exv10w5



 



Exhibit 10.5





TERRORISM CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT




EFFECTIVE MARCH 1, 2007




between




PHILADELPHIA INSURANCE COMPANY 

And

PHILADELPHIA INDEMNITY INSURANCE COMPANY




BALA CYNWYD, PENNSYLVANIA, USA




(hereinafter called the “Reinsured”)




by




VALIDUS REINSURANCE, LTD.




HAMILTON, BERMUDA




(hereinafter called the “Reinsurers”)



Under the terms of this Contract, the above
 Reinsurers agree to
assume severally and not jointly
 with other participants




a 20.00% share



of the liability described in the attached Contract and, as

consideration, the above Reinsurers shall receive a 20.00% share

of the premium named therein.



Signed in Hamilton, Bermuda, this 18th day of September, 2007,




	 	 	 	 	 
	 	VALIDUS REINSURANCE, LTD.

 	 
	 	BY:  	/s/
JEFF A. CLEMENTS
 	 
	 	 	TITLE:  EXECUTIVE VICE PRESIDENT 	 
	 	 	 	 
	 



 

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and signed in Bala Cynwyd, Pennsylvania, this 24th day of August, 2007.




	 	 	 	 	 
	 	PHILADELPHIA INSURANCE COMPANY

And

PHILADELPHIA INDEMNITY INSURANCE COMPANY

 	 
	 	BY:  	/s/
CHRISTOPHER MAGUIRE
 	 
	 	 	TITLE:  EXECUTIVE VICE PRESIDENT 
AND CHIEF UNDERWRITING OFFICER 	 



TERRORISM CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT




EFFECTIVE MARCH 1, 2007




between




PHILADELPHIA INSURANCE COMPANY 

And

PHILADELPHIA INDEMNITY INSURANCE COMPANY




BALA CYNWYD, PENNSYLVANIA, USA




 

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PHILADELPHIA INSURANCE COMPANY

And

PHILADELPHIA INDEMNITY INSURANCE COMPANY

Bala Cynwyd, Pennsylvania, USA




TERRORISM CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT




INDEX




	 	 	 	 	 
	Article I
	 	BUSINESS COVERED	 	PAGE 1
	Article II
	 	COMMENCEMENT AND TERMINATION	 	PAGE 2
	Article III
	 	REINSURANCE COVERAGE	 	PAGE 2
	Article IV
	 	EXCLUSIONS	 	PAGE 5
	Article V
	 	REINSURANCE PREMIUM	 	PAGE 7
	Article VI
	 	DEFINITION  OF LOSS OCCURRENCE	 	PAGE 8
	Article VII
	 	NET RETAINED LINES	 	PAGE 8
	Article VIII
	 	REVIEW	 	PAGE 9
	Article IX
	 	REPORTS, LOSS AND LOSS SETTLEMENTS	 	PAGE 11
	Article X
	 	ORIGINAL CONDITIONS	 	PAGE 12
	Article XI
	 	ERRORS AND OMISSIONS	 	PAGE 12
	Article XII
	 	CURRENCY	 	PAGE 13
	Article XIII
	 	FEDERAL EXCISE TAX AND OTHER TAXES	 	PAGE 13
	Article XlV
	 	ACCESS TO RECORDS	 	PAGE 13
	Article XV
	 	RESERVES	 	PAGE 14
	Article XVI
	 	SERVICE OF SUIT	 	PAGE 17
	Article XVIl
	 	ARBITRATION	 	PAGE 18
	Article XVIll
	 	INSOLVENCY	 	PAGE 22
	Article XlX
	 	CLAIMS COOPERATION	 	PAGE 23
	Article XX
	 	CONFIDENTIALITY	 	PAGE 23
	Article XXI
	 	LATE PAYMENTS	 	PAGE 24
	Article XXIl
	 	OFFSET	 	PAGE 25
	Article XXIll
	 	SPECIAL TERMINATION	 	PAGE 25
	Article XXlV
	 	TERRORISM RECOVERY — TERRORISM RISK INSURANCE ACT OF 2002	 	PAGE 28
	Article XXV
	 	VARIOUS OTHER TERMS	 	PAGE 28
	Article XXVI
	 	INTERMEDIARY	 	PAGE 30






 

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1.


PHILADELPHIA INSURANCE COMPANY

And

PHILADELPHIA INDEMNITY INSURANCE COMPANY

Bala Cynwyd, Pennsylvania, USA

(hereinafter referred to as the “Reinsured”)




TERRORISM CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(hereinafter referred to as the “Contract”)




ARTICLE I — BUSINESS COVERED



A. This Contract applies to losses occurring during its term on all Covered Policies, except as
hereinafter excluded, classified by the Reinsured as Property or Casualty, that are in force at the
inception of, or written with a Policy period (new or renewal) that is effective during the term of
this Contract.



B. The term “Covered Policies”, whenever used herein, shall mean all binders, policies, contracts,
certificates and other obligations, whether oral or written, of insurance or reinsurance written
and classified for the annual statement lines as indicated:




	 	 	 	 	 	 	 	 	 	 	 
	Check	 	Line of Business	 	Check	 	Line of Business	 	Check	 	 
	 

	 	Inland Marine
	 	 	 	Other Casualty	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Commercial Property
	 	x
	 	Professional

Liability
	 	x	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Personal Lines;
	 	 	 	Wet Marine	 	 	 	 
	 

	 	however, Personal	 	 	 	 	 	 	 	 
	 

	 	Automobile shall be	 	 	 	 	 	 	 	 
	 

	 	excluded	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Liability
	 	x
	 	Other lines of
	 	 	 	Line of Business
	 

	 	 	 	 	 	business
	 	 	 	(to be filled in as
	 

	 	 	 	 	 	 	 	 	 	applicable)
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Umbrella Liability
	 	x	 	 	 	 	 	 





Covered Policies hereunder shall be written on standard industry policy forms of the line(s) of
business indicated and which include cover for Acts of Terrorism. Forms substantially similar to
ISO forms shall be deemed approved. Policy forms broader than the forms customarily used for the
lines of business written by the Reinsured will be submitted for the Reinsurers’ prior review and
approval. Any material changes made to such forms shall be subject to prior notice as set forth in
the Article entitled “Review”.




 

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2.


ARTICLE II — COMMENCEMENT AND TERMINATION




     A. This Contract shall incept at 12:01 a.m., Eastern Standard Time, March 1, 2007 and shall
remain in force until 12:01 a.m., Eastern Standard Time, March 1, 2008 (“Contract Term”). Should
this Contract terminate while a Loss Occurrence is in progress, the entire loss arising out of the
Loss Occurrence shall be subject to this Contract.



     B. If the Reinsurer has a genuine interest in renewing this Contract for one additional 12
month contract period at the Contract’s then current prevailing terms, it shall give the Reinsured,
at least 180 days prior to the expiration date of this Contract, written notice of that intention
and request and the parties shall execute an endorsement to that effect no later than 150 days
prior to the scheduled expiration date of this Contract (the “deadline”). If no endorsement is
executed by the deadline, the Reinsurer shall have no right to any such renewal.



ARTICLE III — REINSURANCE COVERAGE 




Part One — Acts of Terrorism



Section I (applicable to Loss Occurrence covered in conjunction with TRIA/ TRIEA)




     A. With respect to losses occurring during the Contract Term on Covered Policies that are
Business Covered (including, for the avoidance of doubt, lines of business that are Covered
Policies hereunder, but not covered lines under TRIA/TRIEA), the Reinsurers shall be liable to,
indemnify and reinsure the Reinsured for each and every Loss Occurrence that is a Certified Act of
Terrorism, as defined and certified in accordance with TRIA, and as amended by TRIEA, for 100% of
the excess Net Loss above an initial Net Loss to the Reinsured of USD10,000,000 each and every Loss
Occurrence; but the Reinsurers shall not be liable for more than USD50,000,000 of Net Loss for each
and every such Loss Occurrence.



     B. “Certified Act(s) of Terrorism” means any act that is certified by the Secretary of the
Treasury in concurrence with the Secretary of State and the Attorney General of the United States
pursuant to the Federal Terrorism Risk Insurance Act (“TRIA”) as amended by the Terrorism Risk
Insurance Extension Act (“TRIEA”):



 

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3.


Section II (applicable to Loss Occurrence not covered in conjunction with TRIA/ TRIEA)




     A. With respect to losses occurring during the Contract Term on Covered Policies that are
Business Covered, the Reinsurers shall be liable to indemnify and reinsure the Reinsured for each
and every Loss Occurrence that results from an Act of Terrorism that is not a Certified Act of
Terrorism (“Non-Certified Act of Terrorism”), for 100% of the excess Net Loss above an initial Net
Loss to the Reinsured of USD10,000,000 each and every Loss Occurrence; but the Reinsurers shall not
be liable for more than USD50,000,000 of Net Loss for each and every such Loss Occurrence.



     B. For the purposes of this Section, an “Act of Terrorism” shall be any act or preparation in
respect of action, designed to influence the government de jure or de facto of any nation or any
political division thereof, or in pursuit of any political, religious, ideological, or similar
purpose to intimidate the public or a section of the public of any nation by any person or group(s)
of persons whether acting alone or on behalf of or in connection with any organization(s) or
government(s) de jure or de facto, and which:




	 	(i)	 	involves violence against one or more persons; or

	 
	 	(ii)	 	involves damage to property; or
	 
	 	(iii)	 	endangers life other than that of the person committing the
action; or
	 
	 	(iv)	 	creates a risk to health or safety of the public or a section
of the public; or
	 
	 	(v)	 	involves physical loss, damage, cost, or expense caused by,
contributed to by, resulting from, or arising out of or in connection with any
action in directly responding to any Act of Terrorism; or
	 
	 	(vi)	 	are defined as such in any of the Reinsured’s policy forms
that have been the subject of the Reinsurers’ express written prior review and
approval.





     C. Loss or damage occasioned by riot, strikes, civil commotion, vandalism or malicious
mischief as those terms have been interpreted by United States Courts to apply to insurance
policies shall not be construed to be an “Act of Terrorism”.



 

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4.


Section III (Applicable to both Section I and Section II)




     A. The Reinsurers’ liability in respect of excess Net Loss hereunder for losses occurring
during the Contract Term shall be limited to USD100,000,000 in the aggregate as respects all Net
Loss on Covered Policies that are Business Covered hereunder as a result of all Loss Occurrences
taking place during the Contract Term in respect of both Section I and Section II combined.



     B. In the event that the Terrorism Insurance Program, (“TIP”) as established by TRIA and TRIEA
terminates, the parties will endeavor to continue to employ the definitions of “Act of Terrorism”
as set forth in Section 1 above, but for the certification by the Secretary of the Treasury. In the
event that the parties cannot agree on whether such Loss Occurrence is subject to coverage under
Section I or Section II, the decision shall be subject to the Article entitled “Arbitration” in
this Contract and the payment due date shall be determined by the date of the Panel’s reasoned
decision.



Part Two — Reinsurance Loss 




     A. “Net Loss” shall mean the actual loss incurred by the Reinsured under Business Covered
hereunder including (i) sums paid in settlement of claims and suits and in satisfaction of
judgments, (ii) prejudgment interest when added to a judgment, (iii) all expenses incurred in
connection with adjustment, defense, settlement and litigation of claims and suits, satisfaction of
judgments, resistance to or negotiations concerning a loss (excluding the normal office expenses of
the Reinsured and salaries of the Reinsured) and (iv) any interest on judgments other than
prejudgment interest when added to a judgment.



     B. All salvages, recoveries, payments and reversals or reductions of verdicts or judgments
(net of the cost of obtaining such salvage, recovery, payment or reversal or reduction of a verdict
or judgment) whether recovered, received or obtained prior or subsequent to loss settlement under
this Contract, including amounts recoverable under other reinsurance, whether collected or not,
shall be applied as if recovered, received or obtained prior to the aforesaid settlement and shall
be deducted from the actual losses sustained to arrive at the amount of the Net Loss. Nothing in
this Article shall be construed to mean losses are not recoverable until the final Net Loss to the
Reinsured finally has been ascertained.



     C. The Reinsurers shall be subrogated, as respects any loss for which the Reinsurers shall
actually pay or become liable, but only to the extent of the amount of payment by or the amount of
liability to the Reinsurers, to all the rights of the Reinsured against any person or other entity
who may be legally responsible for damages as a result of said loss. Should the Reinsured elect
not to enforce such rights, the Reinsurers are hereby authorized and empowered to bring any
appropriate action in the name of the Reinsured or its policyholders, or otherwise to enforce such
rights. The Reinsurers shall promptly remit to the Reinsured the amount of any judgment awarded in
such an action in excess of the amount of payment by, or the amount of liability to, the Reinsurers
hereunder.



 

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5.


ARTICLE IV — EXCLUSIONS 




     A. This Contract shall not cover any Net Loss arising from Certified Acts of Terrorism or
Non-Certified Acts of Terrorism that results from:




	 	1.	 	An act committed as part of the course of a war declared by
the Congress of the United States of America as set forth in Section
102(1)(B)(i) of TRIA as amended by TREIA; or
	 
	 	2.	 	Seizure or illegal occupation; or
	 
	 	3.	 	Confiscation, requisition, detention, legal or illegal
occupation, embargo, quarantine, or an order of public or governmental
authority which deprives the insured of the use or value of the property, or
arising from acts of contraband or illegal transportation or illegal trade; or
	 
	 	4.	 	Contingent Business Interruption, written as such, unless
specially accepted by the Reinsurers hereon; or
	 
	 	5.	 	Workers Compensation and Employers Liability, written as
such; or
	 
	 	6.	 	Pollutants or contaminants whether directly or indirectly
arising from or as consequence of the discharge of pollutants or contaminants,
which pollutants and contaminants shall include but not be limited to any
solid, liquid, gaseous or thermal irritant, contaminant or toxic or hazardous
substance or any substance the presence, existence or release of which
endangers or threatens to endanger the health, safety or welfare of persons or
the environment; or
	 
	 	7.	 	Electronic attack, including computer hacking or the
introduction of any form of computer virus. Notwithstanding the foregoing,
this Contract will respond to a Loss Occurrence arising from attacks involving
the use of a mobile telephone, remote control, or radio controlled device or
any other electronic device or system or such like in the launch and/or
guidance system and/or firing mechanism and/or detonation of any explosive
bomb, weapon or missile subject always to the other terms and conditions of
this Contract; or
	 
	 	8.	 	Increased cost occasioned by any Public or Civil Authority’s
enforcement of any ordinance or law regulating the reconstruction, repair or
demolition of any property; or





 

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6.



	 	9	 	Cessation, fluctuation or variation in, or insufficiency of,
water, gas or electricity supplies and telecommunications of any type or
service; or
	 
	 	10.	 	Threat or hoax, in the absence of physical damage due to an
act or series of Acts of Terrorism; or
	 
	 	11.	 	Burglary, house — breaking, theft or larceny or caused by any
person taking part therein; or
	 
	 	12.	 	Extra Contractual Obligation. “Extra Contractual Obligation”
means liabilities, including Loss Excess of Policy Limits, that are not
covered under any other provision of this Contract and which arise from the
handling of any claim on Business Covered hereunder by reason of alleged or
actual negligence, gross negligence, fraud, or bad faith on the part of the
Company. As used herein, “Loss Excess of Policy Limits” means any amount of
loss, together with any legal costs and expenses incurred in connection
therewith, paid as damages or in settlement by the Reinsured in excess of its
Policy Limits, but otherwise within the coverage terms of the Policy, arising
from an allegation or claim of its insured, its insured’s assignee, or other
third party, which alleges negligence, gross negligence, bad faith or other
tortuous conduct on the part of the Reinsured in the handling of a claim under
a Policy subject to this Contract, in rejecting a settlement within the Policy
Limits, in discharging a duty to defend or prepare the defense in the trial of
an action against its insured, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action. For the avoidance of
doubt, the decision by the Reinsured to settle a claim for an amount within
the coverage of the Policy but not within the Policy limit when the Reinsured
has reasonable basis to believe that it may have liability to its insured or
assignee or other third party on the claim will be deemed a Loss Excess of
Policy Limits.





 

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7.


     B. This Contract shall not cover any Net Loss arising from any part of Non-Certified Acts of
Terrorism that results from a loss occasioned directly or indirectly by war or invasion (whether
war be declared or not), hostile acts of sovereign or government entities, civil war, rebellion,
revolution, insurrection, civil commotion assuming the proportions of or amounting to an uprising,
military or usurped power or martial law or confiscation by order of any government or public
authority.



ARTICLE V — REINSURANCE PREMIUM 



Part One — Premium




     A. As premium for the reinsurance provided hereunder, the Reinsured shall pay the Reinsurers a
flat premium of USD3,625,000 in two equal installments of USD1,812,500 on March 1, 2007 and
September 1, 2007.



Part Two — Reinstatement Premium 




     A. Each claim hereunder shall reduce the amount of the Reinsurers’ liability from the time of
the Loss Occurrence by the sum paid, but the sum so reduced shall be reinstated immediately from
the time of the Loss Occurrence.



     B. For each amount so reinstated, the Reinsured agrees to pay an additional premium calculated
by multiplying 100% of the annual reinsurance premium earned hereon by the percentage that the
amount reinstated bears to the limit (i.e., USD50,000,000) of this Contract. Nevertheless, the
liability of the Reinsurers shall never be more than USD50,000,000 Net Loss in respect of any one
Loss Occurrence, nor more than USD100,000,000 of Net Loss in all in respect of all Loss Occurrences
during the Contract Term.



     C. A statement of reinstatement premium due the Reinsurers shall be prepared by the Reinsured
and submitted to the Reinsurers with each loss payment request hereunder. The reinstatement
premium shall be based upon 100% of the annual reinsurance premium earned by the Reinsurer
hereunder. The amount of reinstatement premium due Reinsurers shall be offset against the loss
payment due the Reinsured with only the net amount due to be remitted by the debtor party.



Part Three — No Claims Bonus




     A. In the event that no claims arise under this Contract then the Reinsurers will allow to the
Reinsured a return premium equal to their participation in this Contract multiplied by USD250,000
payable effective March 1, 2008.



 

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8.


     B. The return premium payment by the Reinsurers to the Reinsured shall constitute the
commutation of this Contract and such payment once effected shall be regarded as a full and final
release of the Reinsurers from all liability hereunder.



ARTICLE VI — DEFINITION OF LOSS OCCURRENCE 




     A. The term “Loss Occurrence” shall mean any one loss and/or series of losses arising out of
and directly caused by one Act or series of Acts of Terrorism for the same apparent purpose or
cause. The duration and extent of any one Loss Occurrence shall be limited to all losses sustained
by the Reinsured during any period of seventy-two (72) consecutive hours arising out of the same
apparent purpose or cause. However, no such period of seventy-two (72) consecutive hours may extend
beyond the expiration of this Contract unless direct physical damage by an Act of Terrorism occurs
prior to the expiration and within said period of seventy-two (72) consecutive hours, nor shall any
period of seventy-two (72) consecutive hours commence prior to the attachment of this reinsurance.



     B. As respects coverage provided in Section I of the Article entitled “Reinsurance Coverage”,
Loss Occurrence shall be consistent with the determination of the Secretary of the Treasury of a
Certified Act of Terrorism. As respects coverage provided in Section II of the Article entitled
“Reinsurance Coverage”, all losses flowing from an apparently coordinated plan of attack shall be
deemed a single Loss Occurrence even though they may be separate in time or space subject always to
the above seventy-two (72) hour period.



ARTICLE VII — NET RETAINED LINES




     A. This Contract applies only to that portion of the exposure to loss from Acts of Terrorism
on any Policy which the Reinsured retains net for its own account, and in calculating the amount of
any loss hereunder and also in computing the amount or amounts in excess of which this Contract
attaches, only loss or losses in respect of that portion of the exposure to loss from Acts of
Terrorism on any Policy which the Reinsured retains net for its own account shall be included.
Recoveries under TRIA and TRIEA referenced in Article entitle “Terrorism Recovery” shall be
disregarded in calculating the Net Loss to which this reinsurance applies.



     B. The amount of the Reinsurers’ liability hereunder in respect of any loss or losses shall
not be increased by reason of the inability of the Reinsured to collect from any other Reinsurers,
whether specific or general, any amounts which may have become due from such Reinsurers, whether
such inability arises from the insolvency of such other Reinsurers or otherwise.



 

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9.


     C. Where the Reinsured comprises more than one insurance company, reinsurance among the companies
collectively called the “Reinsured” hereunder or between any of them and any of their affiliates
under common control with the Reinsured shall be entirely disregarded for all purposes of this
Contract.



     D. Permission is hereby granted to the Reinsured to carry underlying Terrorism reinsurance
below the attachment of this Contract and recoveries made thereunder shall be disregarded for all
purposes of this Contract and shall inure to the sole benefit of the Reinsured.



ARTICLE VIII — REVIEW




     A. The Reinsured has provided the Reinsurers, prior to the commencement of this Contract, with
information concerning its Policy forms and Underwriting Practices and Covered Policies in respect
to coverage for Acts of Terrorism. The Reinsured shall report to the Reinsurers as soon as
practically possible upon the happening of any of the following:




	 	1.	 	Change in control of the Reinsured via a closing upon a
definitive agreement to sell or merge approved by the applicable regulatory
authorities including but not limited to (a) become merged with, acquired or
controlled by any company, corporation or individual(s) not controlling the
party’s operations previously (though excluding transactions among entities
under common control); or
	 
	 	2.	 	a transfer by portfolio transfer of the Business Covered; or
	 
	 	3.	 	Material Change in the Reinsured’s Underwriting Practices
that materially increases the Reinsured’s underwriting exposure to a Loss
Occurrence arising from an Act of Terrorism. For the purpose of this
condition, a material change shall mean the following: (i) from inception, an
increase of 20% or USD20,000,000, whichever is greater, or more in the Total
Insured Values covered in those zip codes set forth in Schedule A, Target Area
zip codes (“Target Area TIV Increase”) or (ii) any material change to the
Reinsured’s coverage forms concerning terrorism (“Material Change”), or (iii)
the commencement of the Reinsured offering terrorism coverage on a stand-alone
basis (“Offering of Stand-Alone Terrorism”).





 

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10.



	 	 	 	As used herein, the reference to a “zip code” or a “Target Area zip code”
shall mean that entire area encompassed by all zip codes within an area
described by reference only to the first three digits of a zip code.
	 
	 	 	 	For example, an area made up of zip codes 89712, 89713, and 89714 will
be considered for the purposes of this Contract the “zip code” or “Target
Area zip code” of “897”





     B. In the event of a failure to timely report to the Reinsurers in sub-paragraphs A1. or A2.
above, the Reinsurer shall have a right to cancel the Contract with 15 days advance notice.



     C. In the event of A3. above,




	 	1.	 	The Reinsurer shall have the right to review the impact of
any Material Change in the Reinsured’s Underwriting Practices and either
accept the change or propose a modification to the terms of this Contract;
	 
	 	2.	 	In the event that: (i) the Material Change in the Reinsured’s
Underwriting Practices is not reported to the Reinsurer in a timely fashion or
(ii) the Reinsured does not accept the Reinsurer’s proposal to modify the
terms of this Contract per sub-paragraph C1. above, then the following
conditions shall apply:






	 	a.	 	In respect of a Material Change or Offering
of Stand-Alone Terrorism, no coverage shall be afforded hereunder for
that portion of Net Loss from a Loss Occurrence that occurs after the
date of the Material Change/Offering of Stand-Alone Terrorism that
directly results from such Material Change and/or Offering of
Stand-Alone Terrorism.
	 
	 	b.	 	In respect of a Target Area TIV Increase,
the Reinsurer shall have the option to reduce the contribution to Net
Loss in a Loss Occurrence from a Target Area according to the
following fraction:





 

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11.








(Total Insured Value in applicable Target Area at the inception of this
Contract * 1.20)* divided by actual Total Insured Value in
applicable Target Area at the date of the Loss Occurrence.










 




			
	*	 	In the event that USD20,000,000 is greater than 1.2 times
the Total Insured Value in the applicable Target Area at the inception of
this Contract, such amount shall be utilized rather than 1.2 times the
Total Insured Value in the applicable Target Area at the inception of this
Contract.





ARTICLE IX — REPORTS, LOSS AND LOSS SETTLEMENTS 



Part One — Reinsured Exposures




     A. The Reinsured has provided the Reinsurers a statement of Reinsured Exposure prior to the
Contract Term, (“Statement”), reflecting the Reinsured’s Total Insured Values for terrorism
coverage at the date of that report (“Gross TIV”) plus the Total Insured Values for Terrorism
coverage in the Target Area zip codes at the same date. The Reinsured shall provide the Reinsurers
an updated Statement each calendar quarter thereafter during the Contract Term, reflecting the
Gross TIV and the subtotal for the Total Insured Values for Terrorism coverage in the Target Area
zip codes at the same date. Such report shall be due within ninety (90) days following the end of
each calendar quarter.



     B. The term “Reinsured Exposure” shall mean the difference between the Gross TIV and the Total
Insured Values for Terrorism coverage in the Target Area zip codes on the date of the report.



Part Two — Claim Reporting




     A. The Reinsured shall advise the Reinsurers promptly of all losses which, in the opinion of
the Reinsured, are likely to result in a claim hereunder or are incurred in the Reinsured’s books
at 50% of the retention hereunder and of all subsequent developments thereto that may materially
affect the position of the Reinsurers. Inadvertent omission or oversight in giving such notice
shall in no way affect the liability of the Reinsurers. However, the Reinsurers shall be informed
of such omission or oversight promptly upon its discovery.



     B. The Reinsured shall have the right to settle all claims under its Policies. All loss
settlements made by the Reinsured, within the terms and conditions of this Contract, and provided
that such settlement is not an ex-gratia settlement made without the prior approval of the
Reinsurers, shall be binding upon the Reinsurers, and the Reinsurers agree to pay or allow, as the
case may be, their share of each such settlement in accordance with this Contract all amounts for
which it is obligated immediately upon being furnished by the Reinsured with



 

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12.

Reasonable Evidence of the Amount Due. Reasonable Evidence of the Amount Due shall consist of
a notarized certification by an Officer of the Reinsured that the amount requested to be paid and
submitted by the certification is due and payable to the Reinsured by the Reinsurers under the
terms and conditions of this Contract.




     C. “Ex-gratia settlements”, as used in this Contract, will mean all settlements of losses not
covered under the express terms of the policies that are primarily motivated by the customer
business relationship. “Ex-gratia settlements” will not include settlements of losses which (1)
arise from court decisions or other judicial acts or orders, (2) arise from the good faith position
of the Reinsured of probable coverage under the Policies, nor (3) settlements made to avoid costs
that could be incurred in connection with potential or actual litigation relating to coverage
issues arising under the Policies subject to this Contract.



     D. In addition, the Reinsured shall furnish the Reinsurers a periodic statement showing the
unearned premium, the total reserves for outstanding Net Losses including loss adjustment expense,
and such other information as may be required by the Reinsurers for completion of their NAIC annual
statements.



ARTICLE X — ORIGINAL CONDITIONS




          The Reinsurer’s liability to the Reinsured shall be subject in all respects to the same risks,
terms, clauses, conditions, interpretations, alterations, modifications cancellations and waivers
as the respective insurances of the Reinsured’s Policies and the Reinsurer shall pay losses as may
be paid thereon, the true intent of this Contract being that in each and every case to which this
Contract applies, the Reinsurer shall follow the settlements of the Reinsured, subject always to
the limits, terms and conditions of this Contract.




ARTICLE XI — ERRORS AND OMISSIONS




          Inadvertent delays, errors or omissions made by the Reinsured in connection with this Contract
(including the reporting of claims) shall not relieve the Reinsurer from any liability which would
have attached had such delay, error or omission not occurred, provided always that such delay,
error or omission shall be rectified as soon as possible after discovery by the Reinsured’s Home
Office. Nothing in this Article shall, however, be held to override the provisions of the Article
entitled “Review”.




 

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ARTICLE XII — CURRENCY 




          Whenever the word “Dollars”, “USD” or the “$” sign appears in this Contract, they shall be
construed to mean United States Dollars and all transactions under this Contract shall be in United
States Dollars. Amounts paid or received by the Reinsured in any other currency shall be converted
to United States Dollars at the rate of exchange at the date such transaction is entered on the
books of the Reinsured.




ARTICLE XIII — FEDERAL EXCISE TAX AND OTHER TAXES




     A. To the extent that any portion of the reinsurance premium for this Contract is subject to
the Federal Excise Tax (as imposed under Section 4371 of the Internal Revenue Code) and the
Reinsurer is not exempt therefrom, the Reinsurer shall allow for the purpose of paying the Federal
Excise Tax, a deduction by the Reinsured of the applicable percentage of the premium payable
hereon. In the event of any return of premium becoming due hereunder, the Reinsurer shall deduct
the applicable same percentage from the return premium payable hereon and the Reinsured or its
agent shall take steps to recover the tax from the United States Government. In the event of any
uncertainty, upon the written request of the Reinsured, the Reinsurer will immediately file a
certificate of a senior corporate officer of the Reinsurer certifying to its entitlement to the
exemption from the Federal Excise Tax with respect to one or more transactions.



     B. In consideration of the terms under which this Contract is issued, the Reinsured undertakes
not to claim any deduction of the premium hereon when making Canadian Tax returns or when making
tax returns, other than Income or Profits Tax returns, to any State or Territory of the United
States of America or to the District of Columbia.



ARTICLE XIV — ACCESS TO RECORDS 




          The Reinsured shall place at the disposal of the Reinsurer at all reasonable times, and the
Reinsurer shall have the right to inspect through its designated representatives, during the term
of this Contract and thereafter, all non-privileged books, records and papers of the Reinsured
directly related to any reinsurance hereunder, or the subject matter hereof, provided that if the
Reinsurer has ceased active market operations, this right of access shall be subject to that
Reinsurer being current in all payments owed the Reinsured.




 

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ARTICLE XV — RESERVES



(Unless otherwise required by law to obtain full credit for this Contract, in recognition of the
security in place under the Lloyd’s Credit for Reinsurance Trust, the provisions of this Article
shall not apply to participating Lloyd’s syndicates.)




     A. If any Reinsurer is unauthorized or otherwise unqualified in any state or other United
States jurisdiction, and if, without such security, a financial penalty to the Reinsured would
result on any statutory statement or report it is required to make or file with insurance
regulatory authorities or a court of law in the event of insolvency, for reasons of the Reinsured’s
financial security and condition, that Reinsurer will timely secure the Reinsurer’s share of
Obligations under this Contract in a manner, form, and amount acceptable to the Reinsured and to
all applicable insurance regulatory authorities in accordance with this Article.



     B. The Reinsurer shall secure such Obligations, within thirty (30) days after the receipt of
the Reinsured’s written request regarding the Reinsurer’s share of Obligations under this Contract
(but not later than December 31) of each year by either:




	 	1.	 	Clean, irrevocable, and unconditional evergreen letter(s) of
credit issued and confirmed, if confirmation is required by the applicable
insurance regulatory authorities, by a qualified United States financial
institution as defined under the Insurance Law of the Reinsured’s domiciliary
state and acceptable to the Reinsured and to insurance regulatory authorities;
	 
	 	2.	 	A trust account meeting at least the standards of New York’s
Insurance Regulation 114 and the Insurance Law of the Reinsured’s domiciliary
state; or
	 
	 	3.	 	Cash advances or funds withheld or a combination of both,
which will be under the exclusive control of the Reinsured (“Funds Deposit”).





     C. The “Obligations” referred to herein means the then current (as of the end of each calendar
quarter) sum of:




	 	1.	 	The amount of the ceded unearned premium reserve for which
the Reinsurer is responsible to the Reinsured;





 

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	 	2.	 	The amount of Net Loss and other amounts paid by the Reinsured for which
the Reinsurer is responsible to the Reinsured but has not yet paid;
	 
	 	3.	 	The amount of ceded reserves for Net Loss for which the
Reinsurer is responsible to the Reinsured;
	 
	 	4.	 	The amount of return and refund premiums paid by the
Reinsured for which the Reinsurer is responsible to the Reinsured but has not
yet paid.





     D. The Reinsured, or its successors in interest, may draw, at any time and from time to time,
upon the:




	 	1.	 	Established letter of credit (or subsequent cash deposit);
	 
	 	2.	 	Established trust account (or subsequent cash deposit); or
	 
	 	3.	 	Funds Deposit;




without diminution or restriction because of the insolvency of either the Reinsured or the
Reinsurer for one or more of the following purposes set forth below:




     E. Draws shall be made only for the following purposes:




	 	1.	 	To make payment to and reimburse the Reinsured for the
Reinsurer’s share of Net Loss and other amounts paid by the Reinsured under
its Policies and for which the Reinsurer is responsible under this Contract
that is due to the Reinsured but unpaid by the Reinsurer including but not
limited to the Reinsurer’s share of premium refunds and returns; and
	 
	 	2.	 	To obtain a cash advance of the entire amount of the
remaining balance under any letter of credit in the event that the Reinsured:






	 	a)	 	has received notice of non-renewal or
expiration of the letter of credit or trust account;
	 
	 	b)	 	has not received assurances satisfactory to
the Reinsured of any required increase in the amount of the letter of
credit or trust account, or its replacement or other continuation of
the letter of credit or trust account at least thirty (30) days
before its stated expiration date;





 

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	 	c)	 	has been made aware that others may attempt to attach or otherwise
place in jeopardy the security represented by the letter of credit
or trust account; or
	 
	 	d)	 	has concluded that the trustee or issuing
(or confirming) bank’s financial condition is such that the security
represented by the letter of credit or trust account may be in
jeopardy;






	 	 	 	and under any of those circumstances where the Reinsurer’s entire Obligations, or
part thereof, under this Contract remain un-liquidated and un-discharged at least
thirty (30) days prior to the stated expiration date or at the time the Reinsured
learns of the possible jeopardy to the security represented by the letter of credit
or trust account.





     F. If the Reinsured draws on the letter of credit or trust account to obtain a cash advance,
the Reinsured will hold the amount of the cash advance so obtained in the name of the Reinsured in
any qualified United States financial institution as defined under the Insurance Law of the
Reinsured’s domiciliary state in trust solely to secure the Obligations referred to above and for
the use and purposes enumerated above and to return any balance thereof to the Reinsurer:




	 	1.	 	Upon the complete and final liquidation and discharge of all
of the Reinsurer’s Obligations to the Reinsured under this Contract; or
	 
	 	2.	 	In the event the Reinsurer subsequently provides alternate or
replacement security consistent with the terms hereof and acceptable to the
Reinsured.





     G. The Reinsured will prepare and forward at annual intervals or more frequently as determined
by the Reinsured, but not more frequently than quarterly to the Reinsurer a statement for the
purposes of this Article, showing the Reinsurer’s share of Obligations as set forth above. If the
Reinsurer’s share thereof exceeds the then existing balance of the security provided, the Reinsurer
will, within fifteen (15) days of receipt of the Reinsured’s statement, but never later than
December 31 of any year, increase the amount of the letter of credit, (or subsequent cash deposit),
trust account or Funds Deposit to the required amount of the Reinsurer’s share of Obligations set
forth in the Reinsured’s statement, but never later than December 31 of any year. If the
Reinsurer’s share thereof is less



 

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than the then existing balance of the cash advance, the Reinsured will release the excess
thereof to the Reinsurer upon the Reinsurer’s written request. The Reinsurer will not attempt to
prevent the Reinsured from holding the cash advance or Funds Deposit so long as the Reinsured is
acting in accordance with this Article.




     H. Any assets deposited to a trust account will be valued according to their current fair
market value and will consist only of cash (U.S. legal tender), certificates of deposit issued by a
qualified United States financial institution as defined under the Insurance Law of the Reinsured’s
domiciliary state and payable in cash, and investments of the types no less conservative than those
specified in Section 1404 (a)(1)(2)(3) (8) and (10) of the New York Insurance Law and which are
admitted assets under the Insurance Law of the Reinsured’s domiciliary state. Investments issued
by the parent, subsidiary, or affiliate of either the Reinsured or the Reinsurer will not be
eligible investments. All assets so deposited will be accompanied by all necessary assignments,
endorsements in blank, or transfer of legal title to the trustee in order that the Reinsured may
negotiate any such assets without the requirement of consent or signature from the Reinsurer or any
other entity.



     I. All settlements of account between the Reinsured and the Reinsurer will be made in cash or
its equivalent. All income earned and received by the amount held in an established trust account
will be added to the principal.



     J. The Reinsured’s “successors in interest” will include those by operation of law, including
without limitation, any liquidator, rehabilitator, receiver, or conservator.



     K. The Reinsurer will take any other reasonable steps that may be required for the Reinsured
to take full credit on its statutory financial statements for the reinsurance provided by this
Contract.



ARTICLE XVI — SERVICE OF SUIT




     A. This Article only applies to Reinsurers domiciled outside of the United States and/or
unauthorized in any state, territory or district of the United States having jurisdiction over the
Reinsured. Furthermore, this Article will not be read to conflict with or override the obligations
of the parties to arbitrate their disputes as provided for in the Article entitled “Arbitration”.
This Article is intended as an aid to compelling arbitration or enforcing such arbitration or
arbitral award, not as an alternative to the Article entitled “Arbitration” for resolving disputes
arising out of this Contract.



 

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     B. In the event of any dispute, the Reinsurer, at the request of the Reinsured, shall submit
to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this
Article constitutes or should be understood to constitute a waiver of any obligation to arbitrate
disputes arising from this Contract or the Reinsurer’s rights to commence an action in any court of
competent jurisdiction in the United States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted by the laws of the United States or
of any state in the United States.



     C. Service of process in any such suit against the Reinsurer may be made upon Mendes and
Mount, 750 Seventh Avenue, New York, New York 10019-6829, or the entity identified on the
Reinsurer’s signature page to this Contract, (whichever applicable shall be hereinafter referred to
as the “Firm”) and in any suit instituted, the Reinsurer shall abide by the final decision of such
court or of any Appellate Court in the event of an appeal.



     D. The Firm is authorized and directed to accept service of process on behalf of the Reinsurer
in any such suit and/or upon the request of the Reinsured to give a written undertaking to the
Reinsured that they shall enter a general appearance upon the Reinsurer’ behalf in the event such a
suit shall be instituted.



     E. Further, as required by and pursuant to any statute of any state, territory or district of
the United States which makes provision therefore, the Reinsurer hereby designates the
Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose
in the statute, or his successor or successors in office, as their true and lawful attorney upon
whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reinsured or any beneficiary hereunder arising out of this Contract, and hereby designates
the above-named as the person to whom the said officer is authorized to mail such process or a true
copy thereof.



ARTICLE XVII — ARBITRATION




     A. Any and all disputes between the Reinsured and the Reinsurer arising out of, relating to,
or concerning this Contract, whether sounding in contract or tort and whether arising during or
after termination of this Contract, shall be submitted to the decision of a board of arbitration
composed of two arbitrators and an umpire (“Board”) meeting at a site in the city in which the
principal headquarters of the Reinsured are located. The arbitration shall be conducted under the
Federal Arbitration Act and shall proceed as set forth below.



 

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     B. A notice requesting arbitration, or any other notice made in connection therewith, shall be
in writing and be sent certified or registered mail, return receipt requested to the affected
parties. The notice requesting arbitration shall state in particulars all issues to be resolved in
the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a
tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later
than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed.
Within thirty (30) days of receipt of claimant’s notice, the respondent shall notify claimant of
any additional issues to be resolved in the arbitration and of the name of its appointed
arbitrator.



     C. Unless otherwise mutually agreed, the members of the Board shall be impartial and
disinterested and shall be current or former senior officers of property-casualty insurance
companies, reinsurance companies, or Lloyds Underwriters or active or inactive lawyers with at
least twenty (20) years of experience in insurance and reinsurance not currently representing any
party participating in the arbitration. The Reinsured and the Reinsurer as aforesaid shall each
appoint an arbitrator and the two (2) arbitrators shall choose a third arbitrator before
instituting the hearing. As time is of the essence, if the respondent fails to appoint its
arbitrator within thirty (30) days after having received claimant’s written request for
arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two (2)
arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after
notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2)
arbitrators shall request ARIAS U. S. (“ARIAS”) to apply its procedures to appoint a third
arbitrator for the arbitration with the qualifications set forth above in this Article. If the use
of ARIAS procedures fails to name an umpire, either party may apply to the court named below to
appoint an umpire with the above required qualifications. The third arbitrator shall promptly
notify in writing all parties to the arbitration of his selection and of the scheduled date for the
hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in
the same fashion as the resigning or deceased member was appointed.



     D. The claimant and respondent shall each submit initial briefs to the Board outlining the
facts, the issues in dispute and the basis, authority, and reasons for their respective positions
within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the
respondent may submit a reply brief to the Board within ten (10) days after filing of the initial
brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not
later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable
responses shall be allowed at the arbitration hearing to new material contained in any amendments
filed to the briefs but not previously responded to.



 

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     E. The Board shall consider this Contract as an honorable engagement and shall make a decision
and award with regard to the terms expressed in this Contract, the original intentions of the
parties to the extent reasonably ascertainable, and the custom and usage of the property and
casualty insurance and reinsurance business.



     F. The Board shall be relieved of all judicial formalities and the decision and award shall be
based upon a hearing in which evidence shall be allowed though the formal rules of evidence shall
not strictly apply. Cross examination and rebuttal shall be allowed. At its own election or at
the request of the Board, either party may submit a post-hearing brief for consideration of the
Board within twenty (20) days of the close of the hearing.



     G. The Board shall render its decision and award in writing within thirty (30) days following
the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the
parties consent to an extension. Every decision by the Board shall be by a majority of the members
of the Board and each decision and award by the majority of the members of the Board shall be final
and binding upon all parties to the proceeding.



     H. The Board may award (i) interest at a rate of up to four hundred (400) basis points above
the prime rate as published in the Wall Street Journal (eastern edition), but not less than five
percent (5%) per annum, on the date of the award calculated from the date the Board determines that
any amounts due the prevailing party should have been paid to the prevailing party, (ii) attorney
fees and punitive, exemplary, or treble damages if the actions of either party in prosecuting,
defending or causing the arbitration are made in bad faith and constitute outrageous behavior in
the opinion of the Board.



     I. Either party may apply to a court of competent jurisdiction for an order confirming any
decision and the award; a judgment of that Court shall thereupon be entered on any decision or
award. If such an order is issued, the attorneys’ fees of the party so applying and court costs
will be paid by the party against whom confirmation is sought.



     J. Except in the event of a consolidated arbitration, each party shall bear the expense of the
one arbitrator appointed by it and shall jointly and equally bear with the other party the expense
of any stenographer requested, and of the umpire. The remaining costs of the arbitration
proceedings shall be finally allocated by the Board.



 

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     K. Subject to customary and recognized legal rules of privilege, each party participating in
the arbitration shall have the obligation to produce those documents and as witnesses at the
arbitration those of its employees, those of its affiliates as any other participating party
reasonably requests which are relevant providing always that the same witnesses and documents be
obtainable and relevant to the issues before the arbitration and not be unduly burdensome or
excessive.



     L. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing
and in the absence of agreement, upon the request of any party, pre-hearing discovery may be
conducted as the Board shall determine in its sole discretion to be in the interest of fairness,
full disclosure, and a prompt hearing, decision and award by the Board.



     M. The Board shall be the final judge of the procedures of the Board, the conduct of the
arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness
and relevancy of any witnesses and documents upon the petition of any participating party. To the
extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to
enforce their decisions. The Board shall also have the authority to issue interim decisions or
awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision
and award by the Board.



     N. Upon request of the Reinsured made to the affected Reinsurers and to the Board not later
than ten (10) days after the third arbitrator’s appointment, the Board may order a consolidated
hearing between the Reinsured and all affected Reinsurers participating in this Contract if the
Board is satisfied in its discretion that the issues in dispute affect more than one Reinsurer and
a consolidated hearing would be in the interest of fairness, and a prompt and cost effective
resolution of the issues in dispute.



     O. If the parties mutually agree to or the Board orders a consolidated hearing, all other
affected participating Reinsurers shall join and participate in the arbitration under time frames
established by the Board and will be bound by the Board’s decision and award unless excused by the
Board in its discretion.



     P. Any Reinsurer may decline to actively participate in a consolidated arbitration if in
advance of the hearing, that Reinsurer shall file with the Board a written agreement in form
satisfactory to the Board to be bound by the decision and award of the Board in the same fashion
and to the same degree as if it actively participated in the arbitration.



 

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     Q. In the event of an order of consolidation by the Board, the arbitrator appointed by the
original Reinsurer shall be subject to being and may be replaced within thirty (30) days of the
decision to have a consolidated arbitration by an arbitrator named collectively by the Reinsurers
or in the absence of agreement, by the Lead Reinsurer, or if there is no Lead Reinsurer, the
Reinsurer with the largest participation in this Contract affected by the dispute. In the event
two or more Reinsurers affected by the dispute each have the same largest participation, they shall
agree among themselves as to the replacement arbitrator, if any, to be appointed. The third
arbitrator shall be the final determiner in the event of any dispute over replacement of that
arbitrator. All other aspects of the arbitration shall be conducted as provided for in this
Article provided that (1) each party actively participating in the consolidated arbitration will
have the right to its own attorney, position, and related claims and defenses; (2) each party will
not, in presenting its position, be prevented from presenting its position by the position set
forth by any other party; and (3) the cost and expense of the arbitration, exclusive of attorney’s
fees (which will be borne exclusively by the respective retaining party) but including the expense
of any stenographer by each party actively participating in the consolidated arbitration or as the
Board shall determine to be fair and appropriate under the circumstances.



ARTICLE XVIII — INSOLVENCY 




     A. In the event of insolvency and the appointment of a conservator, liquidator, or statutory
successor of the Reinsured, the portion of any risk or obligation assumed by the Reinsurer shall be
payable to the conservator, liquidator, or statutory successor on the basis of claims allowed
against the insolvent Reinsured by any court of competent jurisdiction or by any conservator,
liquidator, or statutory successor of the Reinsured having authority to allow such claims, without
diminution because of that insolvency, or because the conservator, liquidator, or statutory
successor has failed to pay all or a portion of any claims.



     B. Payments by the Reinsurer as above set forth shall be made directly to the Reinsured or to
its conservator, liquidator, or statutory successor, except where this contract of reinsurance
specifically provides another payee of such reinsurance or except as provided by applicable law and
regulation (such as subsection (a) of section 4118 of the New York Insurance laws) in the event of
the insolvency of the Reinsured.



     C. In the event of the insolvency of the Reinsured, the liquidator, receiver, conservator or
statutory successor of the Reinsured shall give written notice to the Reinsurer of the pendency of
a claim against the insolvent Reinsured on the Policy or Policies reinsured within a reasonable
time after such claim is filed in the insolvency proceeding and during the pendency of such claim
any 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 which it may deem available to the
Reinsured or its liquidator, receiver, conservator or statutory



 

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successor. The expense thus incurred by the Reinsurer shall be chargeable subject to court
approval against the insolvent Reinsured as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Reinsured solely as a result of the
defense undertaken by the Reinsurer.




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



ARTICLE XIX — CLAIMS COOPERATION




     When so requested in writing, the Reinsured shall afford the Reinsurer or its representatives
an opportunity to be associated with the Reinsured, at the expense of the Reinsurer, in the defense
of any claim, suit or proceeding involving this Contract, and the Reinsured and the Reinsurer shall
cooperate in every respect in the defense of such claim, suit or proceeding, provided the Reinsured
shall have the right to make any decision in the event of disagreement over any matter of defense
or settlement subject always to the conditions of the Article entitled “Original Conditions”.



ARTICLE XX — CONFIDENTIALITY




     A. The information, data, statements, representations and other materials provided by the
Reinsured or the Reinsurer to the other arising from consideration and participation in this
Contract whether contained in the reinsurance submission, this Contract, or in materials or
discussions arising from or related to this Contract, may contain confidential or proprietary
information as expressly indicated by the disclosing party in writing from time to time to the
other party of the respective parties (“Confidential Information”). This Confidential Information
is intended for the sole use of the parties to this Contract (and their retrocessionaires,
respective auditors and legal counsel) as may be necessary in analyzing and/or accepting a
participation in and/or executing their respective responsibilities under or related to this
Contract. Disclosing or using Confidential Information disclosed under this Contract for any
purpose beyond (i) the scope of this Contract, (ii) the reasonable extent necessary to perform
rights and responsibilities expressly provided for under this Contract, (iii) the reasonable extent
necessary to administer, report to and effect recoveries from retrocessional Reinsurers, or (iv)
persons with a need to know the information and who are obligated to maintain the confidentiality
of the Confidential Information or who have agreed in writing to maintain the confidentiality of
the Confidential Information is expressly forbidden without the prior written consent of the
disclosing party. Copying, duplicating, disclosing, or using Confidential Information for any
purpose beyond this expressed purpose is forbidden without the prior written consent of the
disclosing party.



 

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     B. Should a party (“Receiving Party”) receive a third party demand pursuant to subpoena, summons,
or court or governmental order, to disclose Confidential Information that has been provided by
another party to this Contract (“Disclosing Party”), the Receiving Party shall, to the extent
permitted by law, make commercially reasonable efforts to notify the Disclosing Party promptly upon
receipt of the demand and prior to disclosure of the Confidential Information and provide the
Disclosing Party a reasonable opportunity to object to the disclosure. If such notice is provided,
the Receiving Party may after the passage of five (5) business days after providing notice, proceed
to disclose the Confidential Information as necessary to satisfy such a demand without violating
this Contract. If the Disclosing Party timely objects to the release of the Confidential
Information, the Receiving Party will comply with the reasonable requests of the Disclosing Party
in connection with the Disclosing Party’s efforts to resist release of the Confidential
Information. The Disclosing Party shall bear the cost of resisting the release of the Confidential
Information.



ARTICLE XXI — LATE PAYMENTS 




     A. Payments from the Reinsurer to the Reinsured shall have as a due date the date on which the
Reinsured Reasonable Evidence of Amount Due is received by the Reinsurer, and shall be overdue
sixty (60) days thereafter. Payments due from the Reinsurer to the Reinsured will not be considered
overdue if the Reinsurer requests, in writing, that such payment be made by drawing on a letter of
credit or other similar method of funding that has been established for this Contract, provided
that there is an adequate balance in place, and further provided that such advice to draw is
received by the Reinsured within the sixty (60) day deadline set forth above. Payments from the
Reinsured to the Reinsurer will have a due date as the date specified in this Contract and will be
overdue sixty (60) days thereafter. Premium adjustments will be overdue sixty (60) days from the
Contract due date or one hundred (120) days after the expiration or renewal date, whichever is
greater.



     B. The Reinsured will provide the Reinsurer with reasonable evidence of amount Due,
supplemented by copies of any proof of loss and a copy of the claim adjuster’s report(s) or any
other reasonable evidence of indemnification. If subsequent to receipt of this evidence, the
information contained therein is unreasonably insufficient or not in substantial accordance with
the contractual conditions of this Contract, then the payment due date as specified above will be
deemed to be the date upon which the Reinsurer received the additional information necessary to
approve payment of the claim and the claim is presented in a reasonably acceptable manner. This
paragraph is only for the purpose of establishing when a claim payment is overdue, and will not
alter the provisions of the Article entitled “Reports, Loss and Loss Settlements” or other
pertinent contractual stipulations of this Contract.



 

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     C. If payment is made of overdue amounts within thirty (30) days of the due date, overdue
amounts will bear simple interest from the overdue date at a rate determined by the one-month
London Interbank Offered Rate for the first business day of the calendar month in which the amount
becomes overdue, as published in The Wall Street Journal, plus four hundred (400) basis points to
be calculated weekly. If payment is made of overdue amounts more than thirty (30) days after the
due date, overdue amounts will bear simple interest from the overdue date at a rate determined by
the one-month London Interbank Offered Rate for the first business day of the calendar month in
which the amount becomes overdue, as published in The Wall Street Journal, plus four hundred basis
(400) points to be calculated weekly but in no event less than five percent (5%) simple interest.
If the sum of the compensating additional amount computed in respect of any overdue payment is less
than 0.25% of the amount overdue, or $1,000, whichever is greater, and/or the overdue period is one
week or less, then the interest amount shall be waived. The basis point standards referred to above
shall be doubled if the late payment is due from a Reinsurer who is no longer an active reinsurance
market.



ARTICLE XXII — OFFSET 




     The Reinsured and the Reinsurer shall have the right to offset any balance or amounts due from
one party to the other under the terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on account of premiums or losses or
otherwise and immediately inform the Intermediary accordingly. In the event of the insolvency of
any party, offset shall be as permitted by applicable law.



ARTICLE XXIII — SPECIAL TERMINATION




     A. The Reinsured may terminate or commute this Contract upon the happening of any one of the
following circumstances at any time by the giving of fifteen (15) days prior written notice to the
Reinsurer:




	 	1.	 	The Reinsurer ceases active underwriting operations or a
State Insurance Department or other legal authority orders the Reinsurer to
cease writing business in all jurisdictions; or
	 
	 	2.	 	The Reinsurer has: a) become insolvent, b) been placed under
supervision (voluntarily or involuntarily), c) been placed into liquidation or
receivership, or d) had instituted against it proceedings for the appointment
of a supervisor, receiver, liquidator, rehabilitator, conservator or trustee
in bankruptcy, or other agent known by whatever name, to take possession of
its assets or control of its operations; or
	 
	 	3.	 	The Reinsurer’s (a) policyholders’ surplus (“PHS”) has been





 

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	 	 	 	reduced by whichever is greater, (i) twenty percent (20%) of the amount of
PHS at the inception of this Contract or (ii) twenty percent (20%) of the
amount of PHS stated in its last filed quarterly or annual statutory
statement with its state of domicile; or (b) AM Best’s insurer financial
strength rating becomes less than A- (N.B. as respects alien Reinsurers, a
Standard & Poor’s Insurance Rating of less than “BBB” will apply; as
respects Lloyd’s Syndicates where an AM Best insurer financial strength
rating is not available, a reduction of the Reinsurer’s S&P Lloyd’s
Syndicate Assessment (LSA) ranking from the LSA ranking that was in effect
at the inception of this Contract); or
	 
	 	4.	 	The Reinsurer has entered into a definitive agreement to (a)
become merged with, acquired or controlled by any company, corporation or
individual(s) not affiliated with or controlling the party’s operations
previously; or (b) directly or indirectly assign all or essentially all of its
entire liability for Obligations (as defined in the Article entitled
“Reserves”) under this Contract to another party without the Reinsured’s prior
written consent; or
	 
	 	5.	 	There is either (a) a severance or obstruction of free and
unfettered communication and/or normal commercial or financial intercourse
between the United States of America and the country in which the Reinsurer is
incorporated or has its principal office as a result of war, currency
regulations or any circumstances arising out of political, financial or
economic uncertainty; or (b) a severance (of any kind) of any two or more of
the following executives of the Reinsurer from active employment of the
Reinsurer during the most recent sixty (60) day period: President, Chief
Underwriting Officer, Chief Actuary, Chief Claims Officer or Chief Financial
Officer.





     B. In the event that notice of termination is given by reason of an event described in A3
above (the “Termination Notice”) and prior to the effective date of the termination (the
“Termination Date”), the Chief Financial Officer of the Reinsurer represents and certifies in
writing to the Reinsured that (i) the deterioration of the Reinsurer’s financial condition is the
direct and sole result of a recent major property catastrophe(s) or the result of an Act(s) of
Terrorism (either the “Event”) and (ii) that it is actively seeking and has a high probability of
successfully obtaining additional capital to substantially replace the capital loss because of the
Event (the “Extension Notice”), the Termination Date shall be extended an additional thirty (30)
days from the Termination Date (the “Extended Termination Date”). If prior to the Extended
Termination Date, the Chief Financial



 

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27.

Officer of the Reinsurer represents and certifies in writing to the Reinsured that (a) it has
raised sufficient capital so as to return its PHS to within five percent (5%) of the Reinsurer’s
PHS last filed with its domiciliary regulatory authorities prior to the Event, (b) obtained
reinstatement of its rating agency grade(s) to the level as existed immediately prior to the Event,
the Termination Notice shall be null and void. Otherwise, this Contract shall terminate on the
Extended Termination Date in the manner described in the Termination Notice.




     C. In the event the Reinsured elects termination, the Reinsured shall with the notice of
termination specify that termination will be on a cut-off basis and thus relieve the Reinsurer for
losses occurring subsequent to the Reinsurer’s specified termination date. The Reinsurer shall
within fifteen (15) days of the termination date return the liability for the unearned portion of
any ceded premium paid hereunder, calculated as of the termination date, and cash in that amount
and the minimum premium provisions, if any, shall be waived.



     D. In the event the Reinsured elects to commute, the Reinsurer shall return the sum total of
the net present value (“capitalized”) of the ceded (1) Reserves for Net Loss outstanding, (2)
Reserves for Net Loss incurred but not reported, and (3) unearned premium reserves. In the event
the parties are unable to agree on the capitalized value of the reserves to be returned to the
Reinsured, the Reinsured and the Reinsurer shall jointly appoint an independent and neutral actuary
experienced in such matters and the mutually agreed actuary shall render a decision. In the event
that the Reinsured and the Reinsurer are unable to agree upon a single actuary within thirty (30)
days, the parties shall ask the then current President of the Casualty Actuarial Society to appoint
an actuary with those qualifications within another thirty (30) days. The decision of the actuary
will be final and binding on both parties. The Reinsured and the Reinsurer shall share equally the
fees and expenses of the actuary. Upon payment of the amount so agreed or determined by the actuary
to the Reinsured, the Reinsurer and the Reinsured shall each be completely released from all
liability to each other under this Contract.



     E. If the Reinsurer is not otherwise obligated under the Article entitled “Reserves” of this
Contract, to provide the Reinsured security in order for the Reinsured to obtain credit for the
reinsurance provided by this Contract and the Reinsurer has not cured the conditions described
above, other than as expressed in conditions 4 and 5 above, the Reinsured shall also have the
option, if it does not elect the commutation option described above, to require the Reinsurer to
provide the Reinsured with collateral funding as if the Reinsurer were otherwise obligated to
provided security for the Reinsurer’s obligations under this Contract in an amount and manner and
as provided for under the Reserves Article of this Contract. The Reinsured shall have the option
to require the Reinsurer to provide collateral funding but, provided it is reasonably acceptable to
the Reinsured and any insurance regulatory authorities involved, the Reinsurer shall have the sole
option of determining the method of funding referred to above. In recognition of



 

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security a participating Reinsurer or Lloyd’s Syndicate may place under the terms of a master
trust agreement, such as the US Lloyd’s Credit for Reinsurance Trust, the provisions of this
Paragraph shall not apply to that participating Reinsurer or Lloyd’s Syndicate that has fully
funded 100% of the Obligations to the Reinsured, as the term Obligations is defined in the Article
entitled “Reserves”, pursuant to the terms of that trust agreement and the applicable funding
requirements and procedures.




ARTICLE XXIV — TERRORISM RECOVERY — TERRORISM RISK INSURANCE ACT OF 2002




     A. As respects the Insured Losses of the Reinsured, to the extent the Reinsured’s total
reinsurance recoverables for Insured Losses, whether collected or not, when combined with the
financial assistance available to the Reinsured under the Act exceeds the aggregate amount of
Insured Losses paid by the Reinsured, less any other recoveries or reimbursements, (the “Excess
Recovery”), a share of the Excess Recovery shall be allocated to the Reinsured and the Reinsurer.
The Reinsured’s share of the Excess Recovery shall be deemed to be an amount equal to the
proportion that the Reinsured’s Insured Losses bear to the Insurer’s total Insured Losses. The
Reinsurer’s share of the Excess Recovery shall be deemed to be an amount equal to the proportion
that the Reinsurer’s payment of Insured Losses under this Contract bears to the Reinsured’s total
collected reinsurance recoverables for Insured Losses. The Reinsured shall provide the Reinsurer
with all necessary data respecting the transactions covered under this Article.



     B. The method set forth herein for determining an Excess Recovery is intended to be consistent
with the United States Treasury Department’s construction and application of Section 103 (g)(2) of
the Act. To the extent it is inconsistent, it shall be amended to conform with such construction
and application, nevertheless the Reinsured shall be the sole judge as to the allocation of TRIA
Recoveries to this or to other reinsurance Contracts.



     C. “Act” as used herein shall mean the Terrorism Risk Insurance Act of 2002 and any subsequent
amendment thereof or any regulations promulgated thereunder. “Reinsured” shall have the same
meaning as “Insurer” under the Act and “Insured Losses”, and “Program Year” shall follow the
definitions as provided in the Act.



ARTICLE XXV — VARIOUS OTHER TERMS 




     A. This Contract shall be binding upon and inure to the benefit of the Reinsured and Reinsurer
and their respective successors and assigns provided, however, that this Contract may not be
assigned by either party without the prior written consent of the other which consent may be
withheld by either party in its sole unfettered discretion. This provision shall not be construed
to preclude the



 

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29.

assignment by the Reinsured of reinsurance recoverables to another party for collection.




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



     C. This Contract shall constitute the entire agreement between the parties with respect to the
Business Covered hereunder. There are no understandings between the parties other than as expressed
in this Contract or any amendment thereto. Any change or modification of this Contract shall be
null and void unless made by amendment to the Contract and signed by both parties or otherwise
clearly and unequivocally amended by exchange of letters or electronic mail. Nothing in this
Article shall act to preclude the introduction of submission-related documents in any dispute
between the parties.



     D. Except as may be provided in the Article entitled “Arbitration”, this Contract shall be
governed by and construed according to the laws of the Commonwealth of Pennsylvania, exclusive of
that state’s rules with respect to conflicts of law.



     E. The headings preceding the text of the Articles and paragraphs of this Contract are
intended and inserted solely for the convenience of reference and shall not affect the meaning,
interpretation, construction or effect of this Contract.



     F. This Contract is solely between the Reinsured and the Reinsurer, and in no instance shall
any insured, claimant or other third party have any rights under this Contract.



     G. If any provisions of this Contract should be invalid under applicable laws, the latter
shall control but only to the extent of the conflict without affecting the remaining provisions of
this Contract.



     H. The failure of the Reinsured or Reinsurer to insist on strict compliance with this Contract
or to exercise any right or remedy shall not constitute a waiver of any rights contained in this
Contract nor estop the parties from thereafter demanding full and complete compliance nor prevent
the parties from exercising any remedy.



     I. Each party shall be excused for any reasonable failure or delay in performing any of its
respective obligations under this Contract, if such failure or delay is caused by Force Majeure.
“Force Majeure” shall mean any act of God, strike, lockout, act of public enemy, any accident,
explosion, fire, storm, earthquake, flood, drought, peril of sea, riot, embargo, war or foreign,
federal, state or municipal order or directive issued by a court or other authorized official,
seizure, requisition or allocation, any failure or delay of transportation, shortage of or



 

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inability to obtain supplies, equipment, fuel or labor or any other circumstance or event beyond
the reasonable control of the party relying upon such circumstance or event; provided, however,
that no such Force Majeure circumstance or event shall excuse any failure or delay beyond a period
exceeding ten (10) days from the date such performance would have been due but for such
circumstance or event.




     J. The obligations of each Reinsurer with respect to this Contract are several and not joint
and in the event of any failure or default by any Reinsurer to perform any of its obligations
hereunder, no other Reinsurer shall have any obligation with respect to such failure or default.



     K. This Contract may be executed by the parties hereto in any number of counterparts, and by
each of the parties hereto in separate counterparts, each of which counterparts, when so executed
and delivered, shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same instrument.



ARTICLE XXVI — INTERMEDIARY 




     A. Towers Perrin Forster & Crosby, Inc. is hereby recognized as the Intermediary negotiating
this Contract for all business hereunder. All communications (including but not limited to
notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense,
salvages and loss settlements) relating thereto shall be transmitted to the Reinsured or the
Reinsurer through Towers Perrin, 1500 Market Street, Centre Square East, Philadelphia, PA
19102-4790. Payments by the Reinsured to the Intermediary shall be deemed to constitute payment to
the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment
to the Reinsured only to the extent that such payments are actually received by the Reinsured.



     B. Whenever notice is required within this Contract, such notice may be given by certified
mail, registered mail, or overnight express mail. Notice shall be deemed to be given on the date
received by the receiving party.



 

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SCHEDULE A




TARGET AREA ZIP CODES




	 	 	 	 	 
	ZIP CODE	 	US STATE	 	US COUNTY
	10022
	 	NEW YORK	 	NEW YORK
	89109
	 	NEVADA	 	CLARK
	10017
	 	NEW YORK	 	NEW YORK
	10036
	 	NEW YORK	 	NEW YORK
	10019
	 	NEW YORK	 	NEW YORK
	10020
	 	NEW YORK	 	NEW YORK
	60606
	 	ILLINOIS	 	COOK
	10001
	 	NEW YORK	 	NEW YORK
	10038
	 	NEW YORK	 	NEW YORK
	22102
	 	VIRGINIA	 	FAIRFAX
	10004
	 	NEW YORK	 	NEW YORK
	10021
	 	NEW YORK	 	NEW YORK
	60603
	 	ILLINOIS	 	COOK
	55402
	 	MINNESOTA	 	HENNEPIN
	92618
	 	CALIFORNIA	 	ORANGE
	23607
	 	VIRGINIA	 	NEWPORT NEWS CITY
	90245
	 	CALIFORNIA	 	LOS ANGELES (REST OF)
	60611
	 	ILLINOIS	 	COOK
	94104
	 	CALIFORNIA	 	SAN FRANCISCO
	90278
	 	CALIFORNIA	 	LOS ANGELES (REST OF)
	92101
	 	CALIFORNIA	 	SAN DIEGO






Doc#: 212081 10/17/2007




 

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