exv10w2



 






Exhibit 10.2 Excess of Loss Agreement of Reinsurance No. 9034 with General
Reinsurance Corporation effective January 1, 2003



 










 



AGREEMENT OF REINSURANCE

NO. 9034



between



PHILADELPHIA INDEMNITY COMPANY

PHILADELPHIA INSURANCE COMPANY

One Bala Plaza, Suite 100

Bala Cynwyd, Pennsylvania 19004

(herein collectively referred to as the “Company”)



and



GENERAL REINSURANCE CORPORATION

a Delaware corporation

having its principal offices at

Financial Centre

695 East Main Street P.O. Box 10350

Stamford, Connecticut 06904-2350

(herein referred to as the “Reinsurer”)




In consideration of the promises set forth in this Agreement, the parties agree
as follows:


Article I  -  SCOPE OF AGREEMENT


As a condition precedent to the Reinsurer’s obligations under this Agreement,
the Company shall cede to the Reinsurer the business described in this
Agreement, and the Reinsurer shall accept such business as reinsurance from the
Company.


This Agreement is comprised of General Articles I through XIII and the
Exhibit(s) listed below and each Exhibit which may be made a part of this
Agreement. The terms of the General Articles and of the Exhibit(s) shall
determine the rights and obligations of the parties. The terms of the General
Articles shall apply to each Exhibit unless specifically amended therein. In
the event of termination of all the Exhibits made a part of this Agreement, the
General Articles shall automatically terminate when the liability of the
Reinsurer under said Exhibits ceases.



	 	 	 	EXHIBIT A  -  EXCESS OF LOSS REINSURANCE



of

Property Business



	 	 	 	EXHIBIT B  -  EXCESS OF LOSS REINSURANCE



of

Property Business (Coverage for Terrorism Only)


Article II  -  PARTIES TO THE AGREEMENT



This Agreement is solely between the Company and the Reinsurer. When more than
one Company is named as a party to this Agreement, the first Company named
shall be the


GENERAL REINSURANCE CORPORATION



 






 





agent of the other companies as to all matters pertaining to this Agreement.
Performance of the obligations of each party under this Agreement shall be
rendered solely to the other party. However, if the Company becomes insolvent,
the liability of the Reinsurer shall be modified to the extent set forth in the
article entitled INSOLVENCY OF THE COMPANY. In no instance shall any insured
of the Company or any claimant against an insured of the Company have any
rights under this Agreement.


Article III  -  MANAGEMENT OF CLAIMS AND LOSSES


The Company shall investigate and settle or defend all claims and losses. When
requested by the Reinsurer, the Company shall permit the Reinsurer, at the
expense of the Reinsurer, to be associated with the Company in the defense or
control of any claim, loss, or legal proceeding which involves or is likely to
involve the Reinsurer. All payments of claims or losses by the Company within
the terms and limits of its policies which are within the limits set forth in
the applicable Exhibit shall be binding on the Reinsurer, subject to the terms
of this Agreement.


Article IV  -  RECOVERIES


The Company shall pay to or credit the Reinsurer with the Reinsurer’s portion
of any recovery obtained from salvage, subrogation, or other insurance.
Adjustment Expense for recoveries shall be deducted from the amount recovered.
However, if the Adjustment Expense incurred in obtaining recoveries exceeds the
amount recovered, if any, the excess Adjustment Expense shall be apportioned
between the parties in proportion to the liability of each party for the loss
before the recovery was obtained.


The Reinsurer shall be subrogated to the rights of the Company to the extent of
its loss payments to the Company. The Company agrees to enforce its rights of
salvage, subrogation, and its rights against insurers or to assign these rights
to the Reinsurer.


If the reinsurance under an Exhibit is on a share basis, the recoveries shall
be apportioned between the parties in the same ratio as the amounts of their
liabilities bear to the loss. If the reinsurance under an Exhibit is on an
excess basis, recoveries shall be distributed to the parties in an order
inverse to that in which their liabilities accrued.


Article V  -  TRIA INUREMENT


As respects any “insured loss”, as defined in the Terrorism Risk Insurance Act
of 2002 (“the Act”), for which the Reinsurer makes a payment to the Company
under this Agreement, the following provisions shall apply.


If the sum of:



	 	(a)	 	Financial assistance provided under the Act to the
Company and its affiliates, if any, (as “affiliate” is
defined in the Act) with respect to all “insured loss” that
applies to each “program year”, as defined in the Act; and



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GENERAL REINSURANCE CORPORATION







 


	 	(b)	 	Amounts due from all reinsurance which the Company and
its affiliates, if any, purchase, including but not limited
to this reinsurance, all other treaty reinsurance and all
facultative reinsurance, and whether collectible or not,
under which there is a recoverable for any such “insured
loss”,



exceeds the amount of the Company’s and its affiliates’, if any, gross “insured
loss”, the excess amount shall be allocated to the Reinsurer in the ratio that
the Reinsurer’s liability for the “insured loss” under this Agreement bears to
the total collectible reinsurance recoverables for the “insured loss” under (b)
above.


Upon receipt of payment under the Act by the Company and its affiliates, if
any, the Company shall pay to or credit the Reinsurer under this Agreement with
the Reinsurer’s share of such excess amount determined in accordance with the
preceding paragraph.


Article VI  -  PREMIUM REPORTS AND REMITTANCES


All reinsurance premium reports required by the Exhibit(s) attached hereto may
be sent to:



	 	 	 	Client Accounting Unit

General Reinsurance Corporation

Financial Centre

P.O. Box 10353

Stamford, CT 06904-2353



All reinsurance premiums and any other amounts due the Reinsurer may be
remitted to the following lockbox address:



	 	 	 	General Reinsurance Corporation

75 Remittance Drive

Suite 2555

Chicago, IL 60675-2555



Article VII  -  ERRORS AND OMISSIONS


The Reinsurer shall not be relieved of liability because of an error or
accidental omission of the Company in reporting any claim or loss or any
business reinsured under this Agreement, provided that the error or omission is
rectified promptly after discovery. The Reinsurer shall be obligated only for
the return of the premium paid for business reported but not reinsured under
this Agreement.


Article VIII  -  SPECIAL ACCEPTANCES


Business not within the terms of this Agreement may be submitted to the
Reinsurer for special acceptance and, if accepted by the Reinsurer, shall be
subject to all of the terms of this Agreement except as modified by the special
acceptance.


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Article IX  -  RESERVES AND TAXES


The Reinsurer shall maintain the required reserves as to the Reinsurer’s
portion of unearned premium, if any, claims, losses, and Adjustment Expense.


The Company shall be liable for all premium taxes on premium ceded to the
Reinsurer under this Agreement. If the Reinsurer is obligated to pay any
premium taxes on this premium, the Company shall reimburse the Reinsurer;
however, the Company shall not be required to pay taxes twice on the same
premium.


Article X  -  OFFSET


The Company or the Reinsurer may offset any balance, whether on account of
premium, commission, claims or losses, Adjustment Expense, salvage, or
otherwise, due from one party to the other under this Agreement or under any
other agreement heretofore or hereafter entered into between the Company and
the Reinsurer.


Article XI  -  INSPECTION OF RECORDS


The Company shall allow the Reinsurer to inspect, at reasonable times, the
records of the Company relevant to the business reinsured under this Agreement,
including the Company’s files concerning claims, losses, or legal proceedings
which involve or are likely to involve the Reinsurer. The Reinsurer’s right of
inspection shall continue after the termination of this Agreement.


Article XII  -  ARBITRATION


All unresolved differences of opinion between the Company and the Reinsurer
relating to this Agreement, including its formation and validity, shall be
submitted to arbitration consisting of one arbitrator chosen by the Company,
one arbitrator chosen by the Reinsurer, and a third arbitrator chosen by the
first two arbitrators.


The party demanding arbitration shall communicate its demand for arbitration to
the other party by registered or certified mail, identifying the nature of the
dispute and the name of its arbitrator, and the other party shall then be bound
to name its arbitrator within 30 days after receipt of the demand.


Failure or refusal of the other party to so name its arbitrator shall empower
the demanding party to name the second arbitrator. If the first two
arbitrators are unable to agree upon a third arbitrator after the second
arbitrator is named, each arbitrator shall name three candidates, two of whom
shall be declined by the other arbitrator, and the choice shall be made between
the two remaining candidates by drawing lots. The arbitrators shall be
disinterested and shall be active or retired officers of property or casualty
insurance or reinsurance companies.


The arbitrators shall adopt their own rules and procedures and are relieved
from judicial formalities. In addition to considering the rules of law and the
customs and practices of the insurance and reinsurance business, the
arbitrators shall make their award with a view to effecting the intent of this
Agreement.


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The decision of the majority of the arbitrators shall be in writing and shall
be final and binding upon the parties.


Each party shall bear the cost of its own arbitrator and shall jointly and
equally bear with the other party the expense of the third arbitrator and other
costs of the arbitration. In the event both arbitrators are chosen by one
party, the fees of all arbitrators shall be equally divided between the
parties.


The arbitration shall be held at the times and places agreed upon by the
arbitrators.


Article XIII - INSOLVENCY OF THE COMPANY


In the event of the insolvency of the Company, the reinsurance proceeds will be
paid to the Company or the liquidator, with reasonable provision for
verification, on the basis of the claim allowed in the insolvency proceeding
without diminution by reason of the inability of the Company to pay all or part
of the claim, except as otherwise specified in the statutes of any state having
jurisdiction of the insolvency proceedings or except where the Agreement, or
other written agreement, specifically provides another payee of such
reinsurance in the event of insolvency.


The Reinsurer shall be given written notice of the pendency of each claim
against the Company on the policy(ies) reinsured hereunder within a reasonable
time after such claim is filed in the insolvency proceedings. The Reinsurer
shall have the right to investigate each such claim and to interpose, at its
own expense, in the proceeding where such claim is to be adjudicated, any
defenses which it may deem available to the Company or its liquidator. The
expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent Company as part of the expense of liquidation
to the extent of a proportionate share of the benefit which may accrue to the
Company solely as a result of the defense undertaken by the Reinsurer.


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in


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duplicate,


this 12th day of September 2003,



	 
	PHILADELPHIA INDEMNITY COMPANY

PHILADELPHIA INSURANCE COMPANY




	 	 
	 	  Christopher J. Maguire



Attest: Florence McCallum


and this 16th day of May, 2003.



	 
	GENERAL REINSURANCE CORPORATION




	 	 
	 	Joan LaFrance

Vice President



Attest: Donna DeBitetto


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Agreement No. 9034

GENERAL REINSURANCE CORPORATION











 



EXHIBIT A



Attached to and made a part of

Agreement of Reinsurance No. 9034



EXCESS OF LOSS REINSURANCE

(Per Risk)

of

Property Business



Section 1  -  BUSINESS SUBJECT TO THIS EXHIBIT



This Exhibit shall apply to Property Business written by the Company, which is
defined as insurance which is classified in the NAIC form of annual statement
as fire, allied lines, inland marine, commercial multiple peril (property
coverages), associations homeowners multiple peril (property coverages), or
automobile physical damage (comprehensive and collision) when written on a
garage open lot basis and as insurance that is classified by the Company as
crime and fidelity when written as part of a package policy, except those lines
specifically excluded in the section entitled EXCLUSIONS, on Risks wherever
located in the United States of America, its territories and possessions. On
policies which provide inland marine coverage beyond these territorial limits,
the territorial limits of this Exhibit shall be identical with those of the
Company’s policies.


Section 2  -  COMMENCEMENT



This Exhibit shall apply to new and renewal policies of the Company becoming
effective at and after 12:01 A.M., January 1, 2003, and to policies of the
Company in force at 12:01 A.M., January 1, 2003, with respect to claims and
losses resulting from Occurrences taking place at and after the aforesaid time
and date, and shall continue in force until terminated in accordance with the
provisions of the section entitled TERMINATION.


Section 3  -  LIABILITY OF THE REINSURER



The Reinsurer shall pay to the Company, with respect to each Risk of the
Company, the amount of Net Loss sustained by the Company in excess of the
Company Retention but not exceeding the Limits of Liability of the Reinsurer as
set forth in the Schedule of Reinsurance.


SCHEDULE OF REINSURANCE




	 	 	 	 	 	 	 	 	 	 	 	 	 
	Class of Business	 	Company Retention	 	Limits of Liability of the Reinsurer
	
	 	
	 	

	 	 	 	 	 	 	First	 	Second
	 	 	 	 	 	 	Excess Cover	 	Excess Cover
	Property Business
	 	$	2,000,000	 	 	$	3,000,000	 	 	$	5,000,000	 



GENERAL REINSURANCE CORPORATION



 






 




The liability of the Reinsurer shall not exceed $9,000,000 under the First
Excess Cover nor $15,000,000 under the Second Excess Cover with respect to all
Net Loss and Adjustment Expenses combined on all Risks involved in one
Occurrence.


Further, the liability of the Reinsurer shall not exceed $18,000,000 under the
First Excess Cover nor $15,000,000 under the Second Excess Cover with respect
to all Net Loss on all Risks involved in all Occurrences (including Extra
Contractual Obligations) taking place during each Agreement Year.


For purposes of the provisions in the preceding paragraph, upon a run off
termination of this Exhibit the last completed Agreement Year shall be combined
with the remaining period that reinsurance is afforded under this Exhibit to
constitute a single Agreement Year.


All insurance written under one or more policies of the Company against the
same peril on the same Risk shall be combined, and the Company Retention and
the Limits of Liability of the Reinsurer shall be determined on the basis of
the sum of all insurance against the same peril and on the same Risk which is
in force at the time of a claim or loss.


Section 4  -  DEFINITIONS




	 	(a)	 	Company Retention
	 
	 	 	 	This term shall mean the amount the Company shall retain for
its own account; however, this requirement shall be satisfied
if this amount is retained by the Company or its affiliated
companies under common management or common ownership.
	 
	 	(b)	 	Net Loss
	 
	 	 	 	This term shall mean all payments by the Company within the
terms and limits of its policies in settlement of claims or
losses, after deduction of salvage and other recoveries and
after deduction of amounts due from all other reinsurance,
except catastrophe reinsurance, whether collectible or not.
This term shall include Adjustment Expense. If the Company
becomes insolvent, this definition shall be modified to the
extent set forth in the article entitled INSOLVENCY OF THE
COMPANY.
	 
	 	 	 	Notwithstanding the provisions of the article entitled
MANAGEMENT OF CLAIMS AND LOSSES, this term shall also include
95% of Extra Contractual Obligations, provided that the
Reinsurer is given written notice of circumstances which may
result in an Extra Contractual Obligation within 36 months of
the later of the termination date of this Exhibit or the
termination of reinsurance on the policy under which the
Extra Contractual Obligation arose.
	 
	 	 	 	Nothing in this definition shall imply that losses are not
recoverable hereunder until the Company’s Net Loss has been
finally ascertained.



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	 	(c)	 	Adjustment Expense
	 
	 	 	 	This term shall mean expenditures by the Company within the
terms of its policies in the direct defense of claims and in
connection with Extra Contractual Obligations and as
allocated to an individual claim or loss (other than for
office expenses and for the salaries and expenses of
employees of the Company or of any subsidiary or related or
wholly owned company of the Company) made in connection with
the disposition of a claim, loss, or legal proceeding
including investigation, negotiation, and legal expenses;
court costs; prejudgment interest; and postjudgment interest.
	 
	 	 	 	Notwithstanding the provisions of the article entitled
MANAGEMENT OF CLAIMS AND LOSSES, this term shall also be
deemed to include any expenses incurred by the Company in
bringing or in defending a declaratory judgment action
brought to determine the Company’s obligations to its insured
with respect to a specific claim under a policy (or coverage
part thereof) reinsured hereunder. However, the amount of
any declaratory judgment expense that may be included in
computation of Adjustment Expense shall not exceed the lesser
of the amount of insurance under the policy or the
Reinsurer’s Limit of Liability for each Risk under this
Exhibit.
	 
	 	 	 	The date on which a declaratory judgment expense is incurred
by the Company shall be deemed, in all circumstances, to be
the date of the original Occurrence.
	 
	 	(d)	 	Extra Contractual Obligations
	 
	 	 	 	This term shall mean a loss which is not covered under any
other provision of this Exhibit resulting from an action
taken by the insured or assignee arising from the Company’s
handling of any claim otherwise covered under this Exhibit on
the Risks reinsured hereunder which have total amounts of
insurance greater than the Company Retention.
	 
	 	 	 	The date on which an Extra Contractual Obligation is incurred
by the Company shall be deemed, in all circumstances, to be
the date of the original Occurrence.
	 
	 	 	 	There shall be no coverage hereunder where the Extra
Contractual Obligation has been incurred due to:
	 



	 	(i)	 	The fraud or criminal conduct of a member
of the Board of Directors, a corporate officer of the
Company, or any other employee of the Company, acting
individually or collectively or in collusion with any
individual or corporation or any other organization
or party involved in the investigation, defense or
settlement of any claim covered hereunder;
	 
	 	(ii)	 	An act or omission of an independent
claims service organization handling claims on behalf
of the Company.



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	 	 	 	Any insurance which indemnifies or protects the Company
against claims which are the subject matter of this
definition shall inure to the benefit of the Reinsurer and
shall be deducted to arrive at the amount of the Company’s
Net Loss.
	 
	 	(e)	 	Risk
	 
	 	 	 	The Company shall establish what constitutes one Risk at the
time of acceptance, provided:
	 




	 	(1)	 	A Building and its contents, regardless
of the number of insureds or policies involved,
including time element coverages, shall never be
considered more than one Risk.
	 
	 	 	 	When two or more Buildings and their contents,
including time element coverages, are situated at the
same General Location, the Company shall identify on
its records at the time of acceptance by the Company
those individual Buildings and their contents,
including time element coverages, that are to be
considered to constitute each Risk; if such
identification is not made, each Building and its
contents, including time element coverages, shall be
considered to be a separate Risk.
	 
	 	 	 	When there are known and named extensions of coverage
involving other risk locations (including but not
limited to suppliers extensions, customer extensions
and interdependencies and whether triggered by
physical loss at the risk location or another
location) that are included and formally recorded on
the Company’s records at the time of acceptance of
the Risk, all such known and named extensions of
coverage shall be included in calculation of the one
Risk.
	 
	 	(2)	 	Unknown, unnamed or unidentified
extensions of coverage shall be considered separate
Risks. The maximum amount which may be included in
Net Loss with respect to each such Risk shall be
$250,000. Further, the Limit of Liability of the
Reinsurer shall not exceed $500,000 of Net Loss with
respect to all such Risks involved in one Occurrence.
Such Occurrence limit is part of, and not in
addition to the Occurrence limit stipulated in the
section entitled LIABILITY OF THE REINSURER.
	 



	 	(f)	 	Building
	 
	 	 	 	This term shall mean each structure enclosed within exterior
walls. Exterior walls are defined as walls constructed on
the perimeter foundation, regardless of the number of
additional structures or roofs placed upon this perimeter
foundation.
	 
	 	(g)	 	Occurrence
	 
	 	 	 	This term shall mean a loss or series of losses arising out
of one event.


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	 	(h)	 	General Location
	 
	 	 	 	This term shall mean a contiguous and unbroken tract of land
surrounded by public roads, railroads, rivers or other
natural barriers.
	 
	 	(i)	 	Agreement Year
	 
	 	 	 	This term shall mean each twelve month period commencing on
January 1st.
	 
	 	(j)	 	Company’s Subject Earned Premium
	 
	 	 	 	This term shall mean the premium earned by the Company on the
business reinsured hereunder, after deduction from such
premium earned of the portion paid for share reinsurance
which inures to the benefit of the Reinsurer.



Section 5  -  EXCLUSIONS



This Exhibit shall not apply to:



	 	(a)	 	Reinsurance assumed by the Company other than
reinsurance of primary business assumed from affiliated
companies;
	 
	 	(b)	 	Nuclear incident per the Nuclear Incident Exclusion
Clause - Physical Damage - Reinsurance attached hereto;
	 
	 	(c)	 	“Self-insurance” or “self-insured obligations”,
howsoever styled, of the Company, its affiliates or
subsidiaries, or any insurance wherein the Company, its
affiliates or subsidiaries, are named as the insured party,
either alone or jointly with some other party,
notwithstanding that no legal liability may arise in respect
thereof by reason of the fact that the Company, its
affiliates or subsidiaries, may not be obligated by law to
pay a claim to itself, its affiliates or subsidiaries;
	 
	 	(d)	 	Any loss or liability accruing to the Company directly
or indirectly from any insurance written by or through any
pool or association including pools or associations in which
membership by the Company is required under any statutes or
regulations;
	 
	 	(e)	 	Any liability of the Company arising from its
participation or membership in any insolvency fund;
	 
	 	(f)	 	Any loss or damage directly or indirectly arising out
of, caused by, or resulting from war, as described in
paragraph (1) below, or any act of terrorism, as described in
paragraphs (2), (3), (4) and (5) below. Such loss or damage
is excluded regardless of (i) any other cause or event
contributing to such loss or damage in any way or at any
time, or (ii) whether such loss or damage is accidental or
intentional.



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	 	(1)	 	War, including undeclared or civil war;
warlike action by a military force, including action
in hindering or defending against an actual or
expected attack, by any government, sovereign or
other authority using military personnel or other
agents; or insurrection, rebellion, revolution,
usurped power or action taken by governmental
authority in hindering or defending against any of
these. War includes any activity that would be
included as an “act of terrorism” in paragraphs (2),
(3), (4) and (5) below, but for the fact that such
activity was perpetrated by an official, employee or
agent of a foreign state acting for or on behalf of
such state.
	 
	 	(2)	 	Any “act of terrorism”, as described in
paragraphs (3), (4) and (5) below, but only with
respect to loss or damage that is not excluded by
paragraph (1) above.
	 
	 	(3)	 	Any act defined as an “act of terrorism”
in the Terrorism Risk Insurance Act of 2002.
	 
	 	(4)	 	Any act authorized by a governmental
authority for the purpose of preventing, terminating,
countering or responding to any act or threat of
terrorism or for the purpose of preventing or
minimizing the consequences of any act or threat of
terrorism.
	 
	 	(5)	 	Any activity (other than an act described
in (3) above), including the threat of an activity or
any preparation for an activity, that (a) causes
either (i) damage to property, or (ii) injury to
persons; and (b) appears to be intended to: (i)
intimidate or coerce a civilian population, or (ii)
disrupt any segment of an economy, or (iii) influence
the policy of a government by intimidation or
coercion, or (iv) affect the conduct of a government
by destruction, assassination, kidnapping or
hostage-taking, or (v) advance a political, religious
or ideological cause; provided, however, that an “act
of terrorism” for purposes of this exclusion shall
not include any act or threat as described above
perpetrated by an official, employee or agent of a
foreign state acting for or on behalf of such state.
	 



	 	(g)	 	Risks written on a layered basis, whether primary or
excess of loss, or policies written with a deductible or
franchise of more than $500,000; however, this exclusion
shall not apply to policies which provide a percentage
deductible or franchise in connection with windstorm,
earthquake or flood;
	 
	 	(h)	 	Pollution to the extent excluded in the Company’s
policies. Nevertheless, if the insured elects to purchase
any “buy back” or additional coverage options, such options
shall not be covered hereunder;
	 
	 	(i)	 	Insurance against earthquake, except when written in
conjunction with fire and otherwise eligible perils;


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	 	(j)	 	Insurance on growing crops;
	 
	 	(k)	 	Insurance against flood, surface water, waves, tidal
waves, overflow of any body of water, or their spray, all
whether driven by wind or not, except when written in
conjunction with fire and otherwise eligible perils;
	 
	 	(l)	 	Business classified as fidelity; however, this
exclusion shall not apply to crime and fidelity with limits
no greater than $2,000,000 when written as part of a package
policy;
	 
	 	(m)	 	Credit insurance;
	 
	 	(n)	 	Business classified as boiler and machinery;
	 
	 	(o)	 	Mortgage impairment insurance and similar kinds of
insurance, howsoever styled, providing coverage to an insured
with respect to its mortgagee interest in property or its
owner interest in foreclosed property;
	 
	 	(p)	 	Difference in conditions insurance and similar kinds
of insurance, howsoever styled;
	 
	 	(q)	 	Risks which have a total insurable value of more than
$250,000,000; however, this exclusion shall not apply if the
Company writes 100% of the Risk;
	 
	 	(r)	 	Losses with respect to overhead transmission and
distribution lines and their supporting structures, other
than those on or within 1,000 feet of the insured premises.
However, public utilities extension and/or suppliers
extension and/or contingent business interruption coverage
are not subject to this exclusion, provided these are not
part of a transmitters’ or distributors’ policy;
	 
	 	(s)	 	Offshore property Risks;
	 
	 	(t)	 	Inland marine business with respect to the following:
	 



	 	(1)	 	Cargo insurance when written as such with
respect to ocean vessels;
	 
	 	(2)	 	Faulty film, tape, processing and editing
insurance and cast insurance;
	 
	 	(3)	 	Drilling rigs for natural fuels;
	 
	 	(4)	 	Furriers’ customers policies;
	 
	 	(5)	 	Insurance on livestock under so-called
“mortality policies”;
	 
	 	(6)	 	Mining equipment while underground;
	 
	 	(7)	 	Registered mail and armored car
insurance;


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	 	(u)	 	Loss of, damage to, or failure of, or consequential
loss resulting therewith (including but not limited to
earnings and extra expense) of satellites, spacecraft, and
launch vehicles, including cargo and freight carried therein,
in all phases of operation (including but not limited to
manufacturing, transit, pre-launch, launch, and in-orbit);
	 
	 	(v)	 	Losses arising, directly or indirectly, out of loss
of, alteration of, or damage to or a reduction in the
functionality, availability or operation of a computer
system, hardware, program, software, data, information
repository, microchip, integrated circuit or similar device
in computer equipment or non-computer equipment, whether the
property of the policyholder of the Company or not, unless
such loss arises out of physical damage occurring at the
insured’s premises as a result of the following perils to the
extent that these perils are covered under this Exhibit:
fire, lightning, explosion, windstorm or hail, smoke,
aircraft or vehicles, riot or civil commotion, vandalism,
sprinkler leakage, sinkhole collapse, volcanic action,
falling objects, weight of snow, ice or sleet, water damage,
flood and/or earth movement. Nothing in this exclusion shall
be construed to extend coverage under this Exhibit to any
liability which would not have been covered in the absence of
this exclusion;
	 
	 	(w)	 	Mobile homes unless written as part of a commercial
multiple peril policy;
	 
	 	(x)	 	Watercraft, other than watercraft insured under a
standard homeowners policy or when written as part of
contents coverage under a commercial multiple peril policy.



If the Company is bound, without knowledge of or contrary to the instructions
of the Company’s supervisory underwriting personnel, on any business falling
within the scope of one or more of the exclusions set forth in this section,
these exclusions, except (a) through (f), (h), (j), (l), (m) and (o) shall be
suspended with respect to such business until 60 days after an underwriting
supervisor of the Company acquires knowledge of such business.


Section 6  -  OTHER REINSURANCE


The obligations of the Company to reinsure business falling within the scope of
this Exhibit and of the Reinsurer to accept such reinsurance are mandatory and
no other reinsurance (either facultative or treaty) is permitted, except as
provided for below.


When the amount of insurance written by the Company on an individual Risk
exceeds $15,000,000, the Company may purchase facultative excess of loss or
share reinsurance for the excess amount on such Risk. The Company may also
purchase facultative excess of loss reinsurance or facultative share
reinsurance within the liability of the Reinsurer, if, in the underwriting
judgment of the Company, the Reinsurer will be benefited thereby. In no event,
however, shall the amount required with respect to the Company Retention be
reduced.


Recoveries from catastrophe reinsurance shall be deemed not to reduce the
amount required with respect to the Company Retention.


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GENERAL REINSURANCE CORPORATION




 






 





Section 7  -  REINSURANCE PREMIUM



The Company shall pay to the Reinsurer:



	 	(a)	 	For the First Excess Cover, 3.25% of the Company’s
Subject Earned Premium;
	 
	 	(b)	 	For the Second Excess Cover, 1.58% of the Company’s
Subject Earned Premium;
	 
	 	(c)	 	For Capacity Charge, $281,250 per calendar quarter
payable in advance of each calendar quarter through December
31, 2004. If this Exhibit is terminated prior to December
31, 2004, any unpaid capacity charge due through December 31,
2004 shall be due and payable as of the termination date.



Section 8  -  REPORTS AND REMITTANCES




	 	(a)	 	Reinsurance Premium
	 
	 	 	 	For the First Excess Cover and Second Excess Cover, within 25
days after the close of each calendar quarter, the Company
shall render to the Reinsurer a report of the reinsurance
premium for the quarter with respect to the Company’s Subject
Earned Premium during the quarter, summarizing the
reinsurance premium by line of insurance. The amount due the
Reinsurer, shall be remitted within 25 days after the close
of the quarter.
	 
	 	 	 	The Company shall pay to the Reinsurer the Capacity Charge,
on or before the beginning of each calendar quarter through
December 31, 2004.
	 
	 	(b)	 	Claims and Losses
	 
	 	 	 	The Company shall report promptly to the Reinsurer each claim
or loss which in the Company’s opinion may involve the
reinsurance afforded by this Exhibit. The Company shall also
report promptly to the Reinsurer any action alleging Extra
Contractual Obligations against the Company or any
declaratory judgment action brought by or against the Company
on the business reinsured hereunder. The Company shall
advise the Reinsurer of the estimated amount of Net Loss and
Adjustment Expense in connection with each such claim or loss
and of any subsequent changes in such estimates.
	 
	 	 	 	Promptly upon receipt of a definitive statement of Net Loss
and Adjustment Expense from the Company, but within no more
than 25 days after receipt of such statement, the Reinsurer
shall pay to the Company the Reinsurer’s portion of Net Loss
and the Reinsurer’s portion of Adjustment Expense, if any.
The Company shall report to the Rein-



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	 	 	 	surer any subsequent changes in the amount of Net Loss and/or
Adjustment Expense, and the amount due either party shall be
remitted promptly, but within no more than 25 days after
receipt of such report.
	 
	 	(c)	 	P.C.S. Catastrophe Bulletins
	 
	 	 	 	The Company shall furnish to the Reinsurer, upon request, the
following information with respect to each catastrophe set
forth in the Catastrophe Bulletins published by the Property
Claim Services:
	 




	 	(1)	 	The preliminary estimates of the amount
recoverable from the Reinsurer;
	 
	 	(2)	 	The Reinsurer’s portion of claims,
losses, and Adjustment Expenses paid less salvage
recovered during each calendar quarter;
	 
	 	(3)	 	The Reinsurer’s portion of reserves for
claims, losses, and Adjustment Expenses at the end of
each calendar quarter.
	 



	 	(d)	 	General
	 
	 	 	 	In addition to the reports required by (a), (b), and (c)
above, the Company shall furnish such other information as
may be required by the Reinsurer for the completion of the
Reinsurer’s quarterly and annual statements and internal
records.
	 
	 	 	 	All reports shall be rendered on forms or in format
acceptable to the Company and the Reinsurer.


Section 9  -  AUTOMATIC REINSTATEMENT



The Limit of Liability of the Reinsurer with respect to each Occurrence shall
be reduced by an amount equal to the amount of liability paid by the Reinsurer,
but that part of the liability of the Reinsurer that is so reduced shall be
automatically reinstated from the date of the Occurrence for which payment is
made; however, the Limits of Liability of the Reinsurer with respect to all
Occurrences taking place during each Agreement Year shall not exceed the amount
set forth in the section entitled LIABILITY OF THE REINSURER. In consideration
of this automatic reinstatement:



	 	(a)	 	For each amount so reinstated in the First Excess
Cover, there shall be no additional reinsurance premium;
	 
	 	(b)	 	For first $3,000,000 so reinstated in the Second
Excess Cover, the Company shall pay to the Reinsurer an
additional reinsurance premium that shall be the product of
50% of the reinsurance premium set forth in sub-paragraph (b)
of the section entitled REINSURANCE PREMIUM for the Agreement
Year multiplied by the amount of the reinstated Limit of
Liability of the Reinsurer divided by $3,000,000;



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	 	(c)	 	For the next $3,000,000, so reinstated in the Second
Excess Cover, the Company shall pay to the Reinsurer an
additional reinsurance premium that shall be the product of
100% of the reinsurance premium set forth in sub-paragraph
(b) of the section entitled REINSURANCE PREMIUM for the
Agreement Year multiplied by the amount of the reinstated
Limit of Liability of the Reinsurer divided by $3,000,000.



The reinsurance premium so developed for each amount reinstated shall be in
addition to the reinsurance premium set forth in the section entitled
REINSURANCE PREMIUM.


Section 10  -  TERMINATION



Either party may terminate this Exhibit at any time by sending to the other, by
registered mail to its principal office, notice stating the time and date when,
not less than 90 days after the date of mailing of such notice, termination
shall be effective. Upon termination of this Exhibit, at the Company’s option:



	 	(a)	 	The Reinsurer shall continue to be liable, with
respect to policies in force at the time and ate of
termination, for claims and losses resulting from Occurrences
taking place until the expiration, cancellation, or next
anniversary date, not to exceed one year, of each such policy
of the Company, which ever occurs first. The reinsurance
premium for policies in force a the time and date of
termination shall be calculated by applying the provisions of
the section entitled REINSURANCE PREMIUM to the monthly
earned premiums that derive from the unearned premium
applicable to policies in force at the time and date of
termination.
	 
	 	(b)	 	The Reinsurer shall not be liable for claims and
losses resulting from Occurrences taking place at and after
the effective time and date of termination.



Section 11  -  MORTGAGEE REINSURANCE ENDORSEMENTS



To induce a mortgagee named in a policy of the Company to accept such policy,
the Company and the Reinsurer may agree to name such mortgagee as a third party
beneficiary in a Mortgagee Reinsurance Endorsement made a part of this Exhibit.
For each such Mortgagee Reinsurance Endorsement so issued, the Company shall
indemnify the Reinsurer for any and all liability, loss, cost, or expense the
Reinsurer may sustain or incur in excess of its obligations under this Exhibit
by reason of the issuance of such Mortgagee Reinsurance Endorsement.


If the Reinsurer becomes liable to a mortgagee under any Mortgagee Reinsurance
Endorsement, the Reinsurer shall, to the extent of its liability:



	 	(a)	 	Benefit pro-rata in reductions of the Company’s loss
by salvage, subrogation, compromise, or otherwise.
	 
	 	(b)	 	Be automatically subrogated to all of the mortgagee’s
rights against the Company under the policy.



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	 	(c)	 	Be completely discharged from its obligation to make
any payment to the Company under this Exhibit and be entitled
to set off against any amount due from the Reinsurer to the
Company under this or any other agreement for any amounts for
which the Reinsurer would not be liable except for the
existence of such Mortgagee Reinsurance Endorsement.



The Reinsurer shall have the right to cancel any Mortgagee Reinsurance
Endorsement by notice to the mortgagee.


Prior to the termination date, the Company shall advise the Reinsurer as to
which of the above options shall apply.


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Agreement No. 9034

GENERAL REINSURANCE CORPORATION



 









 



EXHIBIT B



Attached to and made a part of

Agreement of Reinsurance No. 9034



EXCESS OF LOSS REINSURANCE

(Per Risk)

of

Property Business

(Coverage for Terrorism Only)



Section 1  -  BUSINESS SUBJECT TO THIS EXHIBIT



This Exhibit shall apply to Property Business written by the Company, which is
defined as insurance which is classified in the NAIC form of annual statement
as fire, allied lines, inland marine, commercial multiple peril (property
coverages), associations homeowners multiple peril (property coverages), or
automobile physical damage (comprehensive and collision) when written on a
garage open lot basis and as insurance that is classified by the Company as
crime and fidelity when written as part of a package policy, except those lines
specifically excluded in the section entitled EXCLUSIONS, on Risks wherever
located in the United States of America, its territories and possessions. On
policies which provide inland marine coverage beyond these territorial limits,
the territorial limits of this Exhibit shall be identical with those of the
Company’s policies.


Section 2  -  TERM



This Exhibit shall apply to new and renewal policies of the Company becoming
effective at and after 12:01 A.M., January 1, 2003, and to policies of the
Company in force at 12:01 A.M., January 1, 2003, with respect to claims and
losses resulting from Terrorism Occurrences taking place at and after the
aforesaid time and date, and prior to 12:01 A.M., January 1, 2004.


However, if Exhibit A to this Agreement is terminated within the term
stipulated above, this Exhibit will automatically terminate on the same date.
In such instance, the Reinsurer shall not be liable for Terrorism Occurrences
taking place at and after the time and date of termination and shall return to
the Company the reinsurance premium unearned, calculated on the monthly pro
rata basis, as of such time and date.


Section 3  -  LIABILITY OF THE REINSURER



The Reinsurer shall pay to the Company, with respect to each Risk of the
Company, the amount of Net Loss sustained by the Company in excess of the
Company Retention but not exceeding the Limits of Liability of the Reinsurer as
set forth in the Schedule of Reinsurance.


GENERAL REINSURANCE CORPORATION



 






 





SCHEDULE OF REINSURANCE




	 	 	 	 	 	 	 	 	 	 	 	 	 
	Class of Business	 	Company Retention	 	Limits of Liability of the Reinsurer
	
	 	
	 	

	 	 	 	 	 	 	First	 	Second
	 	 	 	 	 	 	Excess Cover	 	Excess Cover
	Property Business
	 	$	2,000,000	 	 	$	3,000,000	 	 	$	5,000,000	 



The liability of the Reinsurer shall not exceed $8,000,000 with respect to all
Net Loss and Adjustment Expenses combined arising out of all loss or damage
directly or indirectly arising out of, caused by, or resulting from all
Terrorism Occurrences taking place during each Agreement Year, regardless of
any other cause or event contributing to such loss or damage in any way or at
any time, or whether such loss or damage is accidental or intentional.
However, all such Net Loss and Adjustment Expense on Risks with total insurable
values of more than $50,000,000 shall be excluded hereunder.


All insurance written under one or more policies of the Company against the
same peril on the same Risk shall be combined, and the Company Retention and
the Limits of Liability of the Reinsurer shall be determined on the basis of
the sum of all insurance against the same peril and on the same Risk which is
in force at the time of a claim or loss.


Section 4  -  DEFINITIONS




	 	(a)	 	Company Retention
	 
	 	 	 	This term shall mean the amount the Company shall retain for
its own account; however, this requirement shall be satisfied
if this amount is retained by the Company or its affiliated
companies under common management or common ownership.
	 
	 	(b)	 	Net Loss
	 
	 	 	 	This term shall mean all payments by the Company within the
terms and limits of its policies in settlement of claims or
losses, after deduction of salvage and other recoveries and
after deduction of amounts due from all other reinsurance,
except catastrophe reinsurance, whether collectible or not.
This term shall include Adjustment Expense. If the Company
becomes insolvent, this definition shall be modified to the
extent set forth in the article entitled INSOLVENCY OF THE
COMPANY.
	 
	 	 	 	Notwithstanding the provisions of the article entitled
MANAGEMENT OF CLAIMS AND LOSSES, this term shall also include
95% of Extra Contractual Obligations, provided that the
Reinsurer is given written notice of circumstances which may
result in an Extra Contractual Obligation within 36 months of
the later of the termination date of this



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	 	 	 	Exhibit or the termination of reinsurance on the policy under
which the Extra Contractual Obligation arose.
	 
	 	 	 	Nothing in this definition shall imply that losses are not
recoverable hereunder until the Company’s Net Loss has been
finally ascertained.
	 
	 	(c)	 	Adjustment Expense
	 
	 	 	 	This term shall mean expenditures by the Company within the
terms of its policies in the direct defense of claims and in
connection with Extra Contractual Obligations and as
allocated to an individual claim or loss (other than for
office expenses and for the salaries and expenses of
employees of the Company or of any subsidiary or related or
wholly owned company of the Company) made in connection with
the disposition of a claim, loss, or legal proceeding
including investigation, negotiation, and legal expenses;
court costs; prejudgment interest; and postjudgment interest.
	 
	 	 	 	Notwithstanding the provisions of the article entitled
MANAGEMENT OF CLAIMS AND LOSSES, this term shall also be
deemed to include any expenses incurred by the Company in
bringing or in defending a declaratory judgment action
brought to determine the Company’s obligations to its insured
with respect to a specific claim under a policy (or coverage
part thereof) reinsured hereunder. However, the amount of
any declaratory judgment expense that may be included in
computation of Adjustment Expense shall not exceed the lesser
of the amount of insurance under the policy or the
Reinsurer’s Limit of Liability for each Risk under this
Exhibit.
	 
	 	 	 	The date on which a declaratory judgment expense is incurred
by the Company shall be deemed, in all circumstances, to be
the date of the original Occurrence.
	 
	 	(d)	 	Extra Contractual Obligations
	 
	 	 	 	This term shall mean a loss which is not covered under any
other provision of this Exhibit resulting from an action
taken by the insured or assignee arising from the Company’s
handling of any claim otherwise covered under this Exhibit on
the Risks reinsured hereunder which have total amounts of
insurance greater than the Company Retention.
	 
	 	 	 	The date on which an Extra Contractual Obligation is incurred
by the Company shall be deemed, in all circumstances, to be
the date of the original Occurrence.
	 
	 	 	 	There shall be no coverage hereunder where the Extra
Contractual Obligation has been incurred due to:
	 


	 	(i)	 	The fraud or criminal conduct of a member
of the Board of Directors, a corporate officer of the
Company, or any other employee of the Company, acting
individually or collectively or in collusion with any
individual or corporation or any other



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	 	 	 	organization or party involved in the investigation,
defense or settlement of any claim covered hereunder;
	 
	 	(ii)	 	An act or omission of an independent
claims service organization handling claims on behalf
of the Company.
	 


	 	 	 	Any insurance which indemnifies or protects the Company
against claims which are the subject matter of this
definition shall inure to the benefit of the Reinsurer and
shall be deducted to arrive at the amount of the Company’s
Net Loss.
	 
	 	(e)	 	Risk
	 
	 	 	 	The Company shall establish what constitutes one Risk at the
time of acceptance, provided:
	 


	 	(1)	 	A Building and its contents, regardless
of the number of insureds or policies involved,
including time element coverages, shall never be
considered more than one Risk.
	 
	 	 	 	When two or more Buildings and their contents,
including time element coverages, are situated at the
same General Location, the Company shall identify on
its records at the time of acceptance by the Company
those individual Buildings and their contents,
including time element coverages, that are to be
considered to constitute each Risk; if such
identification is not made, each Building and its
contents, including time element coverages, shall be
considered to be a separate Risk.
	 
	 	 	 	When there are known and named extensions of coverage
involving other risk locations (including but not
limited to suppliers extensions, customer extensions
and interdependencies and whether triggered by
physical loss at the risk location or another
location) that are included and formally recorded on
the Company’s records at the time of acceptance of
the Risk, all such known and named extensions of
coverage shall be included in calculation of the one
Risk.
	 
	 	(2)	 	Unknown, unnamed or unidentified
extensions of coverage shall be considered separate
Risks. The maximum amount which may be included in
Net Loss with respect to each such Risk shall be
$250,000. Further, the Limit of Liability of the
Reinsurer shall not exceed $500,000 of Net Loss with
respect to all such Risks involved in one Occurrence.
Such Occurrence limit is part of, and not in
addition to the Occurrence limit stipulated in the
section entitled LIABILITY OF THE REINSURER.
	 


	 	(f)	 	Building
	 
	 	 	 	This term shall mean each structure enclosed within exterior
walls. Exterior walls are defined as walls constructed on
the perimeter foun-



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	 	 	 	dation, regardless of the number of additional structures or
roofs placed upon this perimeter foundation.
	 
	 	(g)	 	General Location
	 
	 	 	 	This term shall mean a contiguous and unbroken tract of land
surrounded by public roads, railroads, rivers or other
natural barriers.
	 
	 	(h)	 	Terrorism Occurrence
	 
	 	 	 	This term shall mean an Occurrence arising out of any Act of
Terrorism, as described in paragraphs (1) and (2) below.
	 


	 	(1)	 	An Act of Terrorism means an activity,
including the threat of an activity or any
preparation for an activity, that (a) causes either
(i) damage to property, or (ii) injury to persons;
and (b) appears to be intended to: (i) intimidate or
coerce a civilian population, or (ii) disrupt any
segment of an economy, or (iii) influence the policy
of a government by intimidation or coercion, or (iv)
affect the conduct of a government by destruction,
assassination, kidnapping or hostage-taking, or (v)
advance a political, religious or ideological cause;
provided, however, that an Act of Terrorism for
purposes of this definition shall not include any act
or threat as described above perpetrated by an
official, employee or agent of a foreign state acting
for or on behalf of such state.
	 
	 	(2)	 	An Act of Terrorism is also deemed to
include any act authorized by a governmental
authority for the purpose of preventing, terminating,
countering or responding to any act or threat of
terrorism or for the purpose of preventing or
minimizing the consequences of any act or threat of
terrorism.
	 


	 	(i)	 	Agreement Year
	 
	 	 	 	This term shall mean each twelve month period commencing on
January 1st.



Section 5  -  EXCLUSIONS



This Exhibit shall be subject to the exclusions set forth in the section
entitled EXCLUSIONS of Exhibit A to this Agreement, except that for purposes of
this Exhibit, exclusion (f) of said Section is amended to read as follows:



	 	(f)	 	Any loss or damage directly or indirectly arising out
of, caused by, or resulting from war, including undeclared or
civil war; warlike action by a military force, including
action in hindering or defending against an actual or
expected attack, by any government, sovereign or other
authority using military personnel or other agents; or
insurrection, rebellion, revolution, usurped power or action
taken by governmental authority in hindering or defending
against any of these. War includes any



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	 	 	 	activity that would be included as an Act of Terrorism, but
for the fact that such activity was perpetrated by an
official, employee or agent of a foreign state acting for or
on behalf of such state. Such loss or damage is excluded
regardless of (i) any other cause or event contributing to
such loss or damage in any way or at any time, or (ii)
whether such loss or damage is accidental or intentional.



Section 6  -  REINSURANCE PREMIUM



The Company shall pay to the Reinsurer a flat reinsurance premium of $800,000
for the term of this Exhibit.


Section 7  -  REPORTS AND REMITTANCES




	 	(a)	 	Reinsurance Premium
	 
	 	 	 	Within 25 days after the close of each calendar quarter, the
Company shall pay to the Reinsurer one quarter of the flat
reinsurance premium stipulated in the section entitled
REINSURANCE PREMIUM.
	 
	 	(b)	 	Claims and Losses
	 
	 	 	 	The Company shall report promptly to the Reinsurer each claim
or loss which in the Company’s opinion may involve the
reinsurance afforded by this Exhibit. The Company shall also
report promptly to the Reinsurer any action alleging Extra
Contractual Obligations against the Company or any
declaratory judgment action brought by or against the Company
on the business reinsured hereunder. The Company shall
advise the Reinsurer of the estimated amount of Net Loss and
Adjustment Expense in connection with each such claim or loss
and of any subsequent changes in such estimates.
	 
	 	 	 	Promptly upon receipt of a definitive statement of Net Loss
and Adjustment Expense from the Company, but within no more
than 25 days after receipt of such statement, the Reinsurer
shall pay to the Company the Reinsurer’s portion of Net Loss
and the Reinsurer’s portion of Adjustment Expense, if any.
The Company shall report to the Reinsurer any subsequent
changes in the amount of Net Loss and/or Adjustment Expense,
and the amount due either party shall be remitted promptly,
but within no more than 25 days after receipt of such report.
	 
	 	(c)	 	General
	 
	 	 	 	In addition to the reports required by (a), (b), and (c)
above, the Company shall furnish such other information as
may be required by the Reinsurer for the completion of the
Reinsurer’s quarterly and annual statements and internal
records.
	 
	 	 	 	All reports shall be rendered on forms or in format
acceptable to the Company and the Reinsurer.



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Agreement No. 9034

GENERAL REINSURANCE CORPORATION