EXHIBIT 10.9


 


Addendum No. 1 to


 


MASTER AGREEMENT


 


(hereinafter “Agreement”) dated the 4th day of April, 2006
by and between Tower Group, Inc., a Delaware corporation (“TGI”), Tower
Insurance Company of New York (“TICNY”), a New York Corporation, and Tower
National Insurance Company (“TNIC”) a Massachusetts corporation, (collectively “Tower”)
and CastlePoint Holdings, Ltd. (“CPH”), a Bermuda exempted corporation, and
CastlePoint Management Corp., (“CPM”), a Delaware corporation (collectively “CastlePoint”).
Together TGI and CPH are referred to as the “Parties”.


 


RECITALS


 


Whereas, TGI and CPH have concluded that it is in their best interests
to prepare an addendum number 1 (“Addendum”) to the Agreement to provide:


 


A.                    a
revision to each of the applicable existing and proposed intercompany
agreements to make TICNY the sole TGI owned company that is a participant to
the various pooling and reinsurance agreements, in view of Tower’s planned
acquisition of additional operating companies; and


 


B.                    clarification
on the Parties’ intentions regarding mutual annual termination provisions
added, at the recommendation of the New York Insurance Department, to the three
quota share reinsurance agreements between TICNY, TNIC and CastlePoint
Reinsurance Company, Ltd. (“CPRe”) after the Agreement was executed April 4,
2006; and


 

















 


C.                    an
adjustment to the amount ceded under the Brokerage Business Quota Share
Reinsurance Agreement, and revised procedures surrounding how the amount
reinsured under this agreement is adjusted; and


 


D.                    adjustments
to the Traditional Program Business Quota Share Reinsurance Agreement to
eliminate the provision for a sliding ceding commission based on loss ratio and
replace it with a sharing of expenses and losses, revise the amount of business
that may be ceded and the amount of business that will be ceded by Tower to
CPRe, and revise procedures surrounding how the amount reinsured under this
agreement is adjusted and allow for the termination of the Traditional Program
Business Quota Share Reinsurance Agreement when the Traditional Program
Business pool is operational; and


 


E.                     an
acknowledgement that the three pooling agreements initially contemplated by the
Agreement will, at the recommendation of the New York Insurance Department, be
separated and reconstituted as (i) three pooling agreements and (ii) three pool
management agreements; and


 


F.                     (i)
elimination from the Traditional Program Business Pool Management Agreement and
Specialty Program Business Pool Management Agreements the provision for a sliding
ceding commission based on loss ratio and its replacement with a sharing of
expenses and losses, (ii) making CastlePoint the manager of the Traditional
Program Business pool and adjusting Tower’s participation and range of
participation in the Traditional Program Business Pooling Agreement, adjusting
Tower’s participation in the Brokerage Business Pooling Agreement, and
adjusting Tower’s range of participation in the Specialty Program Business
Pooling Agreement, 


 


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and (iii) providing different treatment of
catastrophe costs beginning April 1, 2007 under the Brokerage Business Pooling
Agreement; and


 


G.                    revised
procedures surrounding how the pooling shares under the pooling agreements are
adjusted; and


 


H.                    clarification
on the Parties intentions regarding termination provisions added, at the
recommendation of the New York Insurance Department, to the three pooling
agreements between TICNY, TNIC and CastlePoint Insurance Company. (“CPIC”)
after the Agreement was executed April 4, 2006; and


 


I.                      acknowledgement
that the Program Management Agreements attached to the Agreement will, at the
request of the New York Insurance Department, be separated into (i) a Program
Management Agreement between CPM and TICNY, and (ii) a Program Management
Agreement between CPM and TNIC, and that CPM (or CPIC) will be the manager of
the Traditional Program Business as well as the Specialty Program Business and
Insurance Risk Sharing Business; and


 


J.                     clarification
on the Parties intentions regarding termination provisions added, at the
recommendation of the New York Insurance Department, to the Program Management
Agreements between TICNY, TNIC and CPM after the Agreement was executed April
4, 2006; and


 


K.                    revision
of the Service and Expense Sharing Agreement to reflect the recommendations of
the New York Insurance Department; and


 


L.                     extension
of the terms of the Master Agreement and other intercompany agreements for an
extra year, making the terms four years in total, or action consistent
therewith; and


 


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M.                   creation
of an obligation of TGI to cause its soon-to-be or newly acquired subsidiaries
to provide a right of first refusal to enter into a loss portfolio transfer
with CastlePoint Re, if TGI decides to effectuate a loss portfolio transfer for
the reserves of such subsidiaries, upon mutually acceptable market competitive terms.


 


Now therefore, in consideration of the foregoing, of the mutual
covenants and undertakings as set forth below, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Parties hereby agree as follows:


 


1.             That TICNY shall be
the only TGI company that is a party to the intercompany quota share reinsurance
and pooling agreements between Tower and CastlePoint, in view of Tower’s
planned acquisition of additional operating companies. However, it is the
intention of the parties that this modification should not affect the financial
results of Tower and CastlePoint that were contemplated prior to this change and,
to that end, Tower shall create and enter into pooling agreement(s) between all
of the TGI insurance companies with TICNY as the assuming and retroceeding
insurer among the TGI companies of all property and casualty insurance written
by the TGI companies, and that TICNY becomes the sole TGI company participating
in the Brokerage Business, Specialty Program Business and Insurance Risk Sharing
Business, and Traditional Program Business quota share reinsurance agreements
and in the Brokerage Business, Traditional Program Business, and Specialty
Program Business pooling agreements between Tower and CastlePoint, with the
result that the same percentage of premium, 


 


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expenses, and losses as previously contemplated by the Parties under
the pooling and quota share agreements will be ceded to CastlePoint. See
Exhibits 1, 2, 3, 4, 5, & 6 attached.


 


2.             That
notwithstanding the inclusion of the annual mutual termination provisions in
the Amended and Restated Brokerage Business Quota Share Reinsurance Agreement, the
Amended and Restated Specialty Program Business and Insurance Risk Sharing
Business Quota Share Reinsurance Agreement and the Amended and Restated Traditional
Program Business Quota Share Reinsurance Agreement (collectively the “Amended
and Restated Quota Share Agreements”) all of which were executed August 30,
2006, neither TGI nor CPH will cause or permit TICNY or CPRe, respectively, to
exercise the annual right to terminate the agreement that each now has under
the Amended and Restated Quota Share Agreements. The foregoing shall not be
understood to prohibit each of TICNY or CPRe, as parties to the Amended and
Restated Quota Share Agreements, from exercising any other termination right
that it might possess under the Amended and Restated Quota Share Agreements.


 


3.             That, as of July 1,
2006, the amount ceded by the Company (as defined in the agreement) under the
Brokerage Business Quota Share Reinsurance Agreement is 40%, and that the
amount ceded may be adjusted upon not less than thirty (30) days prior written
notice to the Reinsurer (as defined in the agreement), unless such notice is
waived by the Reinsurer, and provided, however, that the Company and the
Reinsurer may agree to change the Reinsurer’s quota share 


 


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participation as of any calendar quarter, with all such changes being
affixed to the Agreement. See Exhibit 1 attached.


 


4.             That (a) as of July
1, 2006, the sliding scale ceding commission in the Traditional Program
Business Quota Share Reinsurance Agreement will be deleted from that agreement
to be replaced by a sharing of expenses and losses based on the amounts ceded
and assumed by CPRe and Tower, with such expenses being deemed to be equal to 30%
of premiums, (b) as of July 1, 2006, the Traditional Program Business Quota
Share Reinsurance Agreement will be amended to provide for Tower to be able to
cede between 50% and 75% to CPRe, (c) as of July 1, 2006, the amount ceded by
Tower under the Traditional Program Business Quota Share Reinsurance Agreement
will be 50%, (d) the amount ceded may be adjusted upon not less than thirty (30)
days prior written notice to the Reinsurer, unless such notice is waived by the
Reinsurer, and provided, however, that the Company and the Reinsurer may agree
to change the Reinsurer’s quota share participation as of any calendar quarter,
with all such changes being affixed to the Agreement, and (e) it is the intention
of the Parties that the Traditional Program Business Quota Share Reinsurance
Agreement be terminated when the Traditional Program Business Pooling Agreement
is operational. See Exhibit 3 attached.


 


5.             That (a) the
Brokerage Business Pooling Agreement as originally drafted and attached to the
Agreement will be separated and reconstituted into two separate agreements
entitled: (i) the Brokerage Business Pooling Agreement and (ii) the Brokerage
Business Pool Management Agreement; (b) the Specialty 


 


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Program Business Pooling Agreement as originally drafted and attached
to the Agreement will be separated into two separate agreements entitled (i)
the Specialty Program Business Pooling Agreement and (ii) the Specialty Program
Business Pool Management Agreement; and (c) the Traditional Program Business
Pooling Agreement as originally drafted and attached to the Agreement will be
separated into two separate agreements entitled (i) the Traditional Program Business
Pooling Agreement and (ii) the Traditional Program Business Pool Management
Agreement; and that all agreements shall contain modifications recommended by
the New York Insurance Department. See Exhibits 4, 5, 6, 7, 8 & 9 attached.


 


6.             That the sliding
scale management fee based on loss ratio found in the initial Specialty Program
Business Pooling Agreement and in the Traditional Program Business Pooling
Agreement will not be included in either of the Traditional Program Business
Pool Management Agreement or in the Specialty Program Business Pool Management
Agreement when those agreements are executed pursuant to paragraph 5 above, and
instead will be replaced by a sharing of expenses and losses based on the
amounts ceded and assumed by CPIC and Tower, with such expenses being deemed to
be equal to 30% of the premiums; and that Article IV of the Brokerage Business
Pooling Agreement shall read as follows:


 


ARTICLE IV         Reinsurance


 


TICNY,
as pool manager, shall negotiate, obtain and maintain such Pool Reinsurance as
it deems appropriate with respect to the liabilities of the Brokerage Business
Pool, which reinsurance shall inure to the benefit of the 


 


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Participating
Companies according to their respective Pooling Percentages. TICNY shall
purchase property and casualty excess of loss reinsurance and property
catastrophe excess of loss reinsurance from third party reinsurers to protect
the net exposure of the Participating Companies. The property catastrophe
excess of loss reinsurance purchased by TICNY may provide for up to
approximately 10% of the combined surplus of Tower and CPIC to be retained by
the pool prior to reinsurance by third party reinsurance companies (“Pooled
Retention”). CastlePoint also shall have the right, in its discretion, to
require TICNY to increase the Pooled Retention by an additional amount of up to
10% of the surplus of CastlePoint Reinsurance Company Ltd. (“CPRe”), with such
additional reinsurance to be purchased from CPRe.


 


For
the period beginning April 1, 2006 and ending March 31, 2007, the premiums
pooled shall not be reduced by TICNY’s property catastrophe premiums ceded and
the losses pooled shall include TICNY’s property catastrophe actual incurred
losses up to a maximum of $15,000,000 times CPIC’s pooling percentage. For the
period beginning April 1, 2007 the amount of property catastrophe premiums
ceded that will be paid by CPIC shall be the total amount of property
catastrophe premiums ceded by the brokerage pool times CPIC’s pooling
percentage. For the period beginning April 1, 2007, the amount of property
catastrophe losses incurred that will be paid by CPIC shall be the 


 


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total
amount of property catastrophe losses actually incurred within the property
catastrophe deductible for the brokerage business pool times CPIC’s pooling
percentage. The total amount of property catastrophe premiums ceded and the
total amount of property catastrophe incurred losses paid by TICNY shall be the
total amount of property catastrophe premiums ceded and incurred losses for the
total brokerage business pool less the amounts paid by CPIC as defined above.


 


In addition,
the Brokerage Business Quota Share Reinsurance Agreement shall be amended to
provide that for the period beginning April 1, 2007, to the extent that the
total amount ceded to CPRe and pooled with CPIC exceeds 43.75% of TICNY’s
Brokerage Business Premiums, the amount of property catastrophe premiums ceded
that will be paid by CPRe shall be 30% or the total amount, whichever is lesser,
of property catastrophe premiums ceded by the brokerage pool less the amount
paid by CPIC under the Brokerage Business Pooling Agreement, and, for the
period beginning April 1, 2007, to the extent that the total amount ceded to
CPRe and pooled with CPIC exceeds 43.75% of TICNY’s Brokerage Business
premiums, the amount of property catastrophe losses incurred that will be paid
by CPRe shall be 30% or the total amount, whichever is lesser, of property
catastrophe losses actually incurred within the property catastrophe deductible
for the brokerage pool less the amount paid by CPIC under the Brokerage
Business Pooling Agreement. See Exhibits 4, 8 & 9 attached.


 


7.             That: (a) Tower has
the right to unilaterally adjust its percentage participation in the Brokerage
Business Pooling Agreement between a minimum participation of 55% and a maximum
participation of 75%, provided, however, that Tower’s maximum participation may
be as high as 85% if all parties affirmatively assent to such higher figure;
(b) that Tower’s combined participation in the Specialty Program Business
Pooling Agreement is initially 


 


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15% with a minimum of 15% and a maximum of 50%; and (c) that Tower’s combined
participation in the Traditional Program Business Pooling Agreement is
initially 50% with a minimum participation of 15% and a maximum participation
of 50%; (d) that the pool participations in all pools may be adjusted by the
Pool Manager upon not less than thirty (30) days prior written notice to the
other Participating Companies, unless such notice is waived by the other
Participating Companies, and provided, however, that the Pool Manager and the
other Participating Companies may agree to change the pool participations as of
any calendar quarter, with all such changes being affixed to the applicable
Agreement; and (e) that the initial pooling percentage of TICNY in the
Brokerage Business Pooling Agreement commencing January 1, 2007 is 85%. See
Exhibits 4, 5 & 6 attached.


 


8.             That, notwithstanding
the inclusion of the right of immediate mutual termination and unilateral
termination at the end of a quarter upon 60 days’ notice as provided in the
Amended and Restated Brokerage Business Pooling Agreement, the Amended and
Restated Traditional Program Business Pooling Agreement and the Amended and
Restated Specialty Program Business Pooling Agreement (collectively the “Amended
and Restated Pooling Agreements”), neither TGI nor CPH will cause or permit
TICNY or CPIC, respectively, to exercise the right of immediate mutual
termination of the agreements or the right that each has to unilaterally
terminate an agreement as of the end of the quarter upon 60 days notice that
each now has under the Amended and Restated Pooling Agreements. The foregoing
shall not be understood to prohibit each of TICNY or CPIC, as parties to the
Amended and Restated Pooling Agreements, from exercising any other termination
right that it might possess under the Amended and Restated Pooling Agreements.


 


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9.             That the Program
Management Agreement as originally attached to the Agreement will, at the
request of the New York Insurance Department, be separated into an agreement
between CPM and TICNY and an agreement between CPM and TNIC, and that CPM will
be the manager under both agreements of the Traditional Program Business as
well as the Specialty Program Business and Insurance Risk Sharing Business, and
that the agreements shall contain further modifications as recommended by the
New York Insurance Department. See Exhibits10 & 11 attached.


 


10.           That,
notwithstanding the inclusion of the right of unilateral termination upon 60
days notice in the Program Management Agreements, neither TGI nor CPH will
cause or permit TICNY and TNIC or CPM, respectively, to exercise the right that
each has to unilaterally terminate an agreement upon 60 days notice that each
has under the Amended and Restated Program Management Agreements. The foregoing
shall not be understood to prohibit TICNY, TNIC or CPM, as parties to the
Amended and Restated Program Management Agreements from exercising any other
termination right that each might possess under the Amended and Restated
Program Management Agreements.


 


11.           That the Service and
Expense Agreement be reconstituted into as many separate agreements are
necessary to receive approval from the applicable regulatory authorities. See
Exhibits 12 & 13 attached.


 


12.           That the Parties intend
for the Master Agreement to be effective for an additional year (making four
years in total) and the Parties shall cause their subsidiaries to recognize
that it is the Parties intention to have the Master 


 


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Agreement be effective for an additional year and shall cause their
subsidiaries (i) to not exercise the rights of immediate termination, as set
forth above, and (ii) to take all necessary and reasonable action to give force
and effect to the intent and purposes of the Master Agreement for the
additional year.


 


13.           That if TGI is
acquiring any new operating companies and desires to cause these subsidiaries
to effectuate a loss portfolio transfer of existing reserves, TGI will provide
to, and cause its new subsidiaries to offer to, CPRe, or such other subsidiary
of CastlePoint that may assume such loss transfer, a right of first refusal to
be the assuming company of such loss portfolio transfer on mutually acceptable competitive
market terms.


 


14.           Miscellaneous.


 


A.            Except
as otherwise specifically addressed in this Addendum, all other provisions of the
Agreement shall remain in full force and effect without modification thereto,
but interpreted consistently with the provisions of this Addendum.


 


B.            This
Addendum 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.


 


C.            This
Addendum and all actions arising out of or in connection with this Addendum
shall be governed by and construed according to the laws of the State of New
York, exclusive of the rules with respect to conflict of laws.


 


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[Signature Page Follows]


 


IN WITNESS WHEREOF,
TGI and CPH have caused this Addendum to be executed by their respective
undersigned officers, each thereunto duly authorized.


 


 


	
   

  	
  Tower Group, Inc.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Francis M. Colalucci

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Francis M.
  Colalucci

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and 

  Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  	
   

  



 


	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
  CastlePoint
  Holdings, Ltd

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
  By

  	
  /s/ Joel S.
  Weiner

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Joel S. Weiner

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and

  Chief Financial Officer

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Date:

  	
   

  	 

							



 


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