EXHIBIT 10.21

Managing General Agency Agreement

Entered into by

and between

Southern Insurance Company

Southern Vanguard Insurance Company

Republic Underwriters Insurance Company

Republic Fire and Casualty Insurance Company

(Hereinafter singularly and collectively referred to as “Company”)

and

FirstComp Underwriters Group, Inc.

(Hereinafter “General Agent”)

Originally Effective: July 1, 2006

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Contents

 

Description

   Page Managing General Agency Agreement:   

Article 1 - Appointment and Independent Contractor Relationship

   1

Article 2 - Definitions

   2

Article 3 - Confidentiality

   3

Article 4 - Non-competition

   5

Article 5 - General Agent’s Authority

   5

Article 6 - Directors and Employees

   9

Article 7 - Compensation

   9

Article 8 - Records

   10

Article 9 - Audits and Examinations

   11

Article 10 - General Agent’s Reports

   12

Article 11- Establishment of Loss Reserves

   14

Article 12 - Expenses

   14

Article 13 - Handling of Funds

   15

Article 14 - Ownership of Books and Records and Miscellaneous Property

   17

Article 15 - Advertising

   17

Article 16 - Changes in Ownership, Control or Management

   18

Article 17 - Indemnity Agreement

   18

Article 18 - Errors and Omissions Insurance, Surety Bond

   20

Article 19 - Arbitration

   20

Article 20 - Termination

   20

Article 21 - Claims Handling

   24

Article 22 - Reinsurance

   26

Article 23 - Prohibited Acts

   27

Article 24 - Miscellaneous

   27

Addenda:

  

•      Schedule of Business Addendum

   A-1

•      Commission Schedule Addendum

   B-1

 

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MANAGING GENERAL AGENCY AGREEMENT

This Managing General Agency Agreement dated as of July 1, 2006 (“Effective
Date”) is made and entered into by and between Southern Insurance Company, an
insurance company domiciled in the State Texas, Southern Vanguard Insurance
Company, an insurance company domiciled in the State of Texas, Republic
Underwriters Insurance Company, an insurance company domiciled in the State of
Texas, and Republic Fire and Casualty Insurance Company, an insurance company
domiciled in the State of Oklahoma (singularly and collectively referred to
herein as “Company”) and FirstComp Underwriters Group, Inc., a Nebraska
Corporation with administrative offices in Omaha, Nebraska (referred to herein
as “General Agent”).

In consideration of the agreements and obligations set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Company and General Agent hereby agree as follows:

Article 1 – Appointment and Independent Contractor Relationship

1.1 Appointment. Company appoints General Agent to act as its Managing General
Agent, as defined in applicable Regulations. After execution or termination of
this Agreement, Company shall make appropriate notifications of such
appointment, or subsequent termination thereof, to applicable state insurance
departments, as may be required of Company by Regulations. General Agent shall
make appropriate notifications of such appointment, or subsequent termination
thereof, to applicable state insurance departments, as may be required of
General Agent by Regulations.

1.2 Exclusivity. General Agent acknowledges and agrees that Company’s
appointment of General Agent is non-exclusive and does not restrict in any
manner Company’s right to appoint agents for any lines of insurance Company
writes directly or indirectly either through agents, sub-agents, managing
general agents or otherwise. Company acknowledges and agrees that General
Agent’s appointment by Company is non-exclusive and does not restrict in any
manner General Agent’s right to be appointed by any other insurer or provide
management or other services to any other person or entity, other than as
provided in Article 4 of this Agreement.

1.3 Independent Contractor. General Agent shall act as an independent
contractor. Company shall have no right of control over General Agent as to the
time, means, or manner of General Agent’s performance or the conduct of its
business within the authority granted by this Agreement. General Agent shall
furnish and maintain, at [**], the office and office equipment, vehicles,
telephone service, books of accounts, personnel and employees deemed by it as
necessary or desirable to the carrying on and promoting of the business of
General Agent and shall [**]. Nothing contained in this Agreement is intended to
nor shall it be construed as creating the relationship of employer and employee,
nor partner, nor joint venturer between Company and General Agent or between
Company and any Agent with whom General Agent might contract.

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Article 2 – Definitions

2.1 “Affiliated Reinsurance Agreements” means those certain reinsurance
agreements, as may be amended from time to time, by and between Company and
Republic Underwriters Insurance Company reinsuring the business produced
pursuant to this Agreement.

2.2 “Agent” means any person or entity licensed as an insurance agent who acts
in compliance with Regulations as an appointed sub-producer for General Agent
and Policies are issued as a result.

2.3 “Agreement” means this Managing General Agency Agreement, including all
Addenda hereto, as amended from time to time.

2.4 “Authorized Business” means lines of insurance and coverages, with the
authority, limitations and underwriting guidelines, as set forth in the Schedule
of Business Addendum attached to and incorporated into this Agreement by
reference.

2.5 “Broker” means any person or entity who acts in compliance with Regulations
as an un-appointed sub-producer for General Agent and Policies are issued as a
result.

2.6 “Company” shall have the meaning set forth in the preamble of this
Agreement.

2.7 “Effective Date” means the effective date of this Agreement and shall be
July 1, 2006.

2.8 “Excess of Loss Reinsurance Agreement” means that certain excess of loss
reinsurance agreement(s), as may be amended from time to time, by and between
Republic Underwriters Insurance Company and one or more Excess of Loss
Reinsurers providing excess of loss reinsurance for the Authorized Business.

2.9 “Excess of Loss Reinsurer” means the reinsurer or reinsurers under the
Excess of Loss Reinsurance Agreement. General Agent and Company understand and
agree that an Excess of Loss Reinsurer may change from time to time and such
changes in Excess of Loss Reinsurer shall not require written amendment to this
Agreement.

2.10 “General Agent” shall have the meaning set forth in the preamble of this
Agreement.

2.11 “Installment Billing Fees” means the sum of the amounts identified as
billing fees charged by General Agent to policyholders on behalf of Company for
processing installment payments on Policies.

2.12 “Loss Adjustment Expenses” (“LAE”) means expenses assignable to the
investigation, appraisal, adjustment, settlement, litigation, defense or appeal
of specific claims, regardless of how such expenses are classified for statutory
reporting purposes. Loss Adjustment Expenses shall include, but not be limited
to, interest on judgments, expenses of outside adjusters, ex gratia payments and
declaratory judgment expenses or other legal expenses and costs incurred in
connection with coverage questions and legal actions connected thereto but shall
not include office expenses or salaries of Company’s or General Agent’s regular
employees.

2.13 “Net Written Premium” means gross written premium on Policies (including
endorsements and audits), less return premiums and cancellations.

 

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2.14 “Party” shall mean General Agent or Company, as applicable.

2.15 “Policy” means any policy, endorsement, binder, certificate, or proposal
for insurance or other document that binds Company.

2.16 “Quota Share Reinsurance Agreement” means that quota share reinsurance
agreement(s), as may be amended from time to time, by and between Republic
Underwriters Insurance Company and Quota Share Reinsurer reinsuring the
Authorized Business.

2.17 “Quota Share Reinsurer” means a reinsurer subscribing to a Quota Share
Reinsurance Agreement, as may be amended from time to time, reinsuring the
business produced pursuant to this Agreement.

2.18 “Regulations” mean federal and state statutes, laws, rules, regulations, or
orders which govern or regulate the operations or actions of Company, General
Agent, Agents or Reinsurers.

2.19 “Reinsurer” means those companies subscribing to Affiliated Reinsurance
Agreements, Quota Share Reinsurance Agreements or Excess of Loss Reinsurance
Agreements reinsuring the business produced pursuant to this Agreement
(reinsuring the Authorized Business) to which General Agent is not a party.
General Agent and Company understand and agree that Reinsurers may change from
time to time and such changes in Reinsurers shall not require written amendment
to this Agreement.

2.20 “Unearned Premiums” means that portion of Net Written Premiums not earned
because the Policy term has not expired as of the date for which the calculation
is made.

Article 3 – Confidentiality

3.1 During the term of this Agreement, one Party to this Agreement (“Disclosing
Party”) may reveal to the other Party (“Receiving Party”) certain confidential
or proprietary information related to its business operations, proprietary
software applications and other intellectual property, and other information.
All such information and all information related to the Authorized Business and
this Agreement, whether oral, written, electronic or otherwise, furnished by
Disclosing Party to Receiving Party, its directors, officers, employees, agents,
consultants, or representatives (“Representatives”), together with analyses,
working papers, notes, compilations, studies, or other documents or records
prepared by Disclosing Party or its Representatives which contain or otherwise
reflect or are generated from such information, are collectively referred to
herein as “Confidential Information.”

3.2 Receiving Party agrees to use Confidential Information solely for the
purpose of this Agreement, the Affiliated Reinsurance Agreement, the Quota Share
Reinsurance Agreement, or the Excess of Loss Reinsurance Agreement (and no other
purposes) and shall keep Confidential Information confidential and not disclose
Confidential Information to others, except that Disclosing Party may disclose
Confidential Information to its Representatives who need to know Confidential
Information, or to whom such disclosure is reasonably desirable, for the sole
purpose of Receiving Party’s performance under this Agreement, the Affiliated
Reinsurance Agreement, the Quota Share Reinsurance Agreement, or the Excess of
Loss Reinsurance Agreement.

 

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3.3 Receiving Party may disclose Confidential Information to any of its
affiliates and any of their respective directors, officers, employees, agents,
consultants, or representatives (each an “Authorized Recipient”) who need to
know the Confidential Information solely for the purpose of Receiving Party’s
performance under this Agreement, the Affiliated Reinsurance Agreement, the
Quota Share Reinsurance Agreement, or the Excess of Loss Reinsurance Agreement,
provided that each Authorized Recipient shall have agreed to treat such
Confidential Information in accordance with the terms of this Agreement as if
such Authorized Recipient were Receiving Party (in the case of an entity) or a
Representative (in the case of an individual) under this Agreement. Receiving
Party shall be responsible for any breach of this Agreement by its
Representatives or any of its Authorized Recipients.

3.4 Confidential Information shall not include:

 

  (a) information which at the time of disclosure by Disclosing Party is in the
public domain or which later becomes part of the public domain through no act or
omission of Receiving Party or its Representatives;

 

  (b) information received by Receiving Party or its Representatives from any
third party not known by Receiving Party or its Representatives to be bound by a
confidentiality agreement;

 

  (c) information already known by Receiving Party, provided that such
information is not known by Receiving Party to be subject to another
confidentiality agreement with or other obligation of secrecy to Disclosing
Party;

 

  (d) information independently developed by Receiving Party or its
Representatives not receiving disclosure hereunder or from a source known by
Receiving Party or its Representatives to be bound by a confidentiality
agreement with or other obligation of secrecy to Disclosing Party; or

 

  (e) information that is required to be disclosed in compliance with any
Regulation, in response to any properly and lawfully issued summons or subpoena
or other judicial process or at the request or demand of any governmental
authority, including any regulator, administrative arbiter or court with
authority or jurisdiction over Receiving Party’s or any of its affiliates (it
being agreed that Receiving Party shall promptly give Disclosing Party notice of
any such request or grounds for disclosure, if permitted by applicable law).

3.5 Company and General Agent acknowledge and agree that Confidential
Information is valuable information to Disclosing Party and unauthorized
disclosure or use of Confidential Information by Receiving Party or its
Representatives may cause irreparable harm and damage to Disclosing Party, and
in the event of any breach of the provisions of this Article 3, Disclosing Party
shall be entitled to seek equitable relief, including injunctions and orders for
specific performance, in addition to all other remedies available to it at law
or in equity.

 

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3.6 Each Party shall keep in strict confidence and shall not use or disclose any
nonpublic personal information the other Party furnishes to it, other than to
carry out the purposes set forth in this Agreement for which such Party
disclosed such information. For purposes of this Agreement, nonpublic personal
information means nonpublic personal financial information and nonpublic
personal health information as those terms are defined in applicable federal and
state law, including the Gramm-Leach-Bliley Act (Financial Services
Modernization Act of 1999) and comparable state laws. Nonpublic personal
financial information includes personally identifiable financial information;
and any list, description or other grouping of consumers (and publicly available
information pertaining to them) that is derived using any personally
identifiable financial information that is not publicly available. Nonpublic
personal health information includes health information that identifies an
individual who is the subject of the information or with respect to which there
is a reasonable basis to believe that the information could be used to identify
an individual.

Article 4 – Non-competition

In recognition of the significant time and expense incurred by Company in
connection with this Agreement, during the term of this Agreement in states for
which the Company is licensed, General Agent shall not act as a managing general
agent for any entity other than Company or General Agent’s affiliated insurer
which is under common ownership with General Agent related to business which
under this Agreement would qualify as Authorized Business nor directly or
indirectly solicit business which under this Agreement would qualify as
Authorized Business from agents, broker or other producers other than pursuant
to this Agreement without the express, written approval of Company or upon 180
days written notice by General Agent to Company.

Article 5 – General Agent’s Authority

5.1 General Authority. General Agent shall have the authority and the duty to
act for and on behalf of Company insofar as necessary for General Agent to
perform the functions of a managing general agent of Company, including, but not
limited to, recruiting and supervising Agents and Brokers, underwriting, Policy
issuance, accounting, billing and claims handling, all subject to the terms and
conditions of this Agreement. General Agent, through its personnel, facilities,
contractual arrangements and service providers, shall provide such services as
set forth in this Agreement and Addenda as may be attached hereto and
incorporated into this Agreement by reference.

5.2 Regulations. General Agent shall comply with all Regulations with respect to
the placement of business with Company and in carrying out its duties and
obligations under this Agreement. General Agent shall maintain current licenses
and certificates of authority as required by Regulations for the conduct of
business pursuant to this Agreement.

5.3 Company’s Authority. Company shall have ultimate authority over the business
placed with Company, including the right to accept any application or to
underwrite any risk submitted or to reject, cancel or nonrenew any Policy or
Policies produced by or through General Agent, subject to Policy provisions and
applicable Regulations. Company may from time to time place written restrictions
upon General Agent for the business produced pursuant to this Agreement,
including restrictions on premium volume, concentration of risks, forms, rates,
fees, and underwriting guidelines. General Agent shall make recommendations to
Company regarding such restrictions.

 

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5.4 Schedule of Business Addendum. The Schedule of Business Addendum attached to
and incorporated into this Agreement by reference shall set forth the authority
and limitations of General Agent with regard to Authorized Business, including,
but not limited to, authority limitations, underwriting guidelines, maximum
annual premium volume, basis of rates to be charged, types of risks which may be
written , maximum limits of liability, applicable exclusions, territorial
limitations, Policy cancellation provisions and maximum Policy periods. One or
more Schedule of Business Addendum may be attached hereto and may be amended
upon mutual agreement of the Parties without otherwise affecting the terms and
conditions of this Agreement. Any amendment shall be in writing, executed by the
Parties, and specify the effective date of the amendment. Underwriting
guidelines developed in accordance with the authority and limitations set forth
in the Schedule of Business Addendum shall be incorporated into this Agreement
by reference.

5.5 Management of Business. Pursuant to the terms of this Agreement, General
Agent shall have the responsibility to manage all business placed with Company
under this Agreement, including business placed by Agents and Brokers. General
Agent shall make every attempt to cure any unauthorized business placed with
Company.

5.6 Agents and Brokers.

(a) General Agent shall assure that the original source of all business produced
under this Agreement shall be properly licensed Agents or Brokers, who maintain
appropriate licenses, certificates of authority and appointments as required by
Regulations for the conduct of business under this Agreement. General Agent
shall conduct and maintain proper background checks of Agents and Brokers. Upon
discovery, General Agent shall immediately notify Company of any irregularities
regarding any Agent or Broker. Company shall have the right to accept, reject or
cancel any agent’s appointment recommended or made by General Agent. General
Agent shall not delegate its authority to underwrite and issue Policies or any
risk changing endorsements or amendments to Policies to any Agent, Broker or
other entity without the express written consent of Company.

(b) General Agent shall have authority to recruit, contract with, manage, train,
and supervise Agents as producing agents acting for and on behalf of General
Agent. General Agent may appoint Agents for Company at General Agent’s expense,
and upon execution of this Agreement, General Agent shall provide to Company all
information necessary or requested by Company to substantiate the expertise and
acceptability of each Agent appointed. General Agent shall maintain in force a
written agreement, in a form acceptable to Company, with Agents and Brokers, who
are not employees of General Agent. Each such agreement shall be made directly
between General Agent and the Agent or Broker and shall provide that the Agent
or Broker shall have no right, claim or cause of action against Company and
shall look exclusively to General Agent for the payment of or satisfaction of
any and all damages, losses, claims, costs, causes of action or expenses
(including attorneys’ fees), including, but not limited to, extra-contractual
damages or losses in excess of policy limits, arising, directly or indirectly,
out of or in connection with any action taken or not taken by Company or General
Agent, unless such right, claim or cause of action arises solely and exclusively
out of the negligence of Company.

 

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5.7 Indemnification and Hold Harmless.

(a) GENERAL AGENT [**].

(b) GENERAL AGENT SHALL COMPLY WITH ALL REGULATIONS WITH RESPECT TO ANY
TERMINATION, SUSPENSION, OR REVOCATION OF AUTHORITY DELEGATED TO ANY AGENT AND
SHALL INDEMNIFY AND HOLD COMPANY HARMLESS, SINGULARLY AND COLLECTIVELY, AGAINST
ANY DAMAGES, LOSSES, CLAIMS, COSTS, CAUSES OF ACTION, OR EXPENSES, INCLUDING
ATTORNEYS’ FEES, ARISING, DIRECTLY OR INDIRECTLY, OUT OF OR IN CONNECTION WITH
ANY ACTION TAKEN OR NOT TAKEN BY GENERAL AGENT, AGENT OR BROKER IN THIS REGARD,
EXCEPT FOR ANY SUCH ACTION TAKEN OR NOT TAKEN SOLELY AT THE AUTHORIZED, WRITTEN
DIRECTION OF COMPANY. GENERAL AGENT SHALL INDEMNIFY AND HOLD COMPANY, SINGULARLY
AND COLLECTIVELY, HARMLESS AGAINST ANY PENALTIES AND FINES IMPOSED BY REGULATORY
AUTHORITIES, INCLUDING ATTORNEYS’ FEES AND EXPENSES, ARISING DIRECTLY OR
INDIRECTLY, OUT OF OR IN CONNECTION WITH COMPANY’S ACCEPTANCE OF BUSINESS FROM
ANY AGENT OR BROKER AND AGAINST ANY DAMAGES, LOSSES, CLAIMS, COSTS, CAUSES OF
ACTION, OR EXPENSES, INCLUDING ATTORNEYS’ FEES, ARISING, DIRECTILY OR
INDIRECTLY, OUT OF OR IN CONNECTION WITH COMPANY’S ACCEPTANCE OF BUSINESS FROM
ANY AGENT OR BROKER, UNLESS AND TO THE EXTENT SUCH PENALITIES, FINES, DAMAGES,
LOSSES, CLAIMS, COSTS, CAUSES OF ACTION, OR EXPENSES ARE THE SOLE RESULT OF THE
AUTHORIZED INSTRUCTIONS OR ACTS OF COMPANY.

5.8 Regulatory Filings. Forms, rates, and rules for Authorized Business as
mutually agreed upon by General Agent and Company shall be filed by Company as
required with the proper regulatory agency. Upon completion of filing and
receipt of approval from the applicable regulatory agency or according to
approval granted by Regulations, Company shall notify General Agent of the
effective date of such filing.

5.9 Applications and Policies. General Agent shall have the authority to accept
applications for Policies and to issue Policies for Authorized Business
submitted by or through Agents or Brokers on forms, at rates, and under rules
approved by Company. Company may refuse to accept any application or to
underwrite any risk submitted and shall have the right to cancel or non-renew
any Policy, subject to Regulations and Policy provisions. General Agent shall
ensure that all applications, binders, policies or other forms are approved by
Company and the required applicable state regulatory official prior to use.

5.10 Policy Renewals and Cancellations. According to Regulations and Policy
provisions, as well as delegations of authorities herein, General Agent shall be
responsible for the proper renewal, non-renewal or cancellation of Policies in
accordance with Regulations, Policy provisions, and delegations of authority as
provided in this Agreement. General Agent shall timely communicate to
policyholders any renewal quotes or notices of non-renewal or cancellation to
preclude the extension of coverages beyond the expiration dates or cancellation
dates of in-force Policies.

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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5.11 Policy Issuance. General Agent shall not delegate its authority to issue
Policies to any Agent or Broker or other third party, unless otherwise approved
in writing by Company in advance of the delegation of authority by General
Agent. General Agent’s request to Company for approval to delegate such
authority shall include a copy of the agreement between General Agent and Agent
or Broker which includes Agent’s or Broker’s authorities to be delegated by
General Agent.

5.12 Premiums and Fees. General Agent shall have the authority to receive and
receipt for premiums and to retain commissions and other fees, as specified in
this Agreement, out of such collected premiums and fees, subject to the terms
and conditions of this Agreement. General Agent shall have the authority to bill
premiums to policyholders on an installment basis and charge policyholders
Installment Billing Fees as allowed by Regulations. General Agent shall have the
authority to accept premiums financed by premium finance companies or other
lending institutions. General Agent shall be solely responsible and liable for
premiums financed and shall cause any unearned premium or commission refunds to
be paid directly to said premium finance company or lender and shall not pay or
credit any Agent’s or Broker’s account.

5.13 Reserves. General Agent or its designated claims adjustment contractor
approved by Company shall have the authority to set loss, Loss Adjustment
Expenses (LAE), and incurred but not reported (IBNR) reserves on Policies for
Company according to accepted statutory accounting principles, actuarial loss
reserving standards, and Regulations, subject to review and adjustment by
Company.

5.14 Involuntary Risks. General Agent shall process and administer in accordance
with the provisions of this Agreement all involuntary business (e.g., assigned
risk plans), if any, arising as a result of business produced pursuant to this
Agreement and shall continue to do so after the termination of this Agreement,
at the election of Company.

5.15 Communications with Regulators. Each Party hereto shall, immediately upon
its receipt, send to the other Party all communications or copies of
communications received from insurance departments or other regulatory
authorities, including complaints, related to the business written pursuant to
this Agreement. General Agent shall cooperate with Company in responding to such
communications and shall provide the detail information necessary for Company to
respond to such communications in a complete and timely manner. Company, not
General Agent, shall correspond directly with the regulatory authorities
regarding such communications.

 

5.16 Suspension of Authority.

(a) Company shall have the unilateral right, exercisable in its sole and
absolute discretion, to suspend the authority of General Agent pursuant to this
Agreement during the pendency of any dispute between Company and General Agent
arising out of or in connection with any alleged breach or failure of
performance or any material uncertainty of future performance on the part of
General Agent under this Agreement, including, but not limited to:

 

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(i) General Agent’s failure to follow or adhere to limitations on its
underwriting authority;

(ii) General Agent’s unauthorized delegation of binding authority;

(iii) General Agent’s failure to follow or adhere to claims handling guidelines
of Company; or

(iv) impairment of General Agent’s resources to perform.

(b) Upon receiving notice of any suspension of authority, General Agent shall
have [**] days to cure any underlying cause of such dispute; otherwise, upon the
expiration of such [**] days, Company may exercise its unilateral right to
suspend the authority of General Agent. Company’s suspension of the authority of
General Agent under this Agreement in good faith shall [**].

(c) Company has and retains the right, exercisable in its sole and absolute
discretion, to restrict the premium volume of the business produced by General
Agent under this Agreement at any time. However, in the event that Company
exercises its right under this Section (c) of Article 5.16, the [**] day period
for notice under Article 4 Non-competition shall be waived.

Article 6 – Directors and Employees

Neither General Agent nor Company shall permit any individual representing the
other Party or any Agent or Broker to serve on its or any affiliated entity’s
board of directors and shall not jointly employ any such individual.

Article 7 – Compensation

7.1 Commissions.

(a) Commissions, as set forth in each Commission Schedule Addendum attached to
and incorporated into this Agreement by reference, shall be payable to General
Agent and shall be General Agent’s sole and full compensation for all business
placed with Company under this Agreement; provided, however, commissions are
payable to General Agent only to the extent premiums on Policies are collected
by Company. Compensation is payable in consideration of General Agent’s faithful
performance of the duties and obligations set forth in this Agreement and
includes payment for unallocated loss adjustment expenses, which shall include
General Agent’s internal costs for administering claims, including, but not
limited to, employees’ salaries and home office expenses.

(b) General Agent shall be solely responsible and solely liable for the payment
of any compensation or reimbursement due to any Agent, Broker or claims
adjustment contractors resulting from or connected with business placed with
Company pursuant to this Agreement. Payment by Company to General Agent of any
amounts due in connection with any business accepted by Company pursuant to this
Agreement shall satisfy any obligation or liability whatsoever on the part of
Company, whether in law or equity, to make such payment to any

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Agent, Broker, claims adjustment contractor or other person or entity. If there
is not an Agent or Broker to receive the designated commission on a Policy,
General Agent may retain the commission.

7.2 Contingent Commission.

(a) This Agreement allows for payment of a contingent commission between Company
and General Agent as set forth on the attached Commission Schedule Addendum.

(b) Notwithstanding any provision in this Agreement to the contrary, in the
event that General Agent is in default or has committed a breach of its
obligations under this Agreement, no contingent commission shall be paid until
such time as General Agent has cured the default or breach.

7.3 Expenses and Return Commissions. General Agent shall be obligated for and
shall pay [**], and Company shall not be liable for or obligated to pay [**]
incurred by, for, or on behalf of General Agent. General Agent shall be liable
for the return of commissions on return premiums at the same rate as the
commissions allowed in connection with the coverage for which the return of
premiums is being made. General Agent shall not, however, be required to return,
as return commissions, monies greater than the total commission payable to
General Agent in connection with the coverage for which the return of premium is
made.

7.4 Commission Schedule Addendum. More than one Commission Schedule Addendum may
be attached to this Agreement, and each Commission Schedule Addendum may be
amended by Company and General Agent without otherwise affecting the terms and
conditions of this Agreement. All such amendments shall be in writing, executed
by the Parties, and specify the effective date thereof.

Article 8 – Records

8.1 Records Separation and Retention. General Agent shall keep and maintain
records of the business written or transacted for or on behalf of Company
pursuant to this Agreement, including underwriting files and claims files,
separate and segregated from, and not combined with, any other insurance company
records maintained by General Agent. All records on business produced by General
Agent under this Agreement shall be retained and maintained by General Agent in
good condition for a period at least equal to the minimum period required by
Regulations or a period no less than seven years, whichever is longer. The
record retention period of a Policy shall begin with the latest of the
expiration date of the Policy or the claim settlement date. As regards claim
records involving minor claimants, the record retention period shall begin when
the minor reaches majority. Company retains the right to control record
destruction on business produced by General Agent pursuant to this Agreement,
including hardcopy and electronic records. When records are scheduled for
destruction by General Agent, all records shall be delivered to Company as
requested by Company along with an approved detailed log that fully describes
such records. Such records shall be the joint property of Company and General
Agent. Upon an order of liquidation of Company, such records shall become the
sole property of Company or its estate, and General Agent shall have reasonable
access to and the right to copy the records on a timely basis.

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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8.2 Maintenance of Policies and Records. General Agent shall provide and
maintain all binders, Policies, contracts of insurance, claim files and all
necessary books, records, dailies and correspondence with policyholders. General
Agent shall be solely responsible for and shall keep accurate records of all
Policies assigned to General Agent and, upon Company’s request, shall account to
Company for all outstanding and unused policy supplies. In the event canceled or
terminated Policies or binders are unavailable, General Agent shall forward or
cause to be forwarded properly executed lost policy receipts.

Article 9 – Audits and Examinations

9.1 Availability. General Agent shall make available at all reasonable times and
in a usable form for inspection, copy, or audit by Company, Reinsurer, or their
designated representatives all records applicable to business produced pursuant
to this Agreement, including, but not limited to, underwriting, claims,
financial and accounting files. Upon notice, all records shall be made available
for inspection at any office of Company in a usable form if insurance department
personnel or other governmental authorities request such inspection. Upon
request, General Agent shall immediately forward to Company’s independent
auditor or statistical agent exact, as written, copies of all applications,
binders, daily reports, monthly reporting forms, endorsements, and statistical
files, including all other evidence of insurance written, modified or
terminated.

9.2 Scheduled Audits. Company and its designated representatives shall be
afforded full and complete access to General Agent’s records for the purpose of
auditing General Agent with respect to all transactions arising out of or in
connection with any business written by General Agent or any Agent or Broker
pursuant to this Agreement, including any underwriting, claims, financial or
accounting files of General Agent, upon 24 hours notice and during the regular
business hours of General Agent. Company shall conduct such audits at least
semiannually, and otherwise within 90 days of the close of any 30 day period
following the first anniversary of the Effective Date of this Agreement in which
Company’s aggregate premium volume increases by 30% or more if General Agent
writes more than 20% of Company’s aggregate premium volume and General Agent has
itself experienced an increase of 20% or more in its own premium volume produced
within the same 30 day period. Copies of such audits shall remain on file with
Company for at least the minimum period of time required by Regulations and be
available to regulators for review.

Company may conduct examinations more extensively or frequently if issues and
matters, in the sole discretion of Company, necessitate such examinations.

9.3 Minimum Scope of Audits. Any audit conducted by Company shall include issues
and matters required by Company or Regulations, and at a minimum, shall include
a review of the following information or elements:

(a) General Agent’s claims procedures and claims handling practices;

(b) timeliness of claim payments, i.e., lag-time between the date a claim is
reported and the date it is paid;

 

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(c) timeliness of General Agent’s reporting of new business to Company;

(d) timeliness of General Agent’s remittance of monies due Company;

(e) timeliness of premium and collection for business written for or on behalf
of Company;

(f) reconciliation of General Agent’s policy forms and check and draft
inventory; and

(g) compliance with underwriting guidelines set forth in this Agreement.

9.4 Expenses of Audits and Examinations. All expenses incurred by Company for
audits and examinations performed by Company shall be borne by Company, unless
the scope of the audit or examination is increased as a result of unusual or
unexpected audit or examination findings. If in the opinion of Company, the
examination expenses have increased substantially due to a scope expansion, such
additional expenses shall be shared by Company and General Agent as mutually
agreed. Any expenses incurred by Company or General Agent for audits or
examinations conducted by or on behalf of a regulatory agency that specifically
relates to the business produced pursuant to this Agreement shall be borne by
General Agent.

Article 10 – General Agent’s Reports

10.1 Monthly Reports. General Agent shall furnish to Company an accounting on a
monthly basis detailing all transactions for or on behalf of Company (“monthly
reports”). Such accounting must be received by Company not later than 30 days
from the end of the month being accounted for. Monthly reports shall be
summarized and detailed by annual statement line of business to enable Company
to record the monthly transactions in its statutory annual statement. Company
shall have the authority to determine the content of the monthly reports. At a
minimum, monthly reports shall include the following information:

 

  (a) Net Written Premiums, Earned and Unearned Premiums

 

  (b) Installment Billing Fees collected

 

  (c) General Agent’s commissions

 

  (d) paid losses, less loss recoveries and salvage and subrogation

 

  (e) Loss Adjustment Expenses paid (direct defense, cost containment and other
adjusting expenses, shall be reported separately)

 

  (f) outstanding unearned premium reserves

 

  (g) outstanding loss reserves

 

  (h) outstanding LAE reserves (direct defense, cost containment and other
adjusting expenses, shall be reported separately)

 

  (i) outstanding IBNR reserves

 

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10.2 Annual Reports. General Agent shall furnish to Company annual reports, as
defined by Company detailing all transactions for or on behalf of Company.
Annual reports must be received by Company not later than 30 days from the end
of the year being accounted for. Annual reports shall be summarized and detailed
by annual statement line of business to enable Company to prepare statutory
annual statements. Company shall have the authority to determine the content of
annual reports. At a minimum, annual reports shall include year-to-date amounts
of all information required for monthly reports as well as the following
information:

(a) Segregated by policy year – Net Written Premiums

(b) Segregated by accident year – gross losses paid, salvage and subrogation
received and gross Loss Adjustment Expenses paid during the year (direct
defense, cost containment and other adjusting expenses, shall be reported
separately)

(c) Segregated by accident year – outstanding loss, LAE (direct defense, cost
containment and other adjusting expenses, shall be reported separately) and IBNR
reserves.

(d) Outstanding unearned premium reserves that are:

(i) Running one year or less from the date of the Policy;

(ii) Running more than one year from the date of the Policy; and

(iii) Advance premiums.

(e) Number of Policies and amounts of Net Written Premiums that are in-force

(f) Claim counts by accident year for:

(i) Reported claims;

(ii) Claims closed with payment; and

(iii) Outstanding claims.

10.3 Data Calls and Indemnity and Hold Harmless. As regards all statistical data
calls, whether recurring or special, General Agent shall submit to Company in a
timely manner the information and data necessary to allow Company to report
General Agent’s data in compliance with such data calls. All expenses incurred
in connection with such calls shall be the responsibility of General Agent.
GENERAL AGENT SHALL INDEMNIFY AND HOLD HARMLESS COMPANY, SINGULARY AND
COLLECTIVELY, FROM ANY AND ALL PENALTIES, FINES, COSTS, EXPENSES AND DAMAGES
(INCLUDING ATTORNEYS’ FEES) OF ANY KIND OR NATURE, THAT MAY BE ASSESSED AGAINST
COMPANY BY ANY REGULATORY BODY OR STATISTICAL AGENT AS A RESULT OF ANY
DEFICIENCY RELATED TO THE STATISTICAL DATA REPORTED BY GENERAL AGENT FOR
BUSINESS WRITTEN PURUSANT TO THIS AGREEMENT.

10.4 Electronic Reports. If General Agent elects to transmit electronically
reports required under this Agreement, including, but not limited to, monthly
reports, annuals reports and claims reports, the time period for transmitting
such electronic files to Company shall be consistent with the respective paper
report time periods.

 

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10.5 Financial Statement. General Agent shall furnish annually to Company
General Agent’s audited consolidated financial statements and footnotes that are
in accordance with generally accepted accounting principles. The financial
statements shall include, but not be limited to, balance sheets for the two most
recent years, and income statement and statement of cash flows for the three
most recent years. Consolidating schedules, if any, shall also be furnished, as
appropriate.

10.6 IRS Form 1099. General Agent shall furnish annually an IRS Form 1099 to any
third party, as required by Regulations.

10.7 Other Reports. General Agent shall furnish to Company other reports or
information reasonably requested by Company on business written pursuant to this
Agreement, including but not limited to, detailed Policy reports and loss run
reports.

Article 11 – Establishment of Loss Reserves

General Agent shall establish, subject to review and adjustment by Company in
its absolute discretion, claim and loss reserves with respect to the Policies,
including reserves for Loss Adjustment Expenses, incurred but not reported
losses, and losses reported but not paid and shall furnish to Company all data
supporting estimated IBNR. If required by Regulations, General Agent, on behalf
of Company, shall obtain an opinion of a certified actuary, at the sole expense
of General Agent, attesting to the adequacy of all losses and Loss Adjustment
Expenses incurred and outstanding, including IBNR, on business produced by
General Agent pursuant to this Agreement.

Article 12 – Expenses

12.1 General Agent’s Expenses. General Agent shall be responsible for and shall
promptly pay all expenses attributable to the producing and servicing of
business pursuant to this Agreement, except as specified in Article 12.2 of this
Agreement. General Agent’s responsibility shall not be altered whether the
expense is billed to General Agent or Company. General Agent’s expenses include,
but are not limited to:

[**].

Any and all expenses described above that are a primary obligation of General
Agent and all compensation paid to General Agent under this Agreement shall be
deemed to include all expenses of General Agent, including items enumerated
above.

12.2 Company’s Expenses. Company shall be responsible for and shall promptly pay
all expenses attributable to the actions of Company as a result of business
produced pursuant to this Agreement. This responsibility shall not be altered
whether the expense is billed to Company or General Agent. These expenses
include, but are not limited to:

(a) salaries and all other benefits of all employees of Company;

 

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(b) transportation, lodging, and meals of employees of Company;

(c) losses and Loss Adjustment Expenses incurred at the direction of Company;
and

(d) legal and auditing expense incurred at the direction of Company.

12.3 Data Processing Expenses. Company reserves the right to install data
processing or transmission equipment in the office(s) of General Agent and
connect into the data processing equipment of General Agent relating to the
business written under this Agreement. The responsibility for the expense
arising from such action shall be borne solely by Company.

Article 13 – Handling of Funds

13.1 Fiduciary Duty. General Agent shall accept and maintain at all times as a
fiduciary for Company all premiums and other funds collected relating to the
business written pursuant to this Agreement. General Agent shall not commingle
any funds belonging to Company with its corporate accounts, other agency funds,
or funds held by General Agent in any other capacity. The privilege of retaining
commissions scheduled in the Commission Schedule Addendum to this Agreement
shall not be construed as changing the fiduciary capacity or obligations of
General Agent.

13.2 Premium Escrow Account. General Agent shall establish and maintain a
premium escrow account and shall, upon receipt, deposit in such escrow account
all money collected for Company in accordance with the instructions of Company
and pursuant to Regulations.

13.3 Claims Adjustment Escrow Account. General Agent, or its claims adjustment
contractor approved by Company, may establish and maintain a claims adjustment
escrow account and shall transfer sufficient monies from the above premium
escrow account to the claims adjustment escrow account to pay losses and Loss
Adjustment Expenses in accordance with the instructions of Company and
Regulations.

13.4 Signatory Authority, Withdrawal of Funds. General Agency and Company shall
maintain signature authority on said premium escrow account and claims
adjustment escrow account. General Agent shall act as trustee for Company on
said escrow accounts. The financial institution selected by General Agent for
such escrow accounts shall be mutually agreed upon by General Agent and Company.
General Agent shall have the right to transfer funds held in such escrow
accounts to successor financial institutions with the prior written consent of
Company. Such financial institutions shall be members of the Federal Reserve
System and whose deposits are insured by the Federal Deposit Insurance
Corporation or its successor. General Agent shall be entitled to retain any
interest earned on funds deposited in such escrow accounts.

All withdrawals from such escrow accounts must be evidenced by detailed
accounting which clearly reflects each withdrawal. Funds may be withdrawn from
such escrow accounts only for purposes set forth in Article 13.5 below.

 

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13.5 Use of Funds Collected. General Agent shall use any and all premiums and
other funds collected by General Agent for and on behalf of Company under this
Agreement solely for the following purposes:

(a) amounts due Company under this Agreement;

(b) the return of unearned premiums arising due to cancellation or endorsement
of Policies;

(c) General Agent’s compensation as set forth in the Commission Schedule
Addendum attached to this Agreement;

(d) losses and Loss Adjustment Expenses;

(e) money deposited in error; or

(f) withdrawals of interest belonging to General Agent.

13.6 Payment of Premiums to Company. General Agent assumes responsibility for
and shall promptly pay Company, within 30 days after each calendar month end,
all premiums collected on Policies issued through General Agent or on General
Agent’s behalf, subject to any deductions provided for herein. General Agent
shall reconcile Net Written Premium, billed and collected and report these
reconciliations monthly.

13.7 Omission of Items from Statements. The omission of any item from any
monthly statement, account report or any other report shall not affect the
responsibility of either Party to account for and pay all amounts due the other
Party, nor shall it prejudice the rights of either Party to collect all such
amounts due from the other Party.

13.8 Refund of Commissions. General Agent shall refund commissions on Policy
cancellations, reductions in premiums or any other return premiums at the same
rate at which such commissions were originally retained.

13.9 Disallowance of [**]. Neither General Agent nor Company shall be allowed to
[**] under this Agreement with [**] between General Agent and Company. General
Agent shall not be allowed to [**] Company under this Agreement [**] General
Agent, or any Agent or Broker, [**].

13.10 Assignment of Sums Due. General Agent hereby assigns to Company as
security for the obligations of General Agent under this Agreement, but not in
payment, all sums due or to become due to General Agent from any policyholder
for whom a Policy has been issued by General Agent. Company may demand and
collect such sums if General Agent is in default, as defined in Article 20 of
this Agreement, and General Agent, Agents or Brokers shall not be entitled to
any commissions and other fees on any premiums so collected by Company.

 

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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Article 14 – Ownership of Books and Records and Miscellaneous Property

14.1 Records and Expirations. General Agent’s records pertaining to business
written pursuant to this Agreement and the use and control of the expirations of
Policies shall remain the property of General Agent and be left in General
Agent’s undisputed possession, provided General Agent is not in default, as
defined in Article 20 of this Agreement. General Agent pledges any and all of
its Policy expiration records and its ownership thereof as security for its
performance under this Agreement. General Agent agrees and understands that this
Agreement, or a copy thereof, may be filed as a financing statement or a
financing statement may be required to secure Company’s security interest in the
expirations and renewals. If General Agent fails to cure any default within 30
days of Company’s notice thereof to General Agent, ownership of the records, use
and control of expirations and the goodwill relating thereto shall be vested in
Company. However, if default arises solely from General Agent’s failure to
obtain and maintain all required insurance licenses, the ownership of the
records, use and control of the expirations and the goodwill relating thereto
shall remain the property of General Agent.

 

14.2 Miscellaneous Property.

(a) Any data processing software or data processing technology or applications,
policies, endorsements or forms, or data processing software or data processing
technology which produces such applications, policies, endorsements, or forms,
or any other supplies furnished to General Agent by Company shall remain the
property of Company.

(b) Any data processing software or data processing technology or applications,
policies, endorsements or forms, or data processing software or data processing
technology which produces such applications, policies, endorsements, or forms,
or any other supplies furnished to Company by General Agent shall remain the
property of General Agent.

Article 15 – Advertising

15.1 Names, Logos, Marks.

(a) Names, Logos and Marks. Except as required by Regulations, General Agent,
any Agent or any Broker shall not use the name, logo, trademark or other service
marks of Company or any of its affiliates in any advertising, promotional
materials or public manner of any nature without specific authorization and
prior written approval from Company.

(b) Except as required by Regulations, Company shall not use the name, logo,
trademark or other such service marks of General Agent Party or any of its
affiliates in any advertising, promotional materials or public manner of any
nature without specific authorization and prior written approval from General
Agent.

15.2 Advertisements. A copy of any proposed advertisement, promotional materials
or such public manner and a description of the intended use shall be forwarded
to Company prior to its use. General Agent shall maintain a copy of any and all
advertisements and promotional materials containing Company’s name and full
details concerning where, when, and how such advertisements or promotional
materials were used, and shall furnish Company a copy of all such
advertisements, promotional materials and related information. General Agent
shall

 

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comply with all legal requirements regarding content, review and approval of
advertising and maintenance of records. General Agent shall maintain records of
the names and addresses of recipients of any direct mailing or advertising when
required by Regulations but shall in all instances record the geographical area
in which such mailing or advertising was used.

Article 16 – Changes in Ownership, Control or Management

16.1 Notice. A Party (“Notifying Party”) shall notify the other Party
(“Recipient Party) in writing as soon as permitted by Regulations of:

(a) the intended sale or transfer of a majority or controlling interest of the
Notifying Party to a third party; or

(b) the intended merger or consolidation of the Notifying Party with a third
party.

16.2 Action by Recipient Party. Upon receipt of such notice, the Recipient Party
may:

(a) consent to the assignment of this Agreement to the successor in interest of
Notifying Party;

(b) enter into a new Agreement with the successor in interest of Notifying
Party; or

(c) terminate this Agreement pursuant to Article 20 of this Agreement.

The Recipient Party shall notify the Notifying Party of its decision regarding
any such reported event within 30 days. The failure of Recipient Party to notify
Notifying Party of its decision shall not constitute acceptance of the reported
event. The Recipient Party’s decision shall not be unreasonably withheld.

16.3 Change in Ownership or Management of General Agent. General Agent shall
notify Company in writing within 30 days if there is a change in:

(a) ownership of 10% or more of the outstanding stock of General Agent;

(b). any principal officer of General Agent; or

(c) any director of General Agent.

Article 17 – Indemnity Agreement

17.1 General Agent. GENERAL AGENT SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS
COMPANY, SINGULARLY AND COLLECTIVELY, FROM ANY AND ALL LOSSES, LIABILITIES,
ACTIONS, SUITS, DEMANDS, CAUSES OF ACTION, DAMAGES, PENALTIES, FINES, JUDGMENTS
AND EXPENSES, INCLUDING ANY AND ALL EXTRA CONTRACTUAL CLAIMS OR LOSSES IN EXCESS
OF POLICY LIMITS (ALL SPECIFICALLY INCLUDING BUT NOT LIMITED TO ATTORNEYS’ FEES
AND COURT COSTS), (“CLAIMS”) WHICH MAY BE MADE AGAINST COMPANY, SINGULARY OR
COLLECTIVELY, AND WHICH ARISE, EITHER DIRECTLY OR INDIRECTLY, OUT OF OR IN
CONNECTION WITH:

 

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(a) GENERAL AGENT’S PERFORMANCE OR FAILURE TO PERFORM UNDER THE TERMS OF THIS
AGREEMENT;

(b) A VIOLATION OF ANY REGULATION BY GENERAL AGENT, ANY AGENT, OR ANY BROKER OR
THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES;

(c) A BREACH BY GENERAL AGENT OF ANY COVENANT, CONDITION, WARRANTY OR
REPRESENTATION MADE TO COMPANY;

(d) THE FAILURE BY GENERAL AGENT, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
REPRESENTATIVES TO PROPERLY DISCHARGE DUTIES AND OBLIGATIONS UNDER THIS
AGREEMENT OR TO PROPERLY OBSERVE AND COMPLY WITH LIMITATIONS OF AUTHORITIES
UNDER THIS AGREEMENT; OR

(e) NEGLIGENCE, WILLFUL MISCONDUCT OR LACK OF GOOD FAITH ON THE PART OF GENERAL
AGENT, ANY AGENT, OR ANY BROKER OR THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR REPRESENTATIVES, WHETHER OR NOT SUCH CLAIMS ALSO ARISE OUT
OF THE COMPARATIVE NEGLIGENCE OR OTHER FAULT OF COMPANY, AND EXCEPTING ONLY
WHERE SUCH CLAIMS ARISE OUT OF THE SOLE NEGLIGENCE OR OTHER FAULT OF COMPANY.

17.2 Company. COMPANY SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS GENERAL AGENT
FROM ANY AND ALL LOSSES, LIABILITIES, ACTIONS, SUITS, DEMANDS, CAUSES OF ACTION,
DAMAGES, PENALTIES, FINES, JUDGMENTS AND EXPENSES, INCLUDING ANY AND ALL EXTRA
CONTRACTUAL CLAIMS OR LOSSES IN EXCESS OF POLICY LIMITS (ALL SPECIFICALLY
INCLUDING BUT NOT LIMITED TO ATTORNEYS’ FEES AND COURT COSTS), (“CLAIMS”) WHICH
MAY BE MADE AGAINST GENERAL AGENT AND WHICH ARISE, EITHER DIRECTLY OR
INDIRECTLY, OUT OF OR IN CONNECTION WITH:

(a) COMPANY’S PERFORMANCE OR FAILURE TO PERFORM UNDER THE TERMS OF THIS
AGREEMENT;

(b) A VIOLATION OF ANY REGULATION BY COMPANY;

(c) A BREACH BY COMPANY OF ANY COVENANT, CONDITION, WARRANTY OR REPRESENTATION
MADE TO GENERAL AGENT;

(d) THE FAILURE BY COMPANY, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
REPRESENTATIVES TO PROPERLY DISCHARGE DUTIES AND OBLIGATIONS UNDER THIS
AGREEMENT; OR

(e) NEGLIGENCE, WILLFUL MISCONDUCT OR LACK OF GOOD FAITH ON THE PART OF COMPANY
OR ITS DIRECTORS, OFFICERS, EMPLOYEES, OR REPRESENTATIVES, WHETHER OR NOT SUCH
CLAIMS ALSO ARISE OUT OF THE COMPARATIVE NEGLIGENCE OR OTHER FAULT OF GENERAL
AGENT, AND EXCEPTING ONLY WHERE SUCH CLAIMS ARISE OUT OF THE SOLE NEGLIGENCE OR
OTHER FAULT OF GENERAL AGENT.

 

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Article 18 – Errors and Omissions Insurance, Surety Bond

18.1 Errors and Omissions Insurance. General Agent shall maintain an errors and
omissions insurance policy naming Company as an additional insured issued by an
insurance carrier approved by Company with policy limits no less than [**]
dollars and a deductible no greater than [**] dollars. A copy of such errors and
omissions policy shall be forwarded to Company for its records within 30 days of
its issue or renewal.

18.2 Surety Bond. General Agent shall maintain a surety bond in a form
acceptable to Company and an amount not less than (i) $[**] or (ii) [**]% of
nationwide annual premium for business written pursuant to this Agreement,
whichever is greater, but in no event more than $[**], issued by an insurance
carrier approved by Company. A copy of the surety bond shall be forwarded to
Company for its records within 30 days of its issue or renewal.

Article 19 – Arbitration

If irreconcilable differences of opinion arise as to the interpretation of this
Agreement which are not satisfactorily resolved through mediation, the
differences shall be submitted to arbitration. One arbitrator shall be chosen by
Company, one shall be chosen by General Agent, and an umpire shall be chosen
within 30 days by the two arbitrators. The arbitrators and umpire shall be
disinterested officers or former officers of property and casualty insurance
companies or managing general agencies. The arbitrators shall be relieved from
all judicial formalities and may abstain from following the strict rules of law.
This Agreement shall be interpreted as an honorable engagement. The decision of
the arbitrators and umpire shall be final and binding upon both Parties, and
judgment upon the final decision may be entered in any court of competent
jurisdiction. Each Party shall bear the expense of its own arbitrator and shall
jointly and equally bear the other expenses of the umpire and of the
arbitration. Any arbitration shall take place in Dallas, Texas, unless otherwise
mutually agreed. If either Party fails to name its arbitrator within 30 days
after receiving the written request by registered mail, return receipt
requested, of the other Party to do so, the latter shall name both arbitrators,
who shall select an umpire as stipulated herein. The Parties hereby agree this
Article shall not apply to or govern Article 21, Article 5.3, Article 22.1, or
any action by Company required by Regulations to be subject to the ultimate
control of Company.

Article 20 – Termination

20.1 Mutual Agreement or Notice. This Agreement may be terminated by mutual
agreement at any time, or by either Party giving the other Party written notice
at least 180 days prior to such termination. Any draft authority of General
Agent shall terminate upon the effective date of termination unless provided
otherwise in writing by Company. Upon the request of Company, General Agent
shall send or cause to be sent to all insureds timely notice of nonrenewal or
cancellation of Policies in accordance with applicable law.

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20.2 Automatic Termination. This Agreement shall automatically and immediately
terminate with the providing of [**] days written notice in the event of:

(a) the cancellation or termination of the Quota Share Reinsurance Agreement or
Excess of Loss Reinsurance Agreement reinsuring the business under this
Agreement; provided, however, notice provisions pertaining to the cancellation
or termination of the Quota Share Reinsurance Agreement or Excess of Loss
Reinsurance Agreement as set forth in such Quota Share Reinsurance Agreement or
Excess of Loss Reinsurance Agreement shall apply notwithstanding the [**] days
written notice provided herein. Company shall immediately forward to General
Agent any notice of termination or cancellation regarding the Quota Share
Reinsurance Agreement or Excess of Loss Reinsurance Agreement received by
Company from the Quota Share Reinsurer or Excess of Loss Reinsurer.

(b) the insolvency or bankruptcy of General Agent or an assignment by General
Agent for the benefit of creditors; or

(c) the insolvency or bankruptcy of Company; or an order of liquidation of
Company by a state insurance department or court of competent jurisdiction. In
the event this Agreement is terminated as a result of this subsection, the
records of Company’s business maintained by General Agent shall, notwithstanding
any provisions to the contrary, become the sole property of Company or its
estate and General Agent shall have reasonable access to and the right to copy
such records on a timely basis.

20.3 Termination by Company. Company may terminate this Agreement for cause upon
providing General Agent 10 days written notice in the event of the occurrence of
one or more of the following events:

(a) the expiration or termination of any licenses or certificates of authority
held by General Agent necessary for General Agent to perform its obligations
under this Agreement;

(b) the transfer or sale of the majority of the stock or a substantial portion
of the assets of General Agent or its controlling party or parent, unless such
transfer or sale is made with the express written consent of Company;

(c) the commission of any fraud, gross negligence or willful misconduct by
General Agent, which includes, but is not limited to, willful violation of
instructions or willful violation of any covenant of this Agreement or any
Regulation applicable to General Agent;

(d) General Agent ceases all business operations; or

(e) General Agent violates any provision of this Agreement, provided, however,
that General Agent shall be allowed [**] days to cure such violation. For
purposes of this provision, routine differences in the accounting methods of
General Agent and Company, which are minor in amount, shall not be grounds for
termination of this Agreement.

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THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
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20.4 Termination by General Agent. General Agent may terminate this Agreement
for cause upon providing Company [**] days written notice in the event of the
occurrence of one or more of the following events:

(a) the commission of any fraud, gross negligence or willful misconduct by
Company, which includes, but is not limited to, willful violation of
instructions or willful violation of any covenant of this Agreement or any
Regulation applicable to Company;

(b) Company ceases all its underwriting operations;

(c) Company’s consolidated capital and surplus is reduced during any year by an
amount greater than [**]% of the amount of the consolidated capital and surplus
of Company as reported in annual statutory financial statements for the year
immediately preceding;

(d) Company’s A.M. Best’s rating is reduced to less than [**], and such rating
is not restored within a stated period of time as agreed to by the Parties;

(e) the expiration or termination of any licenses or certificates of authority
held by Company necessary for Company to perform its obligations under this
Agreement;

(f) The transfer or sale of the majority of the stock or a substantial portion
of assets of Company (on a consolidated basis), unless such transfer or sale is
made with the express written consent of General Agent; or

(g) Company’s violation of any material provision of this Agreement, provided
however that Company shall be allowed [**] days to cure such violation. For
purposes of this provision, routine differences in the accounting methods of
General Agent and Company, which are minor in amount, shall not be grounds for
termination of this Agreement.

20.5 Return of Property. Upon notice of termination of this Agreement, General
Agent shall immediately deliver, or cause to be delivered, to Company all
property of Company, including, but not limited to, Policies, manuals, forms,
unused drafts and all materials relative to the handling of claims and servicing
of Policies, all computerized and data processing records, and the physical and
logical equipment, or unlimited access thereto, required for the processing of
those records and data. If General Agent fails to deliver such property within
[**] days after the termination date and Company takes action to obtain said
property, General Agent shall bear any and all reasonable expenses which Company
may expend or cause to be expended in obtaining such property. IN THE EVENT THAT
POLICIES CANNOT BE ACCOUNTED FOR BY GENERAL AGENT OR HAVE BEEN DESTROYED, LOST
OR MISLAID, GENERAL AGENT AGREES TO PROTECT, FOREVER DEFEND, AND HOLD HARMLESS
COMPANY, SINGULARLY AND COLLECTIVELY, AGAINST ALL PERSONS AND CLAIMS WHATSOEVER
ARISING FROM OR RELATED TO SAID POLICIES.

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Managing General Agency Agreement

Effective July 1, 2006

20.6 Cessation of Binding Authority. From or after the effective date of the
termination of this Agreement, General Agent shall have no authority to issue
any binder, Policy, or contract of insurance, nor any endorsement or amendment
thereof without prior written consent of Company.

20.7 Limitation of Damages. Either Party exercising its right to terminate this
Agreement shall not give rise to any right, claim, or cause of action in the
other Party for any loss of prospective profits, commissions, earnings, income,
or for any other damage to the business or personal interests of the Parties
arising therefrom.

20.8 Suspension of Authority upon Default. The rights to solicit and place new
business, or to renew, or to modify any existing business shall be suspended
immediately in the event of default by General Agent. The term default with
respect to General Agent means, in the opinion of Company, any material breach
by General Agent or material failure by General Agent to comply with the terms
and conditions of this Agreement and includes, but is not limited to, the
following:

(a) material failure to adjust all claims arising from all business written
pursuant to this Agreement;

(b) material failure to adhere to the underwriting guidelines approved by the
Company;

(c) failure to remit balances due as provided for in this Agreement;

(d) failure to maintain licenses or certificates required by Regulations; or

(e) material failure to comply with any applicable Regulations.

In the event that Company determines that General Agent is in default, Company,
in its sole discretion, may immediately suspend any and all of General Agent’s
authority to act as a managing general agent of Company. Any such suspension
shall be effective upon written notification to General Agent. General Agent
shall have 30 days to cure any such violation. Within 10 days of its initial
notification to General Agent of the violation, Company shall notify General
Agent of the nature of the default in reasonable detail.

20.9 Termination for Fraud or Breach. In the event of termination of this
Agreement due to fraud or breach of conditions, any indebtedness of General
Agent to Company and all premiums in the possession of General Agent, or for the
collection of which General Agent is responsible, shall, notwithstanding any
provisions of this Agreement to the contrary, become immediately due and payable
to Company. The failure of Company or General Agent to declare promptly a
default or breach of any of the terms and conditions of this Agreement shall not
be construed as a waiver of any of said terms and conditions, nor estop either
Party from thereafter demanding full and complete compliance with such terms and
conditions or of this Agreement.

20.10 Run-off of business upon Termination. If this Agreement is terminated for
any reason, Company shall have the option to assume, upon the effective date of
termination, General Agent’s responsibility to administer the “run-off” of the
business in-force, and to bear all costs of “run-off” and cease to pay
compensation to General Agent. However, if this Agreement is

 

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Managing General Agency Agreement

Effective July 1, 2006

terminated and Company elects to allow General Agent to continue to administer
the “run-off” of the business in force, the provisions of this Agreement shall
continue to apply to all unfinished business to the end that all obligations and
liabilities incurred by each Party as a result of this Agreement shall be fully
performed and discharged. In such event, General Agent shall continue to
administer, at its sole expense, the “run-off” of the in-force business to
normal expiration in accordance with Article 5, Article 7, Article 8, Article 9,
Article 10, Article 12, Article 13, Article 16, Article 17, Article 20, Article
21 and Article 24 of this Agreement, which shall survive the termination of this
Agreement. In addition, provided General Agent is not in default of any of its
obligations under this Agreement, Company shall continue to pay commissions to
General Agent during the “run-off” period according to the Commission Schedule
Addendum until all Policies written under this Agreement have expired and all
losses on such Policies have been fully settled. The term “run-off” as used
herein shall mean, but not be limited to, confirming coverage under Policies,
adjusting all claims, administering Policies and any required renewals thereof
and endorsements thereto, providing reports to Company as required by this
Agreement, paying premiums to Company and return premiums to policyholders,
collecting all sums due, including return commissions from Agents and Brokers,
and such other activities as required of General Agent under this Agreement.

Article 21 – Claims Handling

21.1 Authority of Company. Company shall retain the ultimate, final authority
over disputes concerning claims settlement and setting of loss reserves.

21.2 Authority of General Agent. General Agent shall have the authority to
handle and settle claims arising from business placed with Company under this
Agreement in accordance with established procedures approved by Company and
Regulations. Any settlement authority granted to General Agent may be terminated
for cause upon Company’s written notice to General Agent or upon termination of
this Agreement. Company may suspend such settlement authority during the
pendency of any dispute regarding the cause for termination of this Agreement.
The authority of General Agent to settle a claim shall not exceed [**]% of
Company’s (singularly) policyholder surplus as of December 31 of the last
completed calendar year; or $[**], whichever is greater. General Agent shall not
have the authority to waive any policy condition or commit Company to any cost,
expense or liability that is not covered under Policies, unless Company approves
in writing such losses in excess of the policy limits or extra-contractual
obligations. General Agent shall have the authority to incur Loss Adjustment
Expenses on behalf of Company that are directly connected with the settlement of
losses or recovery of losses by way of salvage or subrogation in accordance with
established procedures approved by Company. Any indirect Loss Adjustment
Expenses incurred by General Agent must be specifically identified and
authorized in writing by Company in order for General Agent to be reimbursed for
such expenses.

21.3 Notice of Lawsuits and Complaints General Agent shall promptly report to
Company any and all lawsuits and complaints known to General Agent, Agent or
Broker and shall be responsible for such reporting and investigation of any
lawsuit or complaint that, in the opinion of Company, is connected with this
Agreement. General Agent shall cooperate fully with

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Managing General Agency Agreement

Effective July 1, 2006

Company during the investigation of any lawsuit or complaint connected with this
Agreement. General Agent may, subject to the written approval of Company,
appoint appropriate claims adjustment firms or attorneys to handle
investigations and settlements relating to such lawsuits or complaints. Company,
in its sole discretion, may withdraw such approval upon written notice to
General Agent.

21.4 Compliance with Regulations. General Agent shall comply with all
Regulations in carrying out the claims handling responsibilities under this
Agreement, including Special Investigation Unit (SIU) regulations and all
required related regulatory reporting. General Agent shall notify Company of
changes in Regulations regarding claims handling and shall assure compliance
thereto.

21.5 Checks and Drafts. Payment of losses shall be made on checks or drafts in
the name of the specific Policy issuing Company. General Agent shall be
responsible for the safekeeping of all checks and drafts used for settling
claims and shall:

(a) mark, retain and account for all voided checks and drafts of Company;

(b) immediately notify Company of any irregularities, theft, disappearance, or
destruction of checks and drafts; and

(c) ensure that all checks and drafts are sequentially numbered and issued in
numerical order.

21.6 Coverage Issues. General Agent may refer any coverage question, denial of
liability, or Policy limit demand to Company for final determination by Company
concerning such issues. General Agent shall notify and provide a copy of any
applicable claim file to Company within 30 days of determination that a claim
has:

(a) the potential to exceed the authority limit set forth in Article 21.2 of
this Agreement;

(b) a coverage dispute, or any unusual circumstances or large loss possibilities
or any issues that would be required to be reported to Reinsurers under the
Affiliated Reinsurance Agreements, Quota Share Reinsurance Agreement, or Excess
of Loss Reinsurance Agreement;

(c) a demand in excess of Policy limits;

(d) allegations of bad faith, violations of any deceptive trade practice acts,
or any other Regulation;

(e) resulted in a legal action being instituted against General Agent, an Agent,
a Broker or Company;

(f) arisen from or caused a complaint to be filed with any regulatory authority;

(g) arisen from or caused an inquiry from any regulatory authority, including,
but not limited to, any insurance department, with respect to any loss, even if
the inquiry does not arise from a complaint;

 

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Managing General Agency Agreement

Effective July 1, 2006

(h) a significant coverage dispute that may be denied;

(j) been open for more than six months or involves an allegation of extra
contractual damages;

(j) a minor claimant, unless it is certain that the amount of the loss related
to a minor is less than $[**]; or

(k) been closed by payment of an amount established by Company.

General Agent shall, if requested by Company, send a copy of each and every
claim to Company within 24 hours of General Agent’s receipt of such claim as
described in Article 21.2 of this Agreement. To the extent possible, such
transmission of claims shall be by electronic means, overnight mail or facsimile
to Company at 1-972-788-6609 or such other telephone number as Company may
specify.

21.7. Claims Reporting Requirement. General Agent will advise Company promptly
of all losses in excess of $[**] or involving specific circumstances listed
below and all material subsequent developments pertaining thereto. General Agent
will also advise Company of all Employers Liability losses. As respects bodily
injuries to persons, such notices will include, but not be confined to, claims
arising out of any bodily injuries causing:

[**].

These cases are to be reported regardless of liability. The General Agent shall
also notify the Company of any actual or alleged bad faith claims.

Article 22 – Reinsurance

22.1 Agreements. A portion or all of the business as described in the Schedule
of Business Addendum shall be reinsured under certain (a) Affiliated Reinsurance
Agreements between Company and Republic Underwriters Insurance Company;
(b) Excess of Loss Reinsurance Agreements between Republic Reinsurance Company
and Excess of Loss Reinsurers; or (c) Quota Share Reinsurance Agreements between
Republic Underwriters Insurance Company and Quota Share Reinsurers, all as may
be entered into, renewed, amended or terminated from time to time.

22.2 Commission Schedule. The Commission Schedule may be based upon certain
terms and conditions of the Quota Share Reinsurance Agreements and Excess of
Loss Reinsurance Agreements.

22.3 General Agent’s Authority. General Agent shall not have the authority to
collect any payment from a Reinsurer or to commit Company to any claim
settlement with a Reinsurer, without Company’s express written consent. General
Agent shall have no authority to cede, arrange, facilitate or bind Company with
regard to reinsurance. Binding authority for all reinsurance agreements shall
rest with Company.

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Managing General Agency Agreement

Effective July 1, 2006

Article 23 – Prohibited Acts

In addition to limitation and prohibitions of General Agent’s authority under
this Agreement as provided for herein above, it is understood and agreed that
General Agent shall have no authority to:

(a) bind reinsurance or retrocessions on behalf of Company;

(b) commit Company to participate in insurance or reinsurance syndicates;

(c) appoint any insurance producer or broker on behalf of Company, except in
accordance with the provisions of subsection 5.6 of this Agreement;

(d) appoint any sub-managing general agents; or

(e) collect any payment from a Reinsurer or commit Company to any claim
settlement with a Reinsurer without the prior written approval of Company. In
the event such prior written approval is received, a report detailing such
payment or settlement must be promptly forwarded to Company.

Article 24 – Miscellaneous

24.1 Performance. The obligations and undertaking of each of the Parties to this
Agreement shall be performable in Omaha, Nebraska and Dallas, Texas, as
applicable. General Agent agrees to pay to Company at Company’s administrative
office in Dallas, Texas all sums of money which may become payable to Company
under this Agreement.

24.2 Entire Agreement. This Agreement with attached addenda constitutes the
entire Agreement between the Parties. This Agreement supersedes all previous
agency agreements, if any, whether written or oral, between Company and General
Agent.

24.3 Amendments. No amendments to or modifications of this Agreement or its
addenda shall be valid unless made in writing and executed by Company and
General Agent in the form of an amendment to this Agreement or its addenda and
specifying the effective date thereof.

24.4 Assignment. General Agent shall not directly or indirectly assign its
rights and obligations under this Agreement in whole or in part without the
prior written approval of Company.

24.5 Plural Forms and Gender. Wherever from the context it appears appropriate,
each term stated in either the singular or plural shall include the singular and
plural and any term stated in the masculine, the feminine or the neuter gender,
shall include the masculine, the feminine and neuter gender.

 

27

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Managing General Agency Agreement

Effective July 1, 2006

24.6 Headings. All captions and article headings are intended to be for purposes
of reference only and do not affect the substance of the articles to which they
refer.

24.7 Future Acts. Each Party hereto agrees to perform any further acts and
execute and deliver further documents that may be reasonably necessary to carry
out the provisions of this Agreement.

24.8 Illegal or Unenforceable Provisions. In the event any provision, or portion
thereof, of this Agreement is held to be illegal, invalid or unenforceable by
any court of competent jurisdiction, the validity and enforceability of the
remaining provisions, or portions thereof, shall not be affected by the
severance herefrom of the illegal, invalid or unenforceable provision.

24.9 Notices. Notices required or permitted to be given under this Agreement
shall be in writing and shall be deemed given when deposited in the United
States Postal Service by certified mail, return receipt requested, to the
Party’s last known address or such other address provided by the Party.

24.10 Counterparts. This Agreement may be executed in multiple counterparts,
each of which and together shall constitute an original document.

This Agreement is executed and effective the 1st day of July, 2006.

[Signature Page Follows]

 

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Managing General Agency Agreement

Effective July 1, 2006

 

Southern Insurance Company

    

By:

 

/s/ John E. Fulton

 

     Attest:  

/s/ Chris Daley

 

  

Its:

 

Vice President

 

         

Southern Vanguard Insurance Company

    

By:

 

/s/ John E. Fulton

 

     Attest:  

/s/ Chris Daley

  

Its:

 

Vice President

         

Republic Underwriters Insurance Company

    

By:

 

/s/ John E. Fulton

 

     Attest:  

/s/ Chris Daley

  

Its:

 

Vice President

         

Republic Fire and Casualty Insurance Company

    

By:

 

/s/ John E. Fulton

 

     Attest:  

/s/ Chris Daley

  

Its:

 

Vice President

         

FirstComp Underwriters Group, Inc.

    

By:

 

/s/ Greg Donsbach

 

     Attest:  

/s/ Chris Daley

  

Its:

 

Vice President

         

 

29

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Schedule of Business Addendum No. A-1

to

Managing General Agency Agreement

This Schedule of Business Addendum No. A-1 ( this “Schedule”) is entered into by
and between Southern Insurance Company, an insurance company domiciled in the
State Texas, Southern Vanguard Insurance Company, an insurance company domiciled
in the State of Texas, Republic Underwriters Insurance Company, an insurance
company domiciled in the State of Texas, and Republic Fire and Casualty
Insurance Company, an insurance company domiciled in the State of Oklahoma
(singularly and collectively referred to herein as “Company”) and FirstComp
Underwriters Group, Inc., a Nebraska Corporation with administrative offices in
Omaha, Nebraska (referred to herein as “General Agent”) and is attached to and
incorporated into the Managing General Agency Agreement (the “Agreement”)
between Company and General Agent, as of the Effective Date of the Agreement.

Company and General Agent hereby agree as follows:

1. General Agent shall have the authority to accept on forms approved by Company
any policy, endorsement, binder, certificate, proposal for insurance or other
documents which bind Company (“Policy”) for the classes or lines of insurance
stated hereunder subject to the limitations and conditions set forth herein and
in the reinsurance agreements referenced in Article 22 of the Agreement
(“Authorized Business”). General Agent acknowledges and agrees that it is fully
aware of the terms and conditions of such reinsurance agreements, including, but
not limited to, the original Policy limits, territories, and Policy terms, and
it shall comply with all such reinsurance terms and conditions.

2. “Workers’ Compensation” Business

Company has authorized General Agent to write the following lines of insurance
(“Authorized Business”) and such lines shall be referred to as “Workers’
Compensation” business:

 

Class/Line

  

Limits Up To

Workers’ Compensation    Statutory Employer’s Liability    $[**]

For the above, Policy terms shall not exceed [**] months.

3. Territory Limitations. Territories in which Authorized Business may be
written are as follows and other states as may be amended by General Agent
during the term hereof with the written consent of Company:

[**]

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

Schedule of Business Addendum A-1

 

A-1-1

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4. Special Acceptances and Referrals. General Agent shall be authorized to write
classes of operations for the above lines of insurance under this Agreement
provided that General Agent complies with the written underwriting guidelines
approved by Company. General Agent may submit referrals for special acceptance
to Company in accordance with the referral submission requirements for those
risks that do not meet all of the underwriting guidelines approved by Company,
including but not limited to, policies with annual premiums in excess of $[**]
or classes of operations not specifically listed as approved classes of
operations to be written.

5. Premium Volume. General Agent shall be limited to writing a maximum aggregate
premium volume of $[**] in all territories shown above in any 12 month period,
such period to run consecutively from the effective date of this Schedule and
the Agreement unless provided otherwise in writing by Company. Such annual
premium maximum shall be based on mutually agreed upon premium plan by state.

6. Rates, Rules and Forms. All rates, rules and forms used by General Agent to
produce Authorized Business under the Agreement are to be submitted by General
Agent for Company’s written approval prior to General Agent’s use. Such rates,
rules and forms, as mutually agreed upon by General Agent and Company, shall be
filed by Company with the proper regulatory agency, as required. Upon completion
of filing and receipt of approval from the applicable regulatory agency or
according to approval granted by Regulations, Company shall notify General Agent
of the effective date of such filing. General Agent acknowledges and agrees that
it is fully aware of all of the terms and conditions of the approved rates,
rules and forms, and it shall comply with all such terms and conditions that are
within the control of General Agent, including, but not limited to, Policy
cancellation provisions, otherwise, it shall bear all risks for non-compliance.

7. Policy Cancellation Provision. As per approved and filed policy forms
referenced in Section 6 of this Schedule.

7. Termination. In the event the Agreement is terminated, the termination
provisions set forth in Article 20 – Termination of the Agreement shall apply to
this Schedule.

8. All other terms and provisions of the Agreement and this Schedule of Business
Addendum remain otherwise unchanged.

This Schedule of Business Addendum is executed and effective this 1st day of
July, 2006.

[Signature Page Follows]

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

Schedule of Business Addendum A-1

 

A-1-2

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Southern Insurance Company     By:  

/s/ John E. Fulton

  Attest:  

/s/ Chris Daley

Its:  

Vice President

    Southern Vanguard Insurance Company     By:  

/s/ John E. Fulton

  Attest:  

/s/ Chris Daley

Its:  

Vice President

    Republic Underwriters Insurance Company     By:  

/s/ John E. Fulton

  Attest:  

/s/ Chris Daley

Its:  

Vice President

    Republic Fire and Casualty Insurance Company     By:  

/s/ John E. Fulton

  Attest:  

/s/ Chris Daley

Its:  

Vice President

    FirstComp Underwriters Group, Inc.     By:  

/s/ Greg Donsbach

  Attest:  

/s/ Chris Daley

Its:  

Vice President

   

Schedule of Business Addendum No. A-1

 

A-1-3

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Schedule of Commission Addendum B-1

To

Managing General Agency Agreement

This Commission Schedule Addendum No. B-1 ( this “Commission Schedule”) is
entered into by and between Southern Insurance Company, an insurance company
domiciled in the State Texas, Southern Vanguard Insurance Company, an insurance
company domiciled in the State of Texas, Republic Underwriters Insurance
Company, an insurance company domiciled in the State of Texas, and Republic Fire
and Casualty Insurance Company, an insurance company domiciled in the State of
Oklahoma (singularly and collectively referred to herein as “Company”) and
FirstComp Underwriters Group, Inc., a Nebraska Corporation with administrative
offices in Omaha, Nebraska (referred to herein as “General Agent”) and is
attached to and incorporated into the Managing General Agency Agreement (the
“Agreement”) between Company and General Agent, as of the Effective Date of the
Agreement.

Company and General Agent hereby agree as follows:

1. Reinsurance Agreements. This Commission Schedule is based upon the Quota
Share Reinsurance Agreements and Excess of Loss Reinsurance Agreements described
in Article 22 of the Agreement.

2. Commissions. Beginning with all Policies issued on or after the 1st day of
July, 2006, under the Agreement, General Agent will be allowed commissions and
other fees as hereinafter provided.

3. Provisional Commissions; Adjusted Commissions.

(a) Provisional Commissions allowed General Agent shall be adjusted periodically
in accordance with the provisions set forth herein. Policies written during the
first underwriting year of the Agreement will be allocated to the first
adjustment period, which shall be from the effective date of this Commission
Schedule through June 30, 2007, and Policies written during each subsequent 12
month period thereafter shall be allocated to a separate adjustment period for
that underwriting year. If the Agreement or this Commission Schedule is
terminated, the final adjustment period shall be from the beginning of the then
current adjustment period through the effective date of termination.

(b) The Provisional Commission Rate shall be [**]% of Net Written Premium;
provided, however such Provisional Commission Rate shall be adjusted as
hereinafter provided and such adjusted commission rate shall be the Adjusted
Commission Rate.

(c) The Adjusted Commission Rate shall be calculated as follows and applied to
Premiums Earned for the applicable adjustment period to determine the Adjusted
Commissions:

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

Schedule of Commission Addendum B-1

 

B-1-1

 

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(i) If the ratio of Losses Incurred to Premiums Earned is [**]% or less, the
Adjusted Commission Rate for the applicable adjustment period shall be the
Provisional Commission Rate plus [**]% of Premiums Earned. Such amount shall be
the maximum commission allowed the General Agent for Adjusted Commission.

(ii) If the ratio of Losses Incurred to Premiums Earned is more than [**]%, but
not greater than [**]%, the Adjusted Commission Rate for the applicable
adjustment period shall be the Provisional Commission Rate, plus [**]% of the
difference in percentage points between [**]% and the actual ratio of Losses
Incurred to Premiums Earned.

(iii) If the ratio of Losses Incurred to Premiums Earned is greater than [**]%,
but not greater than [**]%, the Adjusted Commission Rate for the applicable
adjustment period shall be the Provisional Commission Rate, less [**]% of the
difference in percentage points between [**]% and the actual ratio of Losses
Incurred to Premiums Earned.

(iv) If the ratio of Losses Incurred to Premiums Earned is [**]% or greater, the
Adjusted Commission Rate for the applicable adjustment period shall be the
Provisional Commission Rate less [**]% of Premiums Earned. Such amount shall be
the minimum commission allowed the General Agent for Adjusted Commission.

(d) Within [**] days following the close of each quarter, General Agent shall
provide a letter of credit or some other form of collateral acceptable to
Company equal to [**]% of Premiums Earned to secure the amounts due in the event
the loss ratio for an adjustment period is greater than [**]%.

(e) If the ratio of Losses Incurred to Premiums Earned for any adjustment period
is greater than [**]%, the difference in percentage points between the actual
ratio of Losses Incurred to Premiums Earned and [**]% shall be multiplied by
Premiums Earned for such adjustment period and the product shall be carried
forward to the next adjustment period as a debit to Losses Incurred.

(f) If the ratio of Losses Incurred to Premiums Earned for any adjustment period
is less than [**]%, the difference in percentage points between [**]% and the
actual ratio of Losses Incurred to Premiums Earned shall be multiplied by
Premiums Earned for such adjustment period and the product shall be carried
forward to the next adjustment period as credit to Losses Incurred.

(g) Debits or Credits calculated pursuant to Sections 3(e) and 3(f) above shall
continue to apply to all commission adjustment calculations under the Agreement
until all losses subject to such calculations have been fully settled.

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

Schedule of Commission Addendum B-1

  B-1-2  

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(h) Company shall calculate and report the Adjusted Commissions on Premiums
Earned for the first adjustment period within 30 days following [**] months
after the inception of this Commission Schedule and shall continue to update the
adjusted commission calculation within 30 days after the end of each 12 month
period thereafter until all losses subject hereto have been fully settled.
Commission adjustment calculations shall be made for each new adjustment period
that follows the first adjustment period and calculations for each new
adjustment period shall be made consistent with the calculations made for the
first adjustment period. Annual calculations for each adjustment period shall be
based on cumulative transactions under the Agreement and this Commission
Schedule from the beginning of the adjustment period under consideration through
the effective date of adjustment, including, as respects Losses Incurred, any
debit or credit from the preceding adjustment period. Such annual calculations
for each adjustment period shall be calculated separately as described above.
The aggregate difference between the Adjusted Commissions owed and the
commissions previously allowed by Company for all adjustment periods shall be
remitted in accordance with the following deferral schedule by the owing Party
to the other Party within 30 days following receipt of Company’s report.
Adjusted Commissions owed as a result of the first calculation for each
adjustment period will be deferred at a rate of [**]%. The deferred Adjusted
Commissions shall be paid to General Agent or used to set off sums owed by
General Agent, as applicable, for the subsequent adjustment period. Adjusted
Commissions owed as a result of subsequent calculations for an adjustment period
following the first calculation will not be deferred.

(i) As used in this Commission Schedule, “Losses Incurred” means losses and Loss
Adjustment Expenses paid as of the effective date of calculation of the Adjusted
Commission Rate, plus the reserves for losses and Loss Adjustment Expenses
outstanding as of such date, minus amounts due from Excess of Loss Reinsurance
(whether or not recoverable), plus the debit or minus the credit, if any, from
the preceding adjustment period, and shall include a provision for incurred but
not reported reserves (IBNR) as calculated by Company’s actuary and agreed upon
by General Agent. If mutual agreement cannot be reached, an independent actuary
will be retained, whose cost will be equally shared between the parties. All
losses and related Loss Adjustment Expenses under Policies with effective or
renewal dates during an adjustment period shall be charged to that adjustment
period, regardless of the date said losses actually occur.

(j) As used in this Commission Schedule, “Premiums Earned” means Net Written
Premium for Policies with effective or renewal dates during the adjustment
period, less the unearned portion thereof, and less the amounts incurred by
Company for Excess of Loss Reinsurance as of the effective date of calculation
of the Adjusted Commission Rate, and shall include only Net Written Premium
reported by General Agent and collected by Company. Premiums Earned shall not
include any Installment Billing Fees, allowed or not allowed under the
Agreement. For purposes of the calculation of Adjusted Commissions for an
adjustment period, Premiums Earned for such adjustment period shall be reduced
by the premiums paid for Excess of Loss Reinsurance covering such adjustment
period.

 

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[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

Schedule of Commission Addendum B-1

  B-1-3  

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(k) Company shall have no obligation to pay General Agent any additional
commissions calculated to be owed, if any, under the Agreement until all
balances owed by General Agent to Company for premiums or otherwise have been
collected by Company.

(l) General Agent shall pay applicable premium taxes, fees and assessments to
Company each month on premiums whether collected or not, as set forth by any
applicable state insurance department or pursuant to Regulations effective now
or in the future. General Agent will pay estimated premium tax at [**]% of Net
Written Premium, which may be adjusted from time to time. The estimated premium
tax rates shall be adjusted annually to an actual rate. If such adjustment is
less than [**]% then Company shall remit such amount to General Agent. If such
adjustment is greater than [**]% then General Agent shall remit such amount to
Company.

4. Other Administrative Fees. General Agent shall be entitled to retain an
administrative fee equal to 100% of all Installment Billing Fees reported to
Company and collected by General Agent, subject to periodic adjustments and
deductions for applicable premium taxes on the subject fees as described in this
Commission Schedule.

5. Termination. In the event the Agreement is terminated, the termination
provisions set forth in Article 20 – Termination of the Agreement shall apply to
this Commission Schedule.

All other terms and provisions of the Agreement and this Commission Schedule
remain otherwise unchanged.

This Commission Schedule is executed and effective this 1st day of July, 2006.

 

Southern Insurance Company     By:  

/s/ John E. Fulton

  Attest:  

/s/ Chris Daley

Its:  

Vice President

    Southern Vanguard Insurance Company     By:  

/s/ John E. Fulton

  Attest:  

/s/ Chris Daley

Its:  

Vice President

    Republic Underwriters Insurance Company     By:  

/s/ John E. Fulton

  Attest:  

/s/ Chris Daley

Its:  

Vice President

   

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

[**] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

Schedule of Commission Addendum B-1

  B-1-4  

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

Republic Fire and Casualty Insurance Company

 

By:  

/s/ John E. Fulton

 

    Attest:  

/s/ Chris Daley

 

  Its:  

Vice President

 

        FirstComp Underwriters Group, Inc.         By:  

/s/ Greg Donsbach

 

    Attest:  

/s/ Chris Daley

 

  Its:  

Vice President

 

       

 

Schedule of Commission Addendum B-1

 

B-1-5