified in Clause II of paragraph
(2) and without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that for all purposes of this reinsurance
the original liability policies of the Reassured (new, renewal and replacement)
affording the following coverages:

 

Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective Liability,
Manufacturers and Contractors Liability, Product Liability, Professional and
Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile
Liability (including Massachusetts Motor Vehicle or Garage Liability)

 

shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):

 

Broad Exclusion Provision.*

 

It is agreed that the policy does not apply:

 

   

I.       

   Under any Liability Coverage to    (injury, sickness, disease, death or
destruction               (bodily injury or property damage

 

  (a) with respect to which an insured under the policy is also an insured under
a nuclear energy liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or

 

  (b) resulting from the hazardous properties of nuclear material and with
respect to which (1) any person or organization is required to maintain
financial protection pursuant to the Atomic Energy Act of 1954, or any law
amendatory thereof, or (2) the insured is, or had this policy not been issued
would be, entitled to indemnity from the United States of America, or any agency
thereof, under any agreement entered into by the United States of America, or
any agency thereof, with any person or organization.

 

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  II. Under any Medical Payments Coverage, or under any Supplementary Payments
Provision

 

relating to

   (immediate medical or surgical relief    to expenses incurred with respect   
(first aid,   

 

to

   (bodily injury, sickness, disease or death    resulting from the hazardous
properties of    (bodily injury   

 

nuclear material and arising out of the operation of a nuclear facility by any
person or organization.

 

   

III.    

   Under any Liability Coverage to    (injury, sickness, disease, death or
destruction               (bodily injury or property damage

 

resulting from the hazardous properties of nuclear material, if

 

  (a) the nuclear material (1) is at any nuclear facility owned by, or operated
by or on behalf of, an insured or (2) has been discharged or dispersed
therefrom;

 

  (b) the nuclear material is contained in spent fuel or waste at any time
possessed, handled, used, processed, stored, transported or disposed of by or on
behalf of an insured; or

 

(c)

   the    (injury, sickness, disease, death or destruction    arises out of the
furnishing by an insured           (bodily injury or property damage   

 

of services, materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear facility, but if such
facility is located within the United States of America, its territories, or
possessions or Canada, this exclusion (c) applies

 

only to

   (injury to or destruction of property at such nuclear facility    (property
damage to such nuclear facility and any property thereat.

 

  IV. As used in this endorsement:

 

“hazardous properties” include radioactive, toxic or explosive properties;
“nuclear material” means source material, special nuclear material or byproduct
material; “source material”, “special nuclear material”, and “byproduct
material” have the meanings given them in the Atomic Energy Act of 1954 or in
any law amendatory thereof; “spent fuel” means any fuel element or fuel
component, solid or liquid, which has been used or exposed to radiation in a
nuclear reactor; “waste” means any waste material (1) containing byproduct
material and (2) resulting from the operation by any person or organization of
any nuclear facility included within the definition of nuclear facility under
paragraph (a) or (b) thereof; “nuclear facility” means

 

  (a) any nuclear reactor,

 

  (b) any equipment or device designed or used for (1) separating the isotopes
of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling
processing or packaging waste,

 

  (c) any equipment or device used for the processing, fabricating or alloying
of special nuclear material if at any time the total amount of such material in
the custody of the insured at the premises where such equipment or device is
located consists of or contains more than 25 grams of plutonium or uranium 233
or any combination thereof, or more than 250 grams of uranium 235,

 

  (d) any structure, basin, excavation, premises or place prepared or used for
the storage or disposal of waste,

 

and includes the site on which any of the foregoing is located, all operations
conducted on such site and all premises used for such operations; “nuclear
reactor” means any apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass of fissionable
material;

 

      ( With respect to injury to or destruction of property, the word “injury”
or “destruction”

      ( “property damage” includes all forms of radioactive contamination of
property.

      ( includes all forms of radioactive contamination of property.

 

  V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or replacement,
being policies which become effective on or after 1st May, 1960, provided this
paragraph (3) shall not be applicable to

 

  (i) Garage and Automobile Policies issued by the Reassured on New York risks,
or

 

  (ii) statutory liability insurance required under Chapter 90, General Laws of
Massachusetts, until 90 days following approval of the Broad Exclusion Provision
by the Governmental Authority having jurisdiction thereof.

 

(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the Nuclear
Energy Liability Exclusion Provisions adopted by the Canadian Underwriters’
Association of the Independent Insurance Conference of Canada.

 

*NOTE.  The words printed in italics in the Limited Exclusion Provision and in
the Broad Exclusion Provision shall apply only in relation to original liability
policies which include a Limited Exclusion Provision or a Broad Exclusion
Provision containing those words.

 

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Schedule A

 

Monthly Reporting Requirements

 

Cumulative Amounts evaluated as of XX/XX/XX

 

     California

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   Texas

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   Other States

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   TOTAL

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     Gross

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   Ceded

--------------------------------------------------------------------------------

   Gross

--------------------------------------------------------------------------------

   Ceded

--------------------------------------------------------------------------------

   Gross

--------------------------------------------------------------------------------

   Ceded

--------------------------------------------------------------------------------

   Gross

--------------------------------------------------------------------------------

   Ceded

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Premium

                                       

Unearned at 7/1/05

                                       

Written Beginning 7/1/05

                                       

Earned during treaty term

                                       

Ceding Commission

                                       

Paid

                                       

Expected Final

                                       

Loss & ALAE

                                       

Paid Loss

                                       

Paid ALAE

                                       

Outstanding Loss & ALAE

                                       

IBNR Loss & ALAE

                                       

Mold Loss & ALAE

                                       

Shock Loss & ALAE

                                       

 

Page 1 – Schedule A

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