Exhibit 10.5

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE AGREEMENT

between

PXRE REINSURANCE COMPANY

and

PXRE REINSURANCE LTD.

 

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PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE AGREEMENT, dated as of September
15, 2005 and effective as of September 13, 2005 (hereinafter referred to as the
"Agreement"), between PXRE REINSURANCE LTD., a Bermuda company (hereinafter
referred to as the "Company"), and PXRE REINSURANCE COMPANY, a Connecticut
corporation (hereinafter referred to as "Reinsurer").

W I T N E S S E T H :

WHEREAS, the Company and the Reinsurer wish to enter into an aggregate excess of
loss arrangement pursuant to which the Company will cede to the Reinsurer, and
the Reinsurer will assume from the Company, certain of the Company’s excess
liabilities arising from the Company’s reinsurance business, upon the terms and
subject to the conditions described below.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
contained herein and of the mutual benefits herein provided, the parties hereto
agree as follows:

ARTICLE 1

BUSINESS REINSURED

This Agreement is to indemnify the Company in respect of the net excess
liability as a result of any loss or losses which may occur during the term of
this Agreement under any Contracts in force at the inception hereof, or written
or renewed during the term hereof. Nothing in this Agreement shall in any manner
create any obligations or establish any rights against the Reinsurer in favor of
any third parties or any persons not party to this Agreement.

ARTICLE 2

COVER

The Reinsurer will be liable in respect of each and every Loss Occurrence, for
the Ultimate Net Loss in excess of Ultimate Net Loss of $575,000,000 each and
every Loss Occurrence, subject to a limit of liability to the Reinsurer of
$75,000,000 each and every Loss Occurrence.

If this Agreement is renewed pursuant to Article 3 and the Parties desire to
vary the Aggregate Retention or Aggregate Limit of Liability, the Parties shall
execute an endorsement. If the parties desire to vary the Aggregate Retention or
Aggregate Limit of Liability, the parties shall execute an endorsement, which
requires prior approval from the State of Connecticut Insurance Department
Commissioner.

 

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ARTICLE 3

TERM AND CANCELLATION

This Agreement shall be effective from 12:01 a.m. Eastern Standard Time,
September 13, 2005 and shall be continuously in force until 11:59 p.m. Eastern
Standard Time, December 31, 2005 (the “Termination Date”). Should this Agreement
expire while a Loss Occurrence covered hereunder is in progress, the Reinsurer
shall be responsible for the Loss Occurrence in progress in the same manner and
to the same extent it would have been responsible had the Agreement expired the
day following the conclusion of the Loss Occurrence in progress.

Notwithstanding the expiration of this Agreement as herein above provided, the
provisions of this Agreement shall continue to apply to all unfinished business
hereunder to the end that all obligations and liabilities incurred by each party
hereunder prior to such expiration shall be fully performed and discharged.

This Agreement shall automatically renew for a one-year term at each subsequent
December 31 unless either Party has given written notice to the other Party at
least 90 days prior to December 31 of the subject year of its intention not to
renew this Agreement. If this Agreement is so renewed, the “Termination Date”
shall be the following December 31.

This Agreement may be terminated by either party upon 30 days prior written
notice.

The party desiring to terminate this Agreement pursuant shall give prompt
written notice of such termination to the other party. No termination of this
Agreement will relieve the other party from any liability for any breach of this
Agreement or from the performance of any obligation due with respect to any
period preceding such termination.

ARTICLE 4

TERRITORY

This Agreement shall follow the territorial scope of the Contracts written by
the Company.

 

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ARTICLE 5

EXCLUSIONS

This Agreement shall be subject to the exclusions contained in the original
contracts of the Company.

ARTICLE 6

REINSTATEMENT

Loss payments by the Reinsurer under this Agreement will reduce the limit of
coverage afforded by the amounts paid. However, the limit of coverage will be
reinstated from the time of the occurrence of a loss involving payments by the
Reinsurer hereunder.

For each amount so reinstated, the Company agrees to pay simultaneously with the
Reinsurer’s loss payment an additional premium calculated as follows:

1. The Reinsurer’s premium for the term of this Agreement;

2. Multiplied by the fraction of the maximum limit of this Agreement (i.e., the
fraction of $75,000,000) reinstated;

This agreement shall be subject to the exclusions contained in the original
Contracts of the Company.

ARTICLE 7

PREMIUM

The Company will pay the Reinsurer a deposit premium of $3,600,000 for the term
of this Agreement prorata as to time between January 1, 2005 and December 31,
2005, to be paid in the amount of $900,000 on the first day of each calendar
quarter. Within 120 days following the expiration of this Agreement, the Company
will calculate a premium at a rate of 1.0649% multiplied by the Company's Gross
Net Earned Premium Income. Should the premium so calculated exceed the deposit
premium paid in accordance with the above, the Company will immediately pay the
Reinsurer the difference. Should the premium so calculated be less than the
deposit premium, the Reinsurer will immediately pay the Company the difference
subject to a minimum premium of $3,200,000 prorata as to time between January 1,
2005 and December 31, 2005.

 

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ARTICLE 8

ORIGINAL CONDITIONS

The true intent of this Agreement being that the Reinsurer shall follow the
fortunes of the Company, all reinsurances hereunder shall be subject to the same
terms, conditions, waivers and modifications as the respective Contracts of the
Company.

ARTICLE 9

DEFINITIONS

The term "Ultimate Net Loss" as used in this Agreement shall mean the actual
loss paid by the Company or for which the Company becomes liable to pay, such
loss to include expenses of litigation and interest, and all other loss expense
of the Company including subrogation and salvage (no reinsurance contracts
covering the Company will inure to the benefit of this Agreement. The term
“Ultimate Net Loss” includes 100% of loss in excess of policy limits and 100% of
extra contractual obligations, paid or to be paid by the Company. All salvages,
recoveries or payments recovered or received subsequent to loss settlement
thereunder shall be applied as if recovered or received prior to the aforesaid
settlement, and all necessary adjustments shall be made by the parties hereto.

Nothing in this clause shall be construed to mean that losses are not
recoverable hereunder until the Company's Ultimate Net Loss has been
ascertained.

The term "Loss Occurrence" shall mean the sum of all individual losses directly
occasioned by any one disaster, accident or loss or series of disasters,
accidents or losses arising out of one event which occurs within the Territory.
However, the duration and extent of any one "Loss Occurrence" shall be limited
to all individual losses sustained by the Company occurring during any period of
168 consecutive hours arising out of and directly occasioned by the same event,
except that the term "Loss Occurrence” shall be further defined as follows:

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

2.      As regards riot, riot attending a strike, civil commotion, vandalism and
malicious mischief, all individual losses sustained by the Company occurring
during any period of 72 consecutive hours within the area of one municipality or
county and the municipalities or counties contiguous thereto arising out of and
directly occasioned by the same event. The maximum duration of 72 consecutive
hours may be extended in respect of individual losses which occur beyond such 72
consecutive hours during the continued occupation of an insured's premises by
strikers, provided such occupation commenced during the aforementioned period.

 

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3.      As regards earthquake (the epicenter of which need not necessarily be
within the territorial confines referred to in the opening paragraph of this
definition) and fire following directly occasioned by the earthquake, only those
individual fire losses which commence during the period of 168 consecutive hours
may be included in the Company's "Loss Occurrence."

4.      As regards "freeze," only individual losses directly occasioned by
collapse, breakage of glass and water damage (caused by bursting of frozen pipes
and tanks) may be included in the Company's "Loss Occurrence."

For all "Loss Occurrences," other than Paragraph 2. above, the Company may
choose the date and time when any such period of consecutive hours commences,
provided that it is not earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company arising out of that
disaster, accident or loss and provided that only one such period of 168
consecutive hours shall apply with respect to one event except for any "Loss
Occurrences" referred to in Paragraph 1. above where only one such period of 72
consecutive hours shall apply with respect to one event. As respects those "Loss
Occurrences" referred to in Paragraph 2. above, if the disaster, accident, or
loss occasioned by the event is of greater duration than 72 consecutive hours,
then the Company may divide that disaster, accident or loss into two or more
"Loss Occurrences" provided no two periods overlap and no individual loss is
included in more than one such period and provided that no period commences
earlier than the date and time of the occurrence of the first recorded
individual loss sustained by the Company arising out of that disaster, accident
or loss. No individual losses occasioned by an event that would be covered by 72
hours clauses may be included in any "Loss Occurrence" claimed under the 168
hours provision.

The term "Gross Net Earned Premium Income" as used in this Agreement shall mean
gross earned premium income on business the subject of this Agreement.

The terms "Contracts", "Contracts written by the Company" and "Contracts of the
Company" shall mean any and all binders, policies, certificates, agreements and
contracts of reinsurance and insurance in force on the effective date hereof or
issued, renewed, accepted or held, covered provisionally or otherwise in the
name of the Company on or after the effective date.

ARTICLE 10

REPORTS AND REMITTANCES

Within forty five (45) days after the close of each quarter, the Company will
furnish the Reinsurer a quarterly statement showing the total reserves for
outstanding losses, loss adjustment expense, unearned premiums, and such other
information as may be reasonably requested.

 

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Amounts due the Reinsurer by the Company will be remitted with the quarterly
report. Amounts due the Company by the Reinsurer will be remitted within thirty
(30) days following receipt of the report. Should payment due from the Reinsurer
exceed $250,000 as respects any one loss, the Company may give the Reinsurer
notice of payment made, or its intention to make payment, on a certain date. If
the Company has paid the loss, payment will be made by the Reinsurer
immediately. If the Company intends to pay the loss by a certain date and has
submitted a satisfactory proof of loss or similar document, payment will be due
from the Reinsurer twenty four (24) hours prior to that date, provided the
Reinsurer has a period of one (1) business day after receipt of said notice to
dispatch the payment. Cash loss amounts specifically remitted by the Reinsurer
as set forth herein will be credited to its next quarterly report in which such
cash loss amounts are reported.

ARTICLE 11

EXTRA CONTRACTUAL OBLIGATIONS

The Reinsurer shall be liable hereunder for 100% of any loss to the Company in
respect of Extra Contractual Obligations.

“Extra Contractual Obligations” are defined as those liabilities (excluding
office expenses and compensation of officers and regular employees of the
Company, other than staff field adjusters and out of pocket expense of the
Company’s officers incurred in connection with the loss) not covered under any
other provision of this Agreement and which arise from the handling of any claim
on business covered hereunder, such liabilities arising because of, but not
limited to, the following: failure by the Company to settle within the policy
limit, or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.

The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original loss. The
time any amount is due from the Reinsurer hereunder shall be based upon the time
the Company has made a payment to which these provisions relate.

For purposes of Extra Contractual Obligations coverage there shall be no
recovery hereunder where the loss has been incurred due to or to the extent
caused by fraud by a member of the board of directors or a corporate officer of
the Company acting individually or collectively or in collusion with any
individual or corporation or other organization or party involved in the
presentation, defense or settlement of a claim on behalf of the Company.

 

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ARTICLE 12

JUDGMENTS IN EXCESS OF POLICY LIMITS

This Agreement shall protect the Company for 100% of any loss in excess of the
limit of its original policy, such loss in excess of the limit having been
incurred because of failure by the Company to settle within the policy limit or
by reason of alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement, or in the preparation of the defense, or in the trial of
any action against its insured or reinsured or in the preparation or prosecution
of an appeal consequent upon such action.

However, this Article shall not apply where the loss has been incurred due to or
to the extent caused by fraud by a member of the board of directors or a
corporate officer of the Company acting individually or collectively or in
collusion with any individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any claim.

For purposes of this Article the word “loss” shall mean any amounts for which
the Company would have been contractually liable to pay had it not been for the
limit of the original policy (excluding office expenses and compensation of
officers and regular employees of the Company, other than staff field adjusters
and out of pocket expense of the Company’s officers incurred in connection with
the loss).

ARTICLE 13

CURRENCY

All of the provisions of this Agreement involving dollar amounts are expressed
in terms of United States dollars, and all premium and loss payments hereunder
shall be made in United States dollars. It is further agreed that for the
purposes of this Agreement, amounts paid or received by the Company in other
currency shall be converted into United States dollars at the rate of exchange
at which such transactions are converted in the books of the Company.

ARTICLE 14

ACCESS TO RECORDS

The Reinsurer or its duly accredited representatives shall have full access to
the books and records (other than any list or lists of brokers through which the
Company has written the business ceded hereunder) of the Company at all
reasonable times for the purpose of obtaining information concerning this
Agreement or the subject matter hereof. Upon request, the Company shall supply
the Reinsurer, at the Reinsurer's expense, with copies of the whole or any part
of such books and records relating to this Agreement or the subject matter
hereof.

 

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The Reinsurer agrees, on behalf of itself and its representatives, to hold and
keep confidential, and not to disclose to any third party (unless requested or
required by relevant insurance regulatory authorities or otherwise compelled to
do so by applicable law), any confidential and proprietary information of the
Company which it receives or has access to pursuant to the above paragraph. The
Reinsurer further agrees, on behalf of itself and its representatives, that it
shall not use any underwriting or related information received from the Company,
except for the sole purpose of analyzing the risks to be ceded to the Reinsurer
hereunder or in the application of the terms of this Agreement. The Reinsurer
agrees to abide by any determination by the Company that any information
provided to the Reinsurer constitutes confidential and proprietary information.

ARTICLE 15

DELAY, OMISSION or ERROR

Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay, omission or
error is rectified upon discovery.

ARTICLE 16

INSOLVENCY

In the event of the insolvency of the Company, this reinsurance shall be payable
by the Reinsurer directly to the Company, or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the Company
without diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator, or statutory successor of the Company has
failed to pay all or portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator, or statutory successor of the Company shall
give written notice to the Reinsurer of the pendency of a claim against the
Company indicating the policy or bond reinsured which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time after
such claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator, or statutory
successor.

The expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer.

 

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

The reinsurance shall be payable by the Reinsurer to the Company or its
liquidator, receiver, conservator, or statutory successor, except where the
agreement specifically provides another payee of such reinsurance in the event
of the insolvency of the Company, and where the Reinsurer, with the consent of
the direct insured or insureds, has assumed such policy obligations of the
Company as direct obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the Company to such payees.

ARTICLE 17

ARBITRATION

As a condition precedent to any right of action hereunder, if any dispute, claim
or controversy shall arise between the Company and the Reinsurer with respect to
this Agreement, the interpretation or breach thereof or the rights of the
parties with respect to any transaction contemplated hereunder (a "Dispute"),
whether such Dispute arises before or after termination of this Agreement, such
dispute, upon the written demand of either party, shall be arbitrated in
accordance with this ARTICLE 17. Any such demand for arbitration shall be made
within a reasonable time after the Dispute has arisen, and in any event shall
not be made after the date when institution of legal or equitable proceedings
based on such Dispute would be barred by the applicable statute of limitations.

Any Dispute to be arbitrated hereunder shall be submitted to three arbitrators,
one to be appointed by each party, and an umpire to be chosen by the two so
appointed. If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after the receipt of written notice from the other party
requesting it to do so, the requesting party may appoint two arbitrators. If the
two arbitrators fail to agree in the selection of the umpire within thirty (30)
days of their appointment, each arbitrator shall nominate three candidates
within ten (10) days thereafter, two of whom the other shall decline, and the
choice between the remaining two shall be made by drawing lots. All arbitrators
shall be active or retired executive officers of insurance or reinsurance
companies or underwriters at Lloyd's, London not under the control of, or having
had in the previous 3 years direct and material business relations with, or
related by birth or marriage to any employee of, either party to this Agreement,
and having no other personal or financial interest in the outcome of the
arbitration. Any determination by a majority of the arbitrators shall be binding
and conclusive upon the parties hereto.

Each party shall submit its case to the arbitrators within thirty (30) days of
the appointment of the umpire. All proceedings before the arbitration panel
shall be informal and the arbitrators shall have the power to fix all procedural
rules relating to the arbitration proceeding.

 

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The arbitration panel shall render its decision within thirty (30) days after
termination of the proceeding, which decision shall be in writing, stating the
reasons therefor. Judgment upon the final decision of the arbitrators may be
entered in any court having jurisdiction or application may be made to such
court for a judicial confirmation of the award and an order of enforcement, as
the case may be. Unless otherwise allocated by the arbitrators, each party shall
bear the expense of its own arbitrator and shall jointly and equally bear with
the other party the expense of the umpire and of any other expenses of the
arbitration. The arbitration shall take place in the city in which the Company's
head office is located unless some other place is mutually agreed upon by the
Company and the Reinsurer.

Notwithstanding the foregoing provisions of this ARTICLE XV, it is hereby agreed
that no arbitration panel shall have any power to add to, alter or modify the
terms and conditions of this Agreement or to decide any issue which does not
arise from the interpretation or application of the provisions of this
Agreement.

ARTICLE 18

LIMITATIONS ON LIABILITY

The liability of the Company to the Reinsurer in respect of any failure to
comply with the provisions of this Agreement shall be limited to amounts
actually owed hereunder and damages directly caused by the willful misconduct or
gross negligence of the Company. In no event shall the Company be liable for
indirect, incidental, special or consequential damages.

The parties shall each be entitled to specific performance of the terms of this
Agreement.

ARTICLE 19

NOTICES

All notices, requests, demands and other communications hereunder must be in
writing (including facsimile transmission) and shall be deemed to have been duly
given (i) when received if delivered by hand against written receipt, (ii) when
sent if sent by facsimile transmission between 9:00 a.m. and 5:00 p.m. on a day
when the Federal Reserve Bank and the Bank of Bermuda are open for business,
provided such transmission is confirmed by the transmitting machine, (iii) 5
days after being mailed if mailed by prepaid, first class certified mail, return
receipt requested, or (iv) if sent by overnight courier, 2 days after delivery
to a recognized major overnight courier service, fees prepaid. In each case
notices shall be addressed as follows:

         

 

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If to the Reinsurer:

PXRE Reinsurance Company
399 Thornall Street
14th Floor
Edison, NJ 08837
Attention: General Counsel
Facsimile No.: 732 906-9157

If to the Company:

PXRE Reinsurance Ltd.     
PXRE House
110 Pitts Bay Road
Pembroke HM08     
Bermuda
Attention: Chief Financial Officer
Facsimile No.: 441 296-6162

Any party by notice in writing sent to the other may change the name, address or
facsimile number to which notices, requests, demands or other communications to
it shall be given.

ARTICLE 20

MISCELLANEOUS

Both the Reinsurer and the Company shall have, and may exercise at any time, the
right to offset any balance or balances due from one party to the other or, to
the extent permitted by applicable law, such other’s successor, including a
successor by operation of law. Such offset may only include balances due under
this Agreement and any other reinsurance agreements heretofore or hereafter
entered into between the Reinsurer and the Company, regardless of whether such
balances are in respect of premiums, or losses or otherwise, and regardless of
the capacity of any party, whether as reinsurer or reinsured, under the various
agreements involved.

This Agreement (including any Annexes or Endorsements hereto) contains the
entire agreement between the parties, and supersedes all prior or
contemporaneous discussions, negotiations, representations, or agreements,
relating to the subject matter hereof.

This Agreement shall be construed and enforced in accordance with, and governed
by, the laws of the State of Connecticut (other than any conflict of law rule
which might result in the application of the law of any other jurisdiction).

 

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This Agreement is intended for the exclusive benefit of the parties to this
Agreement and their respective successors and permitted assigns, and nothing
contained in this Agreement shall be construed as creating any rights or
benefits in or to any third party.

The captions of the various sections of this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning thereof.

This Agreement may not be modified or amended or any term or provision hereof
waived or discharged except in writing signed by the party against whom such
amendment, modification, waiver or discharge is sought to be enforced. Any
modification or amendment of any term or provision hereof waived or discharged
of the XOL Agreement, requires prior approval from the State of Connecticut
Insurance Department Commissioner.

Except as otherwise provided in this Agreement, any failure or delay on the part
of any party in exercising any power or right hereunder shall not operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power preclude any other or further exercise thereof or the exercise of any
other right or power hereunder or otherwise available at law or in equity.

No party may assign any of its rights or obligations under this Agreement
without the written consent of the other party to this Agreement, which consent
may be arbitrarily withheld by such party, any such non-consented to assignments
being void. No party may assign any of its rights or obligations under the XOL
Agreement without written consent of either party, or prior approval from the
State of Connecticut Insurance Department Commissioner. Except as otherwise
provided in this Agreement, this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by and against the respective successors and
assigns of each party to this Agreement.

This Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers in Hamilton, Bermuda as of the date first
written above.

 

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    PXRE REINSURANCE LTD.             By   /s/ Robert P. Myron    

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Name:   Robert P. Myron Title:   Chief Financial Officer                      
PXRE REINSURANCE COMPANY             By   /s/ Bruce J. Byrnes    

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Name:   Bruce J. Byrnes Title:   General Counsel

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