Addendum No. 1

to the

Interests and Liabilities Agreement

of

Motors Insurance Corporation

Detroit, Michigan

by

GMAC Re Corporation

Mt. Laurel, New Jersey

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Private Passenger

Automobile Quota Share

Reinsurance Contract

Effective: April 1, 2007

issued to

Affirmative Insurance Company

Burr Ridge, Illinois

USAgencies Casualty Insurance Company

Baton Rouge, Louisiana

and

USAgencies Direct Insurance Company

New York, New York

(hereinafter referred to collectively as the “Company”)

The Subscribing Reinsurer hereby accepts Addendum No. 1, as duly executed by the
Company, as part of the Contract, effective April 1, 2007.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:

Mt. Laurel, New Jersey, this 5th day of September in the year 2007.

 

LOGO [g89953sigex1019-pg1.jpg]

GMAC Re Corporation

(for and on behalf of Motors Insurance Corporation)

 

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Addendum No. 1

to the

Private Passenger

Automobile Quota Share

Reinsurance Contract

Effective: April 1, 2007

issued to

Affirmative Insurance Company

Burr Ridge, Illinois

USAgencies Casualty Insurance Company

Baton Rouge, Louisiana

and

USAgencies Direct Insurance Company

New York, New York

(hereinafter referred to collectively as the “Company”)

It Is Hereby Agreed, effective April 1, 2007, that this Contract shall be
amended as follows:

 

1.

Subparagraph 2 of paragraph D of Article II - Commencement and Termination -
shall be deleted and the following substituted therefor:

 

 

“2.

The Subscribing Reinsurer” A.M. Best’s rating has been assigned or downgraded
below B+ (inclusive of ‘Not Rated’ ratings) and/or Standard & Poor’s rating has
been assigned or downgraded below BBB (inclusive of ‘Not Rated’ ratings); or”

 

2.

The following paragraph shall be added to and made part of Article II -
Commencement and Termination:

 

 

“J.

Notwithstanding the provisions of paragraphs B, C, D and E above, the Company
may terminate this Contract, on a runoff or cutoff basis at the sole discretion
of the Company, at any time by giving the Reinsurer written notice in the event
the Reinsurer fails to meet its obligations pursuant to the terms of the Trust
Agreement between the Company and the Reinsurer, effective April 1, 2007
(hereinafter referred to as the ‘Trust Agreement’). However, the Reinsurer shall
have 30 days from the date of the Company’s written notice during which time the
Reinsurer shall come into compliance with its obligations under the Trust
Agreement and upon such compliance, the notice of termination shall be rescinded
by the Company.”

 

3.

Paragraph B of Article V - Retention and Limit - shall be deleted and the
following substituted therefor:

 

 

“B.

In conjunction with the provisions of the Other Reinsurance Article, the Company
may purchase other pro rata reinsurance at different terms and conditions set
forth under this Contract; however, in no event shall the Company or any of its
affiliates retain less than 25.0% of its net liability as respects pro rata
cessions.”

 

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4.

Subparagraph 1 of paragraph A of Article XIV - Special Commutation - shall be
deleted and the following substituted therefor:

 

 

“1.

The Reinsurer fails to meet its obligations pursuant to the terms of the Trust
Agreement. However, the Reinsurer shall have 30 days from the date of the
Company’s written notice of the intent to commute during which time the
Reinsurer shall come into compliance with its obligations under the Trust
Agreement and upon such compliance, the notice of commutation shall be rescinded
by the Company; or”

 

5.

Article XV - Late Payments - shall be deleted from this Contract.

 

6.

Article XVI - Offset (BRMA 36A) - shall be deleted and the following substituted
therefor:

“Article XVI - Offset and Release of Corresponding Liability

 

 

A.

The Company and the Reinsurer may offset any balance or amount due from one
party to the other under this Contract or any other contract heretofore or
hereafter entered into between the Company and the Reinsurer, whether acting as
assuming reinsurer or ceding company. This provision shall not be affected by
the insolvency of either party to this Contract.

 

 

B.

The Reinsurer shall be entitled to deduct any payments and/or sums withdrawn by
the Company pursuant to the terms of the Trust Agreement from any sums which may
be or become due the Company, its successors or assigns. It is understood and
agreed that any such payments and/or withdrawals pursuant to the terms of the
Trust Agreement shall, to the extent of such amounts, fully discharge and
completely release the Reinsurer of its corresponding liability to the Company
under this Contract and to any conservator, rehabilitator, successor, assignee,
liquidator or statutory successor of the Company and shall constitute equivalent
performance under this Contract. In no event shall the Reinsurer be subject to
duplicate liability.”

 

7.

Paragraph A of Article XXII - Reserves - shall be deleted and the following
substituted therefor:

 

 

“A.

The Reinsurer agrees to fund its share of the Company’s ceded unearned premium
and outstanding loss reserves (including IBNR as established by the Company’s
actuary and agreed upon by the Reinsurer) by:

 

 

1.

Clean, irrevocable and unconditional letters of credit issued and confirmed, if
confirmation is required by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office credit standards for
issuers of letters of credit and acceptable to said insurance regulatory
authorities; and/or

 

 

2.

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

 

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3.

Cash advances;

if the Reinsurer is unauthorized, unapproved, unqualified, or not accredited in
any state of the United States of America or the District of Columbia having
jurisdiction over the Company, and if, without such funding, a penalty would
accrue to the Company on any financial statement it is required to file with the
insurance regulatory authorities involved.”

 

8.

The following paragraph shall be added to and made part of Article XXIV -
Arbitration:

 

 

“I.

The provisions of this Article shall not apply to any disagreement between the
Company and the Reinsurer as to the amounts to be funded for undisputed claims
under the Trust Agreement, it being the intent that any such dispute will be
determined in accordance with the arbitration provisions set forth in the Trust
Agreement.”

The provisions of this Contract shall remain otherwise unchanged.

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

Burr Ridge, Illinois, this 28th day of August in the year 2007.

 

LOGO [g89953sigex1019-pg4.jpg], President

Affirmative Insurance Company

USAgencies Casualty Insurance Company

USAgencies Direct lnsurance Company

 

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