Exhibit 10.20

EXECUTION COPY

 

 

 

QUOTA SHARE REINSURANCE AGREEMENT

between

HARBOR POINT RE LIMITED

and

BAY POINT RE LIMITED

 

 

 

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TABLE OF CONTENTS

PREAMBLE

 

         Page   ARTICLE I    DEFINITIONS    1   ARTICLE II    REINSURING CLAUSE
   7 Section 2.01.   Quota Share Reinsurance    7 Section 2.02.   Original
Conditions    7 Section 2.03.   Aggregate Limit of Liability    8   ARTICLE III
   REINSURANCE PREMIUM    8 Section 3.01.   Initial Reinsurance Premium    8
Section 3.02.   Net Ceded Reinsurance Premium    8   ARTICLE IV    CEDING
COMMISSION    8 Section 4.01.   Ceding Commission    8 Section 4.02.  
Adjustment to Cumulative Ceding Commission Override    9   ARTICLE V    PROFIT
COMMISSION    9 Section 5.01.   Profit Commission    9 Section 5.02.   Return of
Profit Commission    9 Section 5.03.   Calculation and Payment of Profit
Commission    9

 

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         Page   ARTICLE VI    PROFIT DISTRIBUTION AMOUNTS    10 Section 6.01.  
Profit Distribution Amounts    10 Section 6.02.   Calculation and Payment of
Profit Distribution Amounts    10   ARTICLE VII    REPORTS      11 Section 7.01.
  Quarterly Reports by the Ceding Company    11 Section 7.02.   Reports by the
Ceding Company    12   ARTICLE VIII    SETTLEMENT OF PAYMENTS    12
Section 8.01.   Time and Manner of Settlement of Payments    12 Section 8.02.  
Delays in Payments    12   ARTICLE IX    ADJUSTMENTS TO CEDED PERCENTAGE    13
Section 9.01.   Adjustments to Ceded Percentage    13 Section 9.02.   Recapture
   13   ARTICLE X    TRUST FUND    14 Section 10.01.   Trust Fund    14  
ARTICLE XI    ERRORS AND OMISSIONS    16 Section 11.01.   Errors and Omissions
   16   ARTICLE XII    NOTICES AND INSTRUCTIONS    16 Section 12.01.   Notices
and Instructions    16

 

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         Page   ARTICLE XIII    COVENANTS OF CEDING COMPANY AND REINSURER    18
Section 13.01.   Access to Records    18 Section 13.02.   Zonal Management    19
Section 13.03.   Adverse Selection    19 Section 13.04.   Retrocession    19
Section 13.05.   Business of Reinsurer    19   ARTICLE XIV    CHOICE OF LAW   
19 Section 14.01.   Choice of Law    19   ARTICLE XV    DISPUTE RESOLUTION    19
Section 15.01.   Dispute Resolution    19   ARTICLE XVI    INSOLVENCY    20
Section 16.01.   Losses and Expenses Payable Without Diminution    20
Section 16.02.   Notice to Reinsurer; Defense of Claims    21   ARTICLE XVII   
OFFSET    21 Section 17.01.   Offset    21   ARTICLE XVIII    EXTENSION; RIGHT
OF FIRST REFUSAL    21 Section 18.01.   Extension Option    21 Section 18.02.  
Right of First Refusal    22

 

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         Page   ARTICLE XIX    MISCELLANEOUS PROVISIONS    22 Section 19.01.  
Headings for Convenience Only    22 Section 19.02.   Entire Agreement    22
Section 19.03.   No Waiver    22 Section 19.04.   Intention of Parties; No Third
Party Rights    22 Section 19.05.   No Assignment    23 Section 19.06.   Further
Assurances    23 Section 19.07.   Severability    23 Section 19.08.  
Interpretation    24 Section 19.09.   Counterparts    24

 

Schedule 1    Loss Development Factors Schedule 2    Investment Guidelines
Schedule 3    Seasonality Factors Exhibit A    Trust Agreement

 

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QUOTA SHARE REINSURANCE AGREEMENT

THIS QUOTA SHARE REINSURANCE AGREEMENT (this “Agreement”), made and entered into
as of June 9, 2006 by and between HARBOR POINT RE LIMITED, a Bermuda exempted
company (the “Ceding Company”) and BAY POINT RE LIMITED, a Bermuda exempted
company (the “Reinsurer”).

ARTICLE I

DEFINITIONS

Capitalized terms in this Agreement have the meanings set forth below.

“2006 IBNR Cushion” means, at any time, an amount equal to the greater of
(i) twenty percent (20%) of Gross Ceded Premium earned during the previous four
calendar quarters (or the number of completed quarters in the Underwriting
Period if less than four) on Gross Ceded Premium written during the 2006
Underwriting Year and (ii) five percent (5%) of Gross Ceded Premium written for
the 2006 Underwriting Year from the Effective Date to (and including) such time,
as reasonably determined by the Ceding Company.

“2006 Underwriting Year” means the period from January 1, 2006 to December 31,
2006.

“2007 IBNR Cushion” means, at any time, an amount equal to the greater of
(i) twenty percent (20%) of Gross Ceded Premium earned during the previous four
calendar quarters on Gross Ceded Premium written during the 2007 Underwriting
Year and (ii) five percent (5%) of Gross Ceded Premium written for the 2007
Underwriting Year from the Effective Date to (and including) such time, as
reasonably determined by the Ceding Company.

“2007 Underwriting Year” means the period from January 1, 2007 to December 31,
2007.

“Adjusted Net Income (Loss)” means, for any applicable period, an amount equal
to (i) Net Income (Loss) less (ii) an amount equal to net investment income on
assets of the Reinsurer held outside the Trust Account.

“Adjusted UEPR” means the UEPR adjusted by the Seasonality Factors.

“Affiliate” means any Person who Controls, is Controlled by, or is under common
Control with, any other Person.

“Appointing Authority” has the meaning ascribed in Section 15.01.

“Assumed Reinsurance Agreements” means those reinsurance agreements that
constitute the Business Reinsured.

“Average Capital Balance” means, for any applicable period, the quotient of
(x) the sum of the assets in the Trust Account at the end of each full calendar
month during such period divided by (y) the number of full calendar months
within such period.

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“Average Equity Capital” means, for any applicable period, the average of the
Equity Capital of the Reinsurer as of the end of each calendar quarter during
such period.

“Average Indebtedness” means, for any applicable period, the average of the
outstanding indebtedness of the Reinsurer under the Credit Agreement as of the
start and end of such period.

“Business Day” means any day on which banks are required to be open for business
in each of New York, New York; London, England; and Hamilton, Bermuda.

“Business Reinsured” means all agreements of assumed reinsurance (a) entered
into by the Ceding Company, that (i) first become effective within the
Underwriting Period and (ii) have a term of less than twenty-four (24) months,
and (b) that are traditional short-tail business classified by the Ceding
Company as business constituting one or more of the following business lines:

(i) U.S. and International Property Cat business;

(ii) Retro Property and Energy QS business;

(iii) Property per risk business;

(iv) Workers Comp Cat business;

(v) Marine XOL US and International business written after May 1, 2006; and

(vi) Marine QS business written after May 1, 2006.

“Cash Equivalents” means, as of any particular date, money market funds,
marketable obligations issued or guaranteed by the United States Government,
certificates of deposit, bankers’ acceptances, and other similar liquid
investments, in each case, with a maturity date of not more than ninety
(90) days from the date on which any such instrument is transferred pursuant to
the terms of this Agreement, the market value of which on the date of transfer
will be counted as equivalent to cash for the purposes of this Agreement;
provided, however, that an investment shall not be a Cash Equivalent if, at the
time the investment is proposed to be acquired, payments due the Trust under its
terms or proceeds from its disposition would be subject to U.S. or non-U.S.
withholding tax, other than withholding tax as to which the obligor, issuer, or
transferee of such investment must pay additional amounts so that the net amount
of such payments or proceeds (as the case may be) received after satisfaction of
such withholding tax equals the gross amount that would have been received
before imposition of such withholding tax.

“Ceded External Costs” means the product of (i) the Ceded Percentage (as it may
be adjusted hereunder), multiplied by (ii) the External Costs.

“Ceded Loss Reserves” means the product of (i) the Ceded Percentage (as it may
be adjusted hereunder), multiplied by (ii) Loss Reserves.

“Ceded Losses” means the product of (i) the Ceded Percentage (as it may be
adjusted hereunder), multiplied by (ii) Losses.

“Ceded Percentage” means, with respect to the Business Reinsured, a thirty
percent (30%) quota share, subject to adjustments as set forth in Section 9.01.

 

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“Ceded Percentage Adjustment Fraction” means, at any time within the
Underwriting Period, a fraction, the numerator of which is equal to the
difference between the previous Ceded Percentage and the adjusted Ceded
Percentage and the denominator of which is the previous Ceded Percentage.

“Ceding Commission” has the meaning ascribed in Section 4.01.

“Ceding Company” has the meaning ascribed in the introductory paragraph of this
Agreement.

“Collateral” means, at any time during any calendar year, the sum of (i) the
fair market value of the assets in the Trust Account plus (ii) the unpaid
portion of projected Net Ceded Premiums for such calendar year, if any.

“Combined Ratio” means, for any applicable period, the sum of (i) the Cumulative
Loss Ratio, plus (ii) the Cumulative External Cost Ratio.

“Control” means direct or indirect ownership of more than fifty percent (50%) of
the voting power of the equity of any Person or otherwise having the power to
direct the management of such Person.

“Covered Events” means events, accidents or occurrences that take place after
the Effective Date that result in Loss under the Business Reinsured, provided
that in the case of hurricanes or tropical storms, landfall in any of the 48
contiguous states of the United States of America first takes place after the
Effective Date.

“Credit Agreement” means the Credit Agreement dated as of June 9, 2006 among the
Reinsurer, various Lenders, and Goldman Sachs Credit Partners L.P., in various
capacities.

“Cumulative Adjusted Net Income” means, for any applicable period, the Adjusted
Net Income (Loss) of the Reinsurer from the Effective Date to (and including)
the last day of such period.

“Cumulative Adjusted Net Underwriting Income (Loss)” means, for any applicable
period, the (i) the Cumulative Net Underwriting Income (Loss), plus (ii) the
total net investment income of the Reinsurer from the Effective Date to (and
including) the last day of such period, less (iii) the total net investment
income of the Reinsurer earned on the Average Equity Capital and Average
Indebtedness for such period, in each case as determined in accordance with
GAAP.

“Cumulative Ceding Commission Override” means, for any applicable period, (i) if
the Combined Ratio is 0.76 or less, seven percent (7%) of the Gross Ceded
Premium from (and including) the Effective Date to (and including) the last day
of such period, as calculated by the Ceding Company in accordance with GAAP, or
(ii) if the Combined Ratio is 0.795 or more, three and one-half percent
(3.5%) of the Gross Ceded Premium from (and including) the Effective Date to
(and including) the last day of such period, as calculated by the Ceding Company
in accordance with GAAP, or (iii) if the Combined Ratio is between 0.76 and
0.795, a percentage of the Gross Ceded Premium from (and including) the
Effective Date to (and

 

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including) the last day of such period, as calculated by the Ceding Company in
accordance with GAAP, equal to (a) 3.5% plus (b) the excess of 79.5% over the
Combined Ratio.

“Cumulative External Cost Ratio” means, for any applicable period, the ratio of
Ceded External Costs from (and including) the Effective Date to (and including)
the last day of such period to Gross Ceded Premium from (and including) the
Effective Date to (and including) the last day of such period.

“Cumulative Loss Ratio” means, for any applicable period, the ratio of Ceded
Losses from (and including) the Effective Date to (and including) the last day
of such period to Gross Ceded Premium from (and including) the Effective Date to
(and including) the last day of such period.

“Cumulative Net Income (Loss)” means, for any applicable period, Net Income
(Loss) from (and including) the Effective Date to (and including) the last day
of such period.

“Cumulative Net Underwriting Income (Loss)” means, for any applicable period,
the Net Underwriting Income (Loss) from (and including) the Effective Date to
(and including) the last day of such period.

“Effective Date” means June 9, 2006.

“Equity Capital” means, at any time, the cumulative amount of equity capital
contributed to the Reinsurer less any returns of capital (i.e., returns of funds
in excess of Net Income) by the Reinsurer through such time, determined in
accordance with GAAP.

“Excess Funding Amount” means, at any time, an amount equal to the excess of
(i) the amount of the Collateral over (ii) the Requisite Funding Amount.

“External Costs” means costs actually paid by the Ceding Company in connection
with the acquisition of the Business Reinsured, including ceding commissions and
profit sharing amounts paid to cedents, brokerage fees and commissions paid to
reinsurance intermediaries, fronting fees, excise taxes, and similar acquisition
expenses.

“GAAP” means United States generally accepted accounting principles,
consistently applied.

“Gross Ceded Premium” means the Ceded Percentage multiplied by Original Net
Written Premium.

“Harbor Point Re” means Harbor Point Re Limited, a Bermuda exempted company.

“IBNR Cushion” means the sum of the 2006 IBNR Cushion and the 2007 IBNR Cushion.

“Inuring Reinsurance” means reinsurance and other risk transfer or risk
mitigation mechanisms or arrangements entered into by the Ceding Company with
respect to Losses under the Business Reinsured, including catastrophe bonds,
industry loss warranties, and similar mechanisms and arrangements that inure to
the mutual benefit of the Ceding Company and the

 

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Reinsurer in the same proportion as their respective interests in the Business
Reinsured as a result of this Agreement.

“Late Trust Payment Rate” means, in respect of any period, an annual rate equal
to the overnight LIBOR rate per the British Bankers’ Association set forth on
page BBAN of Bloomberg (or any successor or substitute page of such Service) at
approximately 11:00 A.M., London time, on the first Business Day of such period.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit,
arrangement, encumbrance, lien (statutory or otherwise), charge, or security
interest, or any preference, priority, or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement).

“Loss Development Cushion” means, at any time, an amount equal to the sum of the
product of (i) each prior Major Catastrophic Loss and (ii) the applicable Loss
Development Factor, calculated consistently with the illustrative calculations
set forth on Schedule 1 hereto.

“Loss Development Factors” means, with respect to each Major Catastrophic Loss,
the factors set forth on Schedule 1 hereto.

“Loss Reserves” means the Ceding Company’s reserves for Losses, including billed
but unpaid losses, case and other loss reserves, reserves for losses incurred
but not yet reported, and, if included within the coverage provided under the
Business Reinsured, loss adjustment expenses and reserves for loss adjustment
expenses, determined in accordance with GAAP.

“Losses” (or “Loss”) means the Ceding Company’s liability under the Business
Reinsured after deduction therefrom of (i) all Net Salvage and (ii) all amounts
recoverable under the Inuring Reinsurance. “Losses” shall include any and all
liability for amounts payable on or after the Effective Date for returns or
refunds of premiums.

“Major Catastrophic Loss” means a loss to the Ceding Company, net of
reinstatement premium, in the amount of $5 million or more arising from a single
occurrence or event.

“Minimum Capital Cushion” means, at any time, an amount equal to the sum of the
Ceded Loss Reserves, the Loss Development Cushion and the IBNR Cushion as of
such time.

“Net Ceded Premiums” means the Gross Ceded Premiums less Ceding Commissions.

“Net Income (Loss)” means, for any applicable period, an amount equal to the net
income or loss of the Reinsurer, as determined in accordance with GAAP.

“Net Salvage” means, at any time, all recoveries actually paid to the Ceding
Company in respect of specific Losses by way of salvage, subrogation,
contribution or indemnity, except recoveries on any Inuring Reinsurance, net of
the actual cost of obtaining such recoveries.

 

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“Net Underwriting Income (Loss)” means, for any applicable period, an amount
equal to (i) Net Ceded Premiums earned, less (ii) Ceded Losses incurred
(including changes in the Ceded Loss Reserves), in each case as determined in
accordance with GAAP.

“Operating Costs” means the actual operating costs incurred by the Reinsurer,
including interest expense incurred on loans made by the Reinsurer under the
Credit Agreement, premiums for excess of loss reinsurance and amounts paid to
vendors and service providers.

“Original Gross Written Premium” means, with respect to any period, (i) the
total of gross written premium ceded to the Ceding Company under the Assumed
Reinsurance Agreements (including, without limitation, reinstatement premiums
applicable to such period), less (ii) the total of returns and cancellations.

“Original Net Written Premium” means, with respect to any period, (i) Original
Gross Written Premium, less (ii) the gross reinsurance premium, or other costs
paid with respect to Inuring Reinsurance, as applicable to such period with
respect to the Business Reinsured, in each case as determined in accordance with
GAAP.

“Permitted Investments” means cash, Cash Equivalents and those investments which
meet the investment guidelines attached hereto as Schedule 2.

“Person” means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority, or other entity of whatever nature.

“Profit Commission” has the meaning ascribed in Section 5.01.

“Profit Distribution Amount” has the meaning ascribed in Section 6.01.

“Recapture Amount” has the meaning ascribed in Section 9.02.

“Reinsurer” has the meaning ascribed in the introductory paragraph on this
Agreement.

“Requisite Funded Amount” means, at any time, an amount equal to (i) the Minimum
Capital Cushion at such time plus (ii) the greater of (A) two hundred fifty
percent (250%) of the maximum projected in-force Gross Ceded Premiums for the
next succeeding four calendar quarters and (B) the sum of the projected
1-in-100–year U.S. wind occurrence probable maximum loss as regards the Business
Reinsured for the next succeeding four calendar quarters and the projected
1-in-250–year U.S. earthquake occurrence probable maximum loss as regards the
Business Reinsured for the next succeeding four calendar quarters, in each case
as reasonably determined by the Ceding Company.

“Seasonality Factors” means, with respect to the calculation of “Adjusted UEPR”,
the factors set forth on Schedule 3 hereto.

“Tier 1 Required Return” means, for any applicable period, six percent
(6%) multiplied by the Average Equity Capital for such period multiplied by the
number of months elapsed from

 

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(and including) the Effective Date to (and including) the last day of such
period divided by twelve.

“Tier 2 Required Return” means, for any applicable period, twelve percent
(12%) multiplied by the Average Equity Capital for such period multiplied by the
number of months elapsed from (and including) the Effective Date to (and
including) the last day of such period divided by twelve.

“Trust Account” has the meaning ascribed in Section 10.01.

“Trustee” has the meaning ascribed in Section 10.01.

“Trust Agreement” has the meaning ascribed in Section 10.01.

“UEPR” means, at any time, unearned premium reserves with regards the Business
Reinsured.

“Underwriting Period” means the period from January 1, 2006 to December 31,
2007.

ARTICLE II

REINSURING CLAUSE

Section 2.01. Quota Share Reinsurance

(a) Subject to the terms, conditions and exclusions of this Agreement and the
limit of liability as set forth in Section 2.03, the Ceding Company agrees to
cede hereunder, and the Reinsurer agrees to indemnify the Ceding Company for,
Ceded Losses incurred under the Assumed Reinsurance Agreements that arise from
Covered Events.

(b) The Ceding Company may, at its discretion, enter into reinsurance or other
risk transfer or risk mitigation mechanisms and arrangements to reinsure or
otherwise mitigate in whole or in part the risk of loss under the Business
Reinsured, provided that (i) all such mechanisms and arrangements constitute
Inuring Reinsurance; and (ii) no greater than fifty percent (50%) of Original
Gross Written Premium is used to procure such reinsurance or other risk transfer
or risk mitigation mechanisms and arrangements. In the event that the Ceding
Company purchases Inuring Reinsurance on or after the Effective Date, the Ceding
Company shall promptly (and in any event within ten (10) Business Days
thereafter) provide written notice to the Reinsurer of such purchase and an
illustration of the anticipated effects of such Inuring Reinsurance on the
Requisite Funded Amount.

Section 2.02. Original Conditions

Subject to the terms, conditions, and exclusions of this Agreement, the
liability of the Reinsurer with respect to the Business Reinsured shall commence
obligatorily and simultaneously with that of the Ceding Company and the
Reinsurer shall, in all respects, follow the underwriting fortunes of the Ceding
Company with respect to the Business Reinsured.

 

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Section 2.03. Aggregate Limit of Liability

Notwithstanding any provision of this Agreement to the contrary, the liability
of Reinsurer under this Agreement for Losses shall in no event exceed the fair
market value of the assets in the Trust Account and the fair market value of any
other available assets of the Reinsurer.

ARTICLE III

REINSURANCE PREMIUM

Section 3.01. Initial Reinsurance Premium

On the Effective Date, the Ceding Company shall pay to the Reinsurer by
depositing into the Trust Account reinsurance premium with respect to the
Business Reinsured that is in effect on the Effective Date, the U.S. dollar
amount equal to (i)(A) the Ceded Percentage multiplied by (B) the actually
collected portion of Adjusted UEPR on the books of the Ceding Company as of such
date, as estimated by the Ceding Company in good faith, less (ii) the Ceding
Commission applicable to such Adjusted UEPR (such amount, as adjusted, the
“Initial Reinsurance Premium”). Such amount shall be paid in cash or Cash
Equivalents. The Ceding Company shall adjust the Initial Reinsurance Premium on
a quarterly basis based on actual data and future development of such Adjusted
UEPR, including the collection after the Effective Date of Net Ceded Premium on
such Business Reinsured in effect on the Effective Date.

Section 3.02. Net Ceded Reinsurance Premium

After the Effective Date, reinsurance premium shall be payable to the Reinsurer
equal to the actually collected Net Ceded Premium on Assumed Reinsurance
Agreements first in effect after the Effective Date. The Ceding Company shall
calculate the adjustments to the Initial Reinsurance Premium and all other Net
Ceded Premium at the end of each calendar quarter and report such amounts to the
Reinsurer pursuant to Section 7.01. The amount due with respect to each such
quarter shall be paid within the time and in the manner provided in
Section 8.01.

ARTICLE IV

CEDING COMMISSION

Section 4.01. Ceding Commission

The Reinsurer shall allow the Ceding Company a ceding commission (the “Ceding
Commission”) equal to the sum of (i) Ceded External Costs plus (ii) the
Cumulative Ceding Commission Override. The allowance of the Ceding Commission
shall be taken into account in calculating the Net Ceded Premium payable to the
Reinsurer pursuant to Section 3.01. The Cumulative Ceding Commission Override
shall be subject to adjustment in accordance with Section 4.02.

 

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Section 4.02. Adjustment to Cumulative Ceding Commission Override

The Cumulative Ceding Commission Override shall be calculated as of the end of
each calendar quarter during the term of this Agreement. To the extent that the
percentage of the Cumulative Ceding Commission Override is adjusted from the
percentage calculated as of the end of the previous calendar quarter, the amount
related to such adjustment (i) shall be payable by the Ceding Company to the
Reinsurer to the extent that the Cumulative Ceding Commission Override is
adjusted downward from the amount calculated as of the end of the previous
calendar quarter and (ii) shall be payable by the Reinsurer to the Ceding
Company to the extent that the Cumulative Ceding Commission Override is adjusted
upward from amount calculated as of the end of the previous calendar quarter.

ARTICLE V

PROFIT COMMISSION

Section 5.01. Profit Commission

Subject to Section 5.02, the Reinsurer shall pay the Ceding Company a profit
commission (the “Profit Commission”) for each calendar year (whether a full year
or part thereof) that this Agreement is in effect equal to the excess, if any,
of:

 

  (i) the sum of (A) twenty percent (20%) of the amount by which (x) Cumulative
Adjusted Net Underwriting Income as of the end of such calendar year exceeds
(y) the Tier 1 Required Return plus (B) five percent (5%) of the amount by which
(x) Cumulative Adjusted Net Underwriting Income as of the end of such calendar
year exceeds (y) the Tier 2 Required Return; over

 

  (ii) the total Profit Commission previously paid by the Reinsurer to the
Ceding Company and not returned to the Reinsurer pursuant to Section 5.02 (if
any).

Section 5.02. Return of Profit Commission

For calendar year 2007 and any subsequent calendar quarter that this Agreement
is in effect, the Ceding Company shall return to the Reinsurer the amount, if
any, by which (i) the total Profit Commission previously paid to the Ceding
Company and not returned to the Reinsurer pursuant to Section 5.02 hereof
exceeds (ii) the total Profit Commission that would be payable based on
Cumulative Adjusted Net Underwriting Income for such period.

Section 5.03. Calculation and Payment of Profit Commission

(a) Profit Commission payable for the 2006 calendar year and the 2007 calendar
year shall be calculated by the Ceding Company at the end of such calendar years
and the Ceding Company shall report such amounts to the Reinsurer pursuant to
Section 7.01. Profit Commission payable for 2008 and later years shall be
estimated by the Ceding Company at the end of each of the first three quarters
of each year and finally calculated by the Ceding Company

 

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at the end of the calendar year, and in each instance, the Ceding Company shall
report such amounts to the Reinsurer pursuant to Section 7.01. Profit Commission
for each such calendar year and quarter shall be paid within the time and in the
manner provided in Section 8.01.

(b) Profit Commission amounts calculated by the Ceding Company as provided above
for each calendar year (but, for the avoidance of doubt, not for calendar
quarters) shall not be subject to future adjustment based on the development of
Losses, but shall be subject to future restatement due to errors or omissions.

ARTICLE VI

PROFIT DISTRIBUTION AMOUNTS

Section 6.01. Profit Distribution Amounts

Subject to Section 9.01, upon the request of the Reinsurer, the Ceding Company
shall direct the Trustee to distribute to the Reinsurer assets out of the Trust
Account equal to a profit distribution amount (the “Profit Distribution Amount”)
for each calendar year (whether a full year or part thereof) and each calendar
quarter subsequent to 2007 that this Agreement is in effect, equal to the amount
by which (i) Cumulative Adjusted Net Income from January 1, 2006 through the end
of such period exceeds any previously paid Profit Distribution Amounts. For the
avoidance of doubt, the parties acknowledge and agree that the Profit Commission
is an expense that is taken into account in the calculation of Cumulative
Adjusted Net Income.

Section 6.02. Calculation and Payment of Profit Distribution Amounts

(a) Profit Distribution Amounts payable for the 2006 calendar year and the 2007
calendar year shall be calculated by the Ceding Company at the end of such
calendar years and the Ceding Company shall report such amounts to the Reinsurer
pursuant to Section 7.01. Profit Distribution Amounts payable for 2008 and later
years shall be estimated by the Ceding Company at the end of each of the first
three quarters of each year and finally calculated by the Ceding Company at the
end of the calendar year, and in each instance the Ceding Company shall report
such amounts to the Reinsurer pursuant to Section 7.01. Profit Distribution
Amounts for each such calendar year and quarter shall be paid within the time
and in the manner provided in Section 8.01, except to the extent that the
Reinsurer elects pursuant to Section 9.01 to forego distributions of Profit
Distribution Amounts for the 2006 calendar year.

(b) Profit Distribution Amounts calculated by the Ceding Company as provided
above for each calendar year (but, for the avoidance of doubt, not for calendar
quarters) shall not be subject to future adjustment based on the development of
Losses.

 

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ARTICLE VII

REPORTS

Section 7.01. Quarterly Reports by the Ceding Company

No later than forty-five (45) days after the conclusion of each calendar quarter
during the term of this Agreement (including the fourth quarter of each calendar
year), commencing with the quarter ending June 30, 2006, the Ceding Company
shall report and account to the Reinsurer, in reasonable detail and separately
for each Underwriting Period, if applicable, the following with respect to such
quarter:

(a) Original Net Written Premium;

(b) One hundred percent (100%) and the Ceded Percentage of all premium earned;

(c) One hundred percent (100%) and the Ceded Percentage of all premium paid for
Inuring Reinsurance;

(d) Gross Ceded Premium due the Reinsurer;

(e) Ceding Commission due to the Ceding Company;

(f) An itemization of External Costs;

(g) One hundred percent (100%) and the Ceded Percentage of all Losses paid
(gross and net of Inuring Reinsurance);

(h) One hundred percent (100%) and the Ceded Percentage of Net Salvage received;

(i) One hundred percent (100%) and the Ceded Percentage of case reserves for
outstanding Losses at the beginning and at the end of the quarter (gross and net
of Inuring Reinsurance);

(j) Profit Commission due the Ceding Company, if any;

(k) Profit Distribution Amount due the Reinsurer, if any;

(l) Adjustments to the Initial Reinsurance Premium, if any;

(m) Adjustments to Cumulative Ceding Commission Override, if any; and

(n) CAT loss curve, material zonal and other probable maximum loss information
and other similar analysis regarding the Business Reinsured prepared by the
Ceding Company in the ordinary course of business consistent with past practice
that are made available to third parties, including the U.S. Securities and
Exchange Commission and rating agencies.

The foregoing information (other than clause (n)), shall (i) be reported in
accordance with GAAP as recorded on the books and records of the Ceding Company
(based, where applicable, on

 

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reports received from cedents) and (ii) be consistent with the Ceding Company’s
internal and external communications, including to or with, as applicable, the
U.S. Securities and Exchange Commission or other regulatory agencies, ratings
agencies and its board of directors and (iii) be provided more frequently if
otherwise prepared by the Ceding Company. With respect to Major Catastrophic
Losses, the details provided shall include, without limitation, the occurrence
giving rise to the Loss amount or case reserve, the applicable Assumed
Reinsurance Agreement and underlying cedent in respect of which payment was made
or the case reserve posted. The Ceding Company shall provide, to the extent
available to them and as to which they have the right to do so, any backup
documentation as reasonably requested by the Reinsurer for any of the foregoing.

Section 7.02. Reports by the Ceding Company

The Ceding Company shall promptly provide to the Reinsurer copies of all reports
provided to its Board of Directors, rating agencies or the public with regards
to the Business Reinsured, such reports to be provided promptly after such
delivery thereto. Such reports shall be subject to confidentiality terms
mutually agreed between the Ceding Company and the Reinsurer.

ARTICLE VIII

SETTLEMENT OF PAYMENTS

Section 8.01. Time and Manner of Settlement of Payments

No later than fifteen (15) days after the Reinsurer’s receipt of the quarterly
reports referenced in Section 7.01, the Reinsurer and the Ceding Company, as
applicable, shall settle the balance due to the other party with respect to the
quarter just concluded based on premiums actually received and Losses paid by
the Ceding Company and any adjustments to the Initial Reinsurance Premium and
the Ceding Commission. Any payment to be made by the Ceding Company to the
Reinsurer shall be deposited by the Ceding Company into the Trust Account. Any
payment to be made by the Reinsurer to the Ceding Company shall be deducted by
the Ceding Company from the Trust Account to the extent of the balance therein,
after first deducting from such amount any amounts previously or otherwise paid
by the Reinsurer (through setoff against premiums owed to the Reinsurer
hereunder, or otherwise already paid by or credited to the Reinsurer), and any
further amount due shall be paid in cash by the Reinsurer to the Ceding Company.
In addition, the Ceding Company shall direct the Trustee to distribute to the
Ceding Company any Profit Commission due to be paid to the Ceding Company and to
distribute to the Reinsurer any Profit Distribution Amount due to be paid to the
Reinsurer.

Section 8.02. Delays in Payments

Delays in payment by either party shall be paid together with simple interest on
such overdue amount at an annual rate equal to the Late Trust Payment Rate from
the due date to the date of actual payment.

 

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ARTICLE IX

ADJUSTMENTS TO CEDED PERCENTAGE

Section 9.01. Adjustments to Ceded Percentage

(a) On or before December 1, 2006, the Ceding Company shall calculate and report
to the Reinsurer the Requisite Funded Amount for the 2007 calendar year and an
estimate of the Profit Distribution Amount for the 2006 calendar year. If the
amount of Collateral as of December 1, 2006 is less than the Requisite Funded
Amount for the 2007 calendar year plus the estimated Profit Distribution Amount
for the 2006 calendar year as determined by the Ceding Company, the Reinsurer
shall have the option to contribute additional amounts into the Trust Account
and/or forego a distribution of the Profit Distribution Amount in an amount
equal to or greater than the excess of (i) the Requisite Funded Amount for the
2007 calendar year over (ii) the amount of Collateral as of December 1, 2006,
reduced by any estimated Profit Distribution Amount as to which the Reinsurer
does not elect to forego.

If the Reinsurer elects to so contribute additional amounts and/or forego
distributions of the Profit Distribution Amount, it shall notify the Ceding
Company of its election by December 15, 2006, and shall deposit any required
additional amounts no later than December 22, 2006.

If the Reinsurer elects to not contribute additional amounts and/or forego
distributions of the Profit Distribution Amount, the Ceding Company shall reduce
the Ceded Percentage for the 2007 Underwriting Year, such that the amount of
Collateral at December 1, 2006, reduced by any estimated Profit Distribution
Amount as to which the Reinsurer does not elect to forego, will be no less than
the Requisite Funded Amount for the 2007 calendar year.

(b) No later than thirty (30) days after the end of each calendar month during
the Underwriting Period, the Ceding Company shall determine whether the amount
of Collateral as of such month end is greater than sixty percent (60%) of the
applicable Requisite Funded Amount. If the amount of Collateral as of such month
end is less than sixty percent (60%) of the applicable Requisite Funded Amount,
the Ceding Company shall so notify the Reinsurer in writing. The Reinsurer shall
then have the option to contribute additional amounts into the Trust Account in
an amount equal to or greater than the excess of (i) the Requisite Funded Amount
as of such month end over (ii) the amount of Collateral as of such month end.

If the Reinsurer elects to so contribute additional amounts, it shall notify the
Ceding Company of its election within ten (10) days of receipt of notice from
the Ceding Company and such amounts shall be deposited in the Trust Account no
later than fifteen (15) days of receipt of such notice.

Section 9.02. Recapture

(a) If the Reinsurer elects to not contribute additional amounts in accordance
with Section 9.01(b), the Ceding Company may elect to recapture a portion of the
Business Reinsured ceded to the Reinsurer hereunder by reducing the Ceded
Percentage for all periods subsequent to such previous month, such that the
amount of Collateral as of such month end will be no less than the Requisite
Funded Amount, as adjusted.

 

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(b) In the event that the Ceding Company elects to recapture a portion of the
Business Reinsured ceded to the Reinsurer hereunder in accordance with
Section 9.02(a), the Ceding Company shall notify the Reinsurer of such election
within ten (10) days from the expiration of the time for the Reinsurer to
contribute additional amounts into the Trust Account. If the Ceding Company so
notifies the Reinsurer of a recapture, the effective date of such recapture
shall be the previous month end as provided in Section 9.02(a). Within ten
(10) days following the notice of recapture, the Ceding Company shall withdraw
from the Trust Account assets with a fair market value equal to (x) the Adjusted
UEPR on the books of the Reinsurer as of such month end multiplied by (y) the
Ceding Percentage Adjustment Fraction (the “Recapture Amount”).

ARTICLE X

TRUST FUND

Section 10.01. Trust Fund

(a) The Reinsurer and the Ceding Company shall enter into a trust agreement in
the form attached hereto as Exhibit A (the “Trust Agreement”) and establish a
trust account (the “Trust Account”) for the benefit of the Ceding Company with
respect to the Business Reinsured with a bank (the “Trustee”) reasonably
acceptable to the Ceding Company.

(b) The Reinsurer agrees to maintain in the Trust Account assets to be held in
trust by the Trustee for the sole benefit of the Ceding Company as security for
the payment of the Reinsurer’s obligations to the Ceding Company under this
Agreement.

(c) The Reinsurer and the Ceding Company agree that the assets so deposited
shall be valued according to their current fair market value and shall consist
only of Permitted Investments.

(d) The Reinsurer, prior to depositing assets with the Trustee, shall execute
all assignments and endorsements in blank, or transfer legal title to the
Trustee of all shares, obligations or any other assets requiring assignments, in
order that the Ceding Company, or the Trustee upon direction of the Ceding
Company, may whenever necessary negotiate any such assets without consent or
signature from the Reinsurer or any other entity.

(e) All settlements of account under the Trust Agreement shall be made in cash
or Cash Equivalents.

(f) The Reinsurer and the Ceding Company agree that the assets in the Trust
Account may be withdrawn by the Ceding Company at any time, notwithstanding any
other provisions in this Agreement, provided such assets are applied and
utilized by the Ceding Company (or any successor of the Ceding Company by
operation of law, including, without limitation, any liquidator, rehabilitator,
receiver, or conservator of the Ceding Company), without diminution because of
the insolvency of the Ceding Company or the Reinsurer, only for the following
purposes:

 

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  (i) to reimburse the Ceding Company for Ceded Losses to the extent that such
amounts have been paid by the Ceding Company pursuant to the provisions of the
Assumed Reinsurance Agreements;

 

  (ii) to pay Profit Commissions due the Ceding Company;

 

  (iii) to pay Recapture Amounts due the Ceding Company;

 

  (iv) to pay Profit Distributions due the Reinsurer;

 

  (v) to pay to the Reinsurer any Excess Funding Amounts;

 

  (vi) to pay to the Reinsurer amounts due for unpaid and unfunded Operating
Costs; and

 

  (vii) to pay any other amounts, consistent with the terms of this Agreement,
which the Ceding Company has calculated to be due to it.

(g) The Ceding Company agrees that, upon the request of the Reinsurer from time
to time, the Ceding Company will direct the Trustee to distribute to the
Reinsurer assets from the Trust Account equal to unpaid and unfunded
(i) interest payments payable under the Credit Agreement and (ii) other
Operating Costs incurred, not in excess of $400,000 per year, provided in each
case, only to the extent that the Collateral remaining after such withdrawal is
equal to or greater than Ceded Losses.

(h) The Reinsurer may seek the Ceding Company’s approval to withdraw all or any
part of the assets from the Trust Account and transfer such assets to the
Reinsurer, and such consent shall not be unreasonably withheld or delayed,
provided that:

 

  (i) the Reinsurer shall, at the time of withdrawal, replace the withdrawn
assets with other assets of a type permitted hereunder having a market value
equal to the market value of the assets withdrawn;

 

  (ii) at any time on or after March 1, 2007, an Excess Funding Amount exists,
in which event the amount subject to withdrawal shall be such Excess Funding
Amount; or

 

  (iii) the amount requested does not exceed the then unpaid and unfunded
Operating Costs of the Reinsurer.

(i) In the event that the Ceding Company withdraws assets from the Trust Account
for the purposes set forth above in excess of actual amounts required to meet
the Reinsurer’s obligations to the Ceding Company, or in excess of amounts due
the Reinsurer, the Ceding Company or the Reinsurer, as applicable, will return
such excess to the Trust Account.

(j) On the Effective Date, the Reinsurer shall make an initial deposit to the
Trust Account in the amount of $140 million and the Ceding Company shall make an
initial deposit to the Trust Account in the amount of the estimated Initial
Reinsurance Premium due the Reinsurer in accordance with Section 3.01. The
Ceding Company shall thereafter deposit in the Trust Account all quarterly
settlement amounts due the Reinsurer in accordance with Section 8.01.

 

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ARTICLE XI

ERRORS AND OMISSIONS

Section 11.01. Errors and Omissions

Except as expressly provided herein, inadvertent errors or omissions in the
performance of any party’s duties under this Agreement shall not relieve the
other party of any liability hereunder so long as such errors or omissions are
promptly corrected as soon as they are discovered and prompt notice of such
error or omission and the correction thereof is provided to the other party.
Nothing in this Section 11.01 shall relieve the party committing such error or
omission from liability to the other party for actual damage proximately caused
thereby.

ARTICLE XII

NOTICES AND INSTRUCTIONS

Section 12.01. Notices and Instructions

(a) Unless otherwise specifically provided herein, every notice required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given or made and received by the recipient of such
notice (a)(i) when delivered personally, (ii) when made or given by facsimile or
e–mail, or (iii) in the case of mail delivery, upon the expiration of three
(3) days after any such notice, direction, request, demand, acknowledgment, or
other communication shall have been deposited with an international courier of
international reputation for transmission by express air delivery, or upon
receipt thereof, whichever shall first occur and (b) when addressed as follows:

 

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Reinsurer:    Bay Point Re Limited    c/o Codan Services Limited    Clarendon
House    2 Church Street    Hamilton, Bermuda HM 11    Telephone: (441) 295.1422
   Facsimile: (441) 292.4720    Email: bermuda@conyersdillandpearman.com    with
a copy to    International Advisory Services Ltd.    44 Church Street, 3rd Floor
   Hamilton, HM 12, Bermuda    Attention: David Ezekiel    Facsimile: (441)
278.2015    Email: info@ ias.bm    and    Conyer Dill & Pearman    Clarendon
House    2 Church Street    Hamilton, Bermuda HM 11    Attention: Christopher G.
Garrod    Telephone: (441) 295.4923    Facsimile: (441) 292.4720    Email:
cgarrod@cdp.bm Ceding Company:    Harbor Point Re Limited    Belvedere Building
   69 Pitts Bay Road    Pembroke HM 08 Bermuda    Attention: General Counsel   
Telephone: (441) 292.5330    Facsimile: (441) 296.1827    Email:
carol.rivers@harborpoint.bm

 

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   with a copy to    LeBoeuf, Lamb, Greene & MacRae LLP    125 West 55th Street
   New York, NY 10019    Attention: Donald B. Henderson, Jr.
and Michael Groll    Telephone: (212) 424.8000    Facsimile: (212) 424.8500

Each party may from time to time designate a different address for notices,
directions, requests, demands, acknowledgments, and other communications by
giving written notice of such change to the other parties.

(b) The Ceding Company shall be entitled to rely on any written instruction or
notice by or on behalf of the Reinsurer; the Ceding Company shall not be obliged
to follow any oral instructions actually or purportedly by or on behalf of the
Reinsurer or oral or written instructions from any party not authorized in
writing to act on behalf of the Reinsurer pursuant to a valid and legally
effective written instrument previously delivered to the Ceding Company and in
form and substance reasonably acceptable to them.

(c) The Reinsurer shall be entitled to rely on any written instruction or notice
by the Ceding Company, and the Reinsurer shall not be obliged to follow any oral
instructions actually or purportedly by or on behalf of a Ceding Company or any
oral or written instructions from any party not authorized in writing to act on
behalf of the Ceding Company pursuant to a valid and legally effective written
instrument previously delivered to the Reinsurer and in form and substance
reasonably acceptable to it.

ARTICLE XIII

COVENANTS OF CEDING COMPANY AND REINSURER

Section 13.01. Access to Records

Until the Ceding Company and the Reinsurer each acknowledge (or a determination
is made by arbitration pursuant to Section 15.01) that no party has any
remaining liability to the others under this Agreement, the Reinsurer may at all
reasonable times inspect and copy, at the offices of the Ceding Company or at
such other place as the Reinsurer and the Ceding Company may reasonably agree,
all records of the Ceding Company (including, without limitation, records stored
on electronic, optical, or other machine-readable media), its agents, or any
Affiliate of any of them, pertaining to this Agreement, to the Assumed
Reinsurance Agreements, or to any transaction that constitutes or is reasonably
related to a transaction (including, without limitation, reserves) hereunder or
contemplated hereby. This Section 13.01 shall survive the termination of this
Agreement, and shall apply regardless of whether there is a dispute or
arbitration between the parties, or the Reinsurer has paid or failed to pay any
amount claimed to be due hereunder, until all obligations of the parties under
this Agreement are settled.

 

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Section 13.02. Zonal Management

The Ceding Company agrees to notify the Reinsurer in writing of any material
changes to the zonal management approach of the Ceding Company prior to the
implementation of any such changes and to discuss such proposed changes with the
Reinsurer.

Section 13.03. Adverse Selection

The Ceding Company covenants and agrees that it will not permit its Affiliates
to, and will cause its Affiliates not to, underwrite risks of the type included
in the Business Reinsured with the intent to adversely select against cessions
to the Reinsurer under this Agreement.

Section 13.04. Retrocession

Except in connection with the wind up of the Reinsurer at any time after
January 1, 2009, the Reinsurer agrees that it will not enter into any
retrocession agreements with respect to the Ceded Losses and will retain for its
own account one hundred percent (100%) of such liability. If the Reinsurer
enters into any retrocession agreement with respect to Ceded Losses, the
retrocession provider must be reasonably satisfactory to the Ceding Company.

Section 13.05. Business of Reinsurer

The Reinsurer agrees to comply with its obligations set forth in Section 6.8(a)
of the Credit Agreement.

ARTICLE XIV

CHOICE OF LAW

Section 14.01. Choice of Law

The laws of the State of New York shall govern all matters concerning the
validity, performance, and interpretation of this Agreement.

ARTICLE XV

DISPUTE RESOLUTION

Section 15.01. Dispute Resolution

(a) As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion arising out of, relating to, or in
connection with this Agreement, including, without any limitation, any question
regarding its existence, breach, validity, or termination, such dispute or
difference of opinion shall be referred to and finally resolved by arbitration.
The arbitration shall be conducted in accordance with the rules of the American
Arbitration Association then in force, except as same may be expressly modified
herein or by mutual agreement of the parties.

 

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(b) The tribunal shall consist of three arbitrators, one of whom shall be
nominated by the Ceding Company and the other of whom shall be nominated by the
Reinsurer. The two arbitrators so nominated shall nominate the third arbitrator,
who shall be the chairman. If either of the Ceding Company or the Reinsurer
refuses or neglects to appoint an arbitrator within forty-five (45) days of a
written request by the other party to do so, the other party may appoint the
second arbitrator. If the two arbitrators do not agree on a third arbitrator
within thirty (30) days of their appointment, the chairman shall be appointed by
the American Arbitration Association (the “Appointing Authority”).

(c) The place of the arbitration shall be New York, New York.

(d) Each party shall bear its own expenses and attorneys’ fees and the expense
of its own arbitrator, and shall jointly and equally bear with the other the
expense of the chairman and of the arbitration. In the event that an arbitrator
is chosen by the Appointing Authority because of a party’s failure to appoint an
arbitrator, as above provided, the expense of that arbitrator shall be borne by
that party.

(e) The arbitration award shall be final and binding on the parties. Judgment
upon the award may be entered in any court having jurisdiction thereof or having
jurisdiction over the relevant party or its assets.

(f) In order to facilitate the comprehensive resolution of related disputes, and
upon request of any party to the arbitration proceeding, the arbitration
tribunal may consolidate the arbitration proceeding with any other arbitration
proceeding or proceedings involving any of the parties hereto relating to this
Agreement. The arbitration tribunal shall consolidate such arbitrations if, but
only if, it determines that (i) there are issues of fact or law common to the
two proceedings so that a consolidated proceeding would be more efficient than
separate proceedings, and (ii) no party would be unduly prejudiced as a result
of such consolidation through undue delay or otherwise. All parties to this
Agreement have consented to this procedure and no further consent is required
from any party for this procedure to be effective.

(g) Notwithstanding anything in the Agreement to the contrary, this
Section 15.01 shall survive any termination of this Agreement.

ARTICLE XVI

INSOLVENCY

Section 16.01. Losses and Expenses Payable Without Diminution

In the event of the insolvency of the Ceding Company, amounts due under this
Agreement shall be payable directly to the Ceding Company, or to its liquidator,
receiver, conservator, or statutory successor on the basis of the liability of
the Ceding Company without diminution because of the insolvency of the Ceding
Company or because the liquidator, receiver, conservator, or successor has
failed to pay all or any portion of any claim.

 

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Section 16.02. Notice to Reinsurer; Defense of Claims

(a) As a condition precedent to the non-diminution of liability as set forth in
Section 16.01 above, the liquidator, receiver, conservator, or successor shall
give written notice to the Reinsurer of the pendency of any claim against the
Ceding Company that would involve the possible liability of the Reinsurer,
indicating the applicable Assumed Reinsurance Agreement, within a reasonable
time after such claim is filed in the conservation or liquidation proceeding or
in the receivership.

(b) The Reinsurer may, during the pendency of such claim, investigate such claim
and interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses it may deem available to the Ceding Company
or to its liquidator, receiver, conservator, or statutory successor.

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

ARTICLE XVII

OFFSET

Section 17.01. Offset

Either the Reinsurer or the Ceding Company, at any time and from time to time,
shall have the right to offset any balances due the other party hereunder
against any other sums or balances due by the other party to the party.

ARTICLE XVIII

EXTENSION; RIGHT OF FIRST REFUSAL

Section 18.01. Extension Option

The Reinsurer shall have the right to extend this Agreement for an additional
underwriting year by providing written notice to the Ceding Company prior to
November 1, 2007. The Ceding Company shall have the right to decrease the Ceding
Percentage applicable to such extension to no less than a fifteen percent
(15%) quota share. The method of excluding loss exposure, whether by excluding
entire underlying contracts, only loss exposure arising after December 31, 2009
or otherwise, will be determined by the mutual agreement of the Ceding Company
and the Reinsurer at the time of the extension. The terms of the extension shall
otherwise be consistent with the terms of this Agreement with only such changes
as are necessary to implement the extension and such other changes as are
mutually agreed between the Ceding Company and the Reinsurer. The Ceding Company
and the Reinsurer agree to negotiate in good faith the terms of any such
extension.

 

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Section 18.02. Right of First Refusal

If, in connection with the windup of the Reinsurer, at any time on or after
January 1, 2009, the Reinsurer desires to procure reinsurance for any remaining
liability of the Reinsurer under this Agreement for Losses, the Reinsurer shall
provide written notice of such intentions to the Ceding Company. Within
forty-five (45) days following receipt of such notice, the Ceding Company shall
make a good faith offer to provide such reinsurance (or, alternatively, to
commute this Agreement) specifying the price and terms of its offer. If the
Reinsurer does not accept the Ceding Company’s offer, which determination shall
be made in its sole discretion, the Reinsurer shall have the right to seek
offers and enter into a retrocession agreement with a third party retrocession
provider, provided that (i) the retrocession agreement is entered into within
120 days from the date of the Ceding Company’s initial offer, (ii) such
retrocession provider is reasonably satisfactory to the Ceding Company and
(iii) the terms of such retrocession agreement, in all material respects, are no
less favorable to the Reinsurer than the terms contained in the Ceding Company’s
offer, as reasonably determined by the Reinsurer.

ARTICLE XIX

MISCELLANEOUS PROVISIONS

Section 19.01. Headings for Convenience Only

The headings in this Agreement are for convenience only and shall not be used in
interpreting this Agreement.

Section 19.02. Entire Agreement

This Agreement constitutes the entire agreement between the parties with respect
to the subject matter hereof, and it (including all Schedules hereto) may not be
amended or modified other than by a writing signed by the Ceding Company and the
Reinsurer. This Agreement supersedes all previous negotiations, discussions,
correspondence, and agreements with respect to the subject matter hereof.

Section 19.03. No Waiver

Failure of any party hereto to exercise any right or remedy under this Agreement
or otherwise, or delay by a party in exercising such right or remedy (except
where this Agreement limits the time in which a right or remedy may be
exercised), shall not operate as a waiver thereof.

Section 19.04. Intention of Parties; No Third Party Rights

(a) The Ceding Company and the Reinsurer are not, do not intend to be, and will
not hold themselves out as, and nothing in this Agreement shall be construed to
make them, partners, joint venturers or co-proprietors with each other, or in a
relationship of principal and agent, for any applicable purpose or as forming
any partnership, joint venture, joint undertaking or relationship of principal
and agent of any kind for any applicable purpose.

 

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(b) This Agreement is solely between the Ceding Company and the Reinsurer. The
obligations of the Reinsurer under this Agreement are solely to the Ceding
Company and the obligations of the Ceding Company under this Agreement are
solely to the Reinsurer. No cedent to the Ceding Company under an Assumed
Reinsurance Agreement or any insured, claimant, or any assignee of any of them,
under any underlying policy or any other Person shall under any circumstances
have any rights under this Agreement.

(c) Bay Point Holdings Limited (“Holdco”) and equity holders thereof (as well as
any creditors of Holdco, its equity holders and/or the Reinsurer) are not
parties to this Agreement, and Holdco, its equity holders and their Affiliates
and any such creditors (and the shareholders, directors, officers, employees,
agents, successors-in-interest (collectively, “Agents”) of any of them) do not
by this Agreement have any rights or claims against the Ceding Company or its
Affiliates or Agents, and the Ceding Company and its Affiliates and Agents do
not by this Agreement have any rights or claims against Holdco or its equity
holders or their Affiliates or Agents or any such creditors. Reinsurer does not
by the terms of this Agreement have any rights or claims against the Affiliates
or Agents of the Ceding Company, and the Ceding Company does not by the terms of
this Agreement have any rights or claims against Affiliates or Agents of the
Reinsurer.

Section 19.05. No Assignment

(a) This Agreement may not be assigned or transferred by the Ceding Company or
the Reinsurer without the prior written consent of the other party.

(b) The Ceding Company and the Reinsurer agree that they will not create, incur,
assume, or permit to exist any Lien on this Agreement, the Trust Agreement, or
the assets held in the Trust Account in favor of any creditor or other party,
except the lien created by the Trust Agreement.

Section 19.06. Further Assurances

Each party hereto agrees to perform any further acts and execute and deliver any
further documents, which may be reasonably necessary to carry out the provisions
of this Agreement.

Section 19.07. Severability

Whenever possible, each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law or
rule in any jurisdiction, in any respect, such invalidity shall not affect the
validity, legality, and enforceability of any other provision or any other
jurisdiction, and the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby, all of which shall remain in full
force and effect, and the affected term or provision shall be modified to the
minimum extent permitted by law so as to achieve most fully the intention of
this Agreement.

 

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Section 19.08. Interpretation

The language used in this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent, and no rule of strict construction
will be applied against any party. This Agreement has been negotiated by the
parties, and the fact that the initial and final draft will have been prepared
by any party or an intermediary will not give rise to any presumption for or
against any party to this Agreement to be used in any respect or forum in the
construction or interpretation of this Agreement. Each party participated in
drafting this Agreement. Words in the singular or plural include the singular
and plural, and pronouns stated in either the masculine, the feminine, or neuter
gender shall include the masculine, feminine, and neuter.

Section 19.09. Counterparts

This Agreement may be executed in any number of counterparts, each of which
counterpart, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, when taken together, shall constitute one and the
same agreement.

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the
dates set forth against their signatures below.

 

HARBOR POINT RE LIMITED By:  

/s/ John Berger

  Name: John Berger   Title: President and Chief Executive Officer   Date: June
9, 2006 BAY POINT RE LIMITED By:  

/s/ David Ezekiel

  Name: David Ezekiel   Title: President and Chief Executive Officer   Date:
June 9, 2006