<PAGE>   1
                                  EXHIBIT 10.38

Casualty Excess of Loss Reinsurance Agreement effective January 1, 1997,
together with Property Per Risk Excess of Loss Reinsurance Agreement effective
January 1, 1997 and Property Facultative Excess of Loss Automatic Reinsurance
Agreement effective January 1, 1997.

<PAGE>   2
                                                                SWISS RE AMERICA








                             CASUALTY EXCESS OF LOSS
                              REINSURANCE AGREEMENT
                               NO. TC407A,B,C-R97

                            EFFECTIVE JANUARY 1, 1997

                                     between

                 PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
                           following member companies:
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                         PHILADELPHIA INSURANCE COMPANY
                        both of Bala Cynwyd, Pennsylvania

                                       and

                      SWISS REINSURANCE AMERICA CORPORATION
                               New York, New York
<PAGE>   3
                                                                SWISS RE AMERICA



        CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT NO.  TC407A,B,C-R97

<TABLE>
<CAPTION>

                       ARTICLE                            CONTENTS                                                         PAGE
                       -------                            --------                                                         ----
<S>                                                       <C>                                                              <C>
                                                          PREAMBLE                                                            1
                       I                                  BUSINESS COVERED                                                    1
                       II                                 EFFECTIVE DATE AND TERMINATION                                      2
                       III                                TERRITORY                                                           3
                       IV                                 LIMIT AND RETENTION                                                 3
                       V                                  ULTIMATE NET LOSS                                                   4
                       VI                                 LOSS IN EXCESS OF POLICY LIMITS                                     5
                       VII                                EXTRA CONTRACTUAL OBLIGATIONS                                       5
                       VIIII                              EXCLUSIONS                                                          6
                       IX                                 LOSS OCCURRENCE                                                    10
                       X                                  REINSURANCE PREMIUM                                                11
                       xi                                 CONTINGENT COMMISSION                                              13
                       XII                                REPORTS AND REMITTANCES                                            15
                       XIII                               CLAIMS                                                             15
                       XIV                                SALVAGE AND SUBROGATION                                            16
                       XV                                 ACCESS TO RECORDS                                                  16
                       XVI                                TAXES                                                              17
                       XVII                               CURRENCY                                                           17
                       XVI-I I                            OFFSET                                                             17
                       XIX                                ERRORS OR OMISSIONS                                                17
                       XX                                 DISPUTE RESOLUTION                                                 18
                       XXI                                INSOLVENCY                                                         20
                       XXII                               SPECIAL TERMINATION                                                20
                       XXIII                              AMENDMENTS                                                         21
                                                          SIGNATURES                                                         22
</TABLE>

ATTACHMENTS:               INSOLVENCY FUNDS EXCLUSION CLAUSE 
                           NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY -
                              REINSURANCE -   U.S.A.
                           NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY -
                              REINSURANCE - CANADA
                           NUCLEAR INCIDENT EXCLUSION CLAUSE -
                              REINSURANCE - NO. 4
<PAGE>   4
                                                                SWISS RE AMERICA


                             CASUALTY EXCESS OF LOSS
                              REINSURANCE AGREEMENT
                               NO. TC407A,B,C-R97
                  (hereinafter referred to as the "Agreement")
                                     between
                 PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
                           following member companies:
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                         PHILADELPHIA INSURANCE COMPANY
                        both of Bala Cynwyd, Pennsylvania
                   (hereinafter referred to as the "Company")

                                       and

                      SWISS REINSURANCE AMERICA CORPORATION

                               New York, New York
                  (hereinafter referred to as the "Reinsurer")
ARTICLE I - BUSINESS COVERED
A.    The Reinsurer shall indemnify the Company on an excess of loss basis in
      respect of the Company's Ultimate Net Loss paid or to be paid by the
      Company as a result of losses occurring during the term of this Agreement,
      for Policies in force as of January 1, 1997, and new and renewal Policies
      becoming effective on or after said date, subject to the terms and
      conditions contained herein.

B.    This Agreement is solely between the Company and the Reinsurer, and
      nothing contained in this Agreement shall create any obligations or
      establish any rights against the Reinsurer in favor of any person or
      entity not a party hereto.

C.    The performance of obligations by both parties under this Agreement shall
      be in accordance with a fiduciary standard of good faith and fair dealing.

D.    The term "Policies" shall mean each of the Company's binders, policies
      and contracts of insurance or reinsurance on the business covered
      hereunder.

E.    Under this Agreement, the indemnity for reinsured loss applies only to
      the following Classes of Insurance, except as excluded under Article VIII
      - Exclusions of this Agreement.








                                        1. No. TC407A,B,C-R97
<PAGE>   5
                                                                SWISS RE AMERICA


        CLASSES OF INSURANCE

        1.   Automobile Liability:

        Bodily Injury Liability, Property Damage Liability, Medical Payments,
        Uninsured Motorists, Underinsured Motorists and No-Fault Coverage.

        2.   Liability Other Than Automobile:

        Bodily Injury Liability, Property Damage Liability, Kidnap and Ransom
        Liability, Fiduciary Liability, Personal and Advertising Injury
        Liability, and Medical Payments Coverage when written as part of a
        Commercial or Personal Package Policy or on a monoline basis. However,
        Kidnap and Ransom Liability shall only apply to this Agreement when
        written as part of a Commercial Package Policy or a Commercial General
        Liability Coverage Form.

        3.   Professional Liability:

        Directors and Officers Liability, Employment Related Practices
        Liability, Errors and Omissions Liability and Professional Liability.


ARTICLE II - EFFECTIVE DATE AND TERMINATION

A.    This Agreement shall become effective with respect to losses occurring on
      and after 12:01 a.m., Eastern Standard Time, January 1 1997, and shall
      remain in full force until terminated. This Agreement may be terminated at
      the close of any calendar year by either party giving to the other 90 days
      prior written notice by certified mail of its intention to do so.

B.    In the event of termination of this Agreement, the Company shall have the
      option of continuing or terminating the liability in force at the date of
      termination as set forth below. The Company may exercise such option
      provided written notice of the Company's election is given by certified
      mail to the Reinsurer prior to the date of termination.

      1.   All Policies covered hereunder and in force at the date of
           termination of this Agreement shall continue until their natural
           expiry, cancellation or next anniversary of such business, whichever
           first occurs; but in no case shall this reinsurance be extended for
           longer than one year, plus odd time, after the termination date.

      2.   All reinsurance hereunder shall be automatically cancelled as of the
           date of termination and the Reinsurer shall be released of all
           liability as respects losses occurring subsequent to the date of
           termination.



                                       2. No. TC407A,B,C-R97
<PAGE>   6
                                                                SWISS RE AMERICA


C.    If the Company chooses to exercise the option of continuing the liability,
      the Company and the Reinsurer shall renegotiate the terms and conditions
      relating to such option.


ARTICLE III - TERRITORY

This Agreement applies to Policies issued by the Company within the United
States of America, its territories and possessions, and Canada and shall apply
to losses covered hereunder wherever occurring.


ARTICLE IV - LIMIT AND RETENTION

A.    The limits and retentions provided under this Agreement are set forth in
      the following Parts I, II and III:

      Part I - First Excess of Loss (Accounting Code No. TC407A-R97)

      The Company shall retain the first $500,000 of Ultimate Net Loss as
      respects any one Loss Occurrence. The Reinsurer shall then be liable for
      the amount by which the Company's Ultimate Net Loss exceeds the Company's
      retention of $500,000, but the liability of the Reinsurer shall never
      exceed $500,000 with respect to any one Loss Occurrence, except as set
      forth below.

      In the event of a loss involving a combination of the Casualty business
      subject to this Agreement and Property business subject to the Company's
      Property Per Risk Excess of Loss Reinsurance Agreement No. TP1308A-R97,
      further reinsurance is provided when the Company's combined retention
      under these two referenced Agreements, resulting from one occurrence,
      exceeds $500,000. In regard to such a combination loss, the Company will
      retain the first $500,000 of its combined retention each occurrence and
      the Reinsurer will reimburse the Company for the amount in excess of
      $500,000 subject to a maximum reimbursement under this provision of
      $2,000,000 for each occurrence. Such additional reinsurance will be
      pro-rated between this Agreement and the Company's Property Per Risk
      Excess of Loss Reinsurance Agreement No. TP1308A-R97 in the amount that
      the Ultimate Net Loss under each Agreement bears to the combined Ultimate
      net Loss, subject to a maximum combined recovery of $2,000,000.

      Part II - Second Excess of Loss (Accounting Code No. TC407B-R97) Clash
                Layer

      The Company shall retain the first $1,000,000 of Ultimate Net Loss as
      respects any one Loss Occurrence. The Reinsurer shall then be liable for
      the amount by which the Company's Ultimate Net Loss exceeds the Company's
      retention of $1,000,000, but the liability of the Reinsurer shall never
      exceed $1,000,000 with respect to any one Loss Occurrence.



                                       3. No. TC407A,B,C-R97
<PAGE>   7
                                                                SWISS RE AMERICA


      Part III - Third Excess of Loss (Accounting Code No. TC407C-R97) Clash
      Layer

      The Company shall retain the first $2,000,000 of Ultimate Net Loss as
      respects any one Loss Occurrence. The Reinsurer shall then be liable for
      the amount by which the Company's Ultimate Net Loss exceeds the Company's
      retention of $2,000,000, but the liability of the Reinsurer shall never
      exceed $4,000,000 with respect to any one Loss Occurrence.

B.    The Company's retention and the Reinsurer's limit of liability for each
      Loss Occurrence, set forth in Parts I, II and III above, shall apply
      irrespective of the number of Policies affected or number of hazards in
      one Policy and regardless of the number of Classes of Insurance involved.

C.    Reinsurance of the Company's retention, set forth above, shall not be
      deducted in arriving at the Company's Ultimate Net Loss herein.

D.    The Company warrants that each Policy subject to this Agreement
      shall be deemed to have inuring reinsurance coverage for limits greater
      than $1,000,000 per occurrence.


ARTICLE V - ULTIMATE NET LOSS

A.    The term "Ultimate Net Loss" shall mean the actual sum paid or to be paid
      by the Company in settlement of losses or liability including interest
      accrued prior to judgment after making deductions for all recoveries,
      including subrogation, salvages, and claims upon other reinsurances,
      whether collectible or not, which inure to the benefit of the Reinsurer
      under this Agreement, and shall include Allocated Loss Adjustment Expenses
      incurred by the Company.

B.    The term "Ultimate Net Loss" shall include 100% of Extra Contractual
      Obligations, as defined herein, but only as respects business covered
      under this Agreement.

C.    The term "Ultimate Net Loss shall also include Ex-gratia Payments as
      defined in Paragraph D. below, subject to the terms and conditions of
      this Agreement.

D.    The term "Ex-gratia Payments" shall mean payments made as an accommodation
      by the Company in settlement of a claim for which no coverage exists under
      the Policy reinsured hereunder, subject to the prior approval of the
      Reinsurer.

E.    The term "Allocated Loss Adjustment Expenses" shall mean all allocated
      expenses incurred by the Company in connection with the investigation,
      settlement, defense or litigation including court costs and post-judgment
      interest of any claim or loss covered by the Policies reinsured under this
      Agreement, and shall include



                                       4. No. TC407A, B,C-R97
<PAGE>   8
                                                                SWISS RE AMERICA


      Declaratory Judgment Expenses. However, the term "Allocated Losses
      Adjustment Expenses" shall not include the salaries of Company employees,
      office expenses or any other unallocated expenses.

F.    The term "Declaratory Judgment Expenses" shall mean all legal expenses,
      incurred in the representation of the Company in litigation brought to
      determine the Company's defense and/or indemnification obligations, that
      are allocable to any specific claim or loss covered by Policies reinsured
      under this Agreement. In addition, the Company shall promptly notify the
      Reinsurer of any Declaratory Judgment Expenses subject to this Agreement.

G.    All recoveries, salvages or payments recovered or received subsequent to a
      loss settlement under this Agreement shall be applied as if recovered or
      received prior to the aforesaid settlement and all adjustments to the loss
      settlement shall be made by the parties hereto.

H.    Nothing in this Article shall be construed to mean that losses are not
      recoverable hereunder until the Ultimate Net Loss of the Company has been
      ascertained.


ARTICLE VI - LOSS IN EXCESS OF POLICY LIMITS

A.    In the event the Company is liable to a policyholder as the result of a
      settlement or judgment rendered against the policyholder which is in
      excess of the Policy limit, 100% of that portion of the award made to the
      third party claimant which is in excess of the Company's Policy limit
      shall be added to the amount of the Company's Policy limit and the sum
      thereof shall be considered one loss, subject to the provision in
      Paragraph B. below and all other provisions set forth in this Agreement.

B.    With respect to coverage provided under this Article, recoveries from any
      insurance or reinsurance other than this Agreement, shall inure to the
      benefit of the Reinsurer and shall be deducted to arrive at the amount of
      the Company's Ultimate Net Loss.


ARTICLE VII - EXTRA CONTRACTUAL OBLIGATIONS

A.    "Extra Contractual Obligations" are defined as those liabilities not
      covered under any other provision of this Agreement and which arise from
      the handling of any claim on business covered hereunder, such liabilities
      arising because of, but not limited to, the following: failure by the
      Company to settle within the Policy limit, or by reason of alleged or
      actual negligence, fraud or bad faith in rejecting an offer of settlement
      or in the preparation of the defense or in the trial of any action against
      its insured or reinsured or in the preparation or prosecution of an
      appeal consequent upon such action.



                                       5. No. TC407A,B,C-R97
<PAGE>   9
                                                                SWISS RE AMERICA


         B.    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 accident, casualty, disaster or loss occurrence.

         C.    However, coverage hereunder as respects Extra Contractual
               Obligations shall not apply where the loss has been incurred due
               to the fraud of a member of the Board of Directors or a corporate
               officer of the Company acting individually or collectively or in
               collusion with any individual or corporation or any other
               organization or party involved in the presentation, defense or
               settlement of any claim covered hereunder.

         D.    Extra Contractual Obligations shall not include loss arising out
               of engineering or other services or any other non-claims related
               activity provided to the insured by the Company.

         E.    Recoveries, collectibles or retention from any other form of
               insurance or reinsurance including deductibles or self-insured
               retention which protect the Company against Extra Contractual
               Obligations shall inure to the benefit of the Reinsurer and shall
               be deducted from the total amount of Extra Contractual
               Obligations for purposes of determining the loss hereunder.


         ARTICLE VIII - EXCLUSIONS

         THIS AGREEMENT DOES NOT COVER:

         A. THE FOLLOWING GENERAL CATEGORIES

            1.    Ex-gratia payments greater than $500,000, except with
                  Reinsurer's prior consent.

            2.    Risks subject to a deductible or a self-insured retention
                  excess of $250,000.

            3.    Loss or damage caused directly or indirectly by: (a) enemy
                  attack by armed forces including action taken by military,
                  naval or air forces in resisting an actual or an immediately
                  impending enemy attack; (b) invasion; (c) insurrection; (d)
                  rebellion; (e) revolution; (f) intervention; (g) civil war;
                  and (h) usurped power.

            4.    Reinsurance assumed by the Company except reinsurance assumed
                  from an affiliated company.

            5.    Business derived from any Pool, Association, including Joint
                  Underwriting Association, Syndicate, Exchange, Plan, Fund or
                  other facility directly as a member, subscriber or
                  participant, or indirectly by way of reinsurance or
                  assessments; provided this exclusion shall not apply to
                  Automobile assigned risks which may be currently or
                  subsequently covered hereunder.



                                       6. No. TC407A,B,C-R97
<PAGE>   10
                                                                SWISS RE AMERICA


            6.    Pollution to the extent excluded in the Company's original
                  Policies. It is warranted that the Reinsurer's prior approval
                  is required for all changes to the Company's Policy pollution
                  wording.

            7.    Insolvency Funds as per the attached Insolvency Funds
                  Exclusion Clause.

            8.    Nuclear Incident Exclusion Clauses which are attached and made
                  part of this Agreement:

                  a.   Nuclear Incident Exclusion Clause - Liability -
                       Reinsurance - U.S.A.

                  b.   Nuclear Incident Exclusion Clause - Liability -
                       Reinsurance - Canada.

                  c.   Nuclear Incident Exclusion Clause - Reinsurance - No. 4.

B.      THE FOLLOWING INSURANCE COVERAGES

        1    Fidelity and Surety.

        2.   Credit and Financial Guarantee.

        3.   Securities and Exchange Liability except for liability provided for
             in the Company's Directors and Officers Program.

        4.   Retroactive coverage except as respects claims made policies.

        5.   Personal and Commercial Excess or Umbrella Liability.

        6.   Medical Malpractice for Doctors, Physicians, Surgeons, Hospitals
             and Clinics.

        7.   Advertisers,' Broadcasters' and Telecasters' Liability as respects
             Personal Injury Liability except as provided under Commercial
             Package Policies, Commercial General Liability Coverage Forms or
             when written for the Miscellaneous Consultants Errors and Omissions
             Program.

        8.   Kidnap, Extortion and Ransom Liability when written as such except
             when written for the Executive Safeguard Program.

        9.   Boiler and Machinery Insurance.

        10.  Protection and Indemnity (Ocean Marine).

        11.  Workers Compensation.

C.      THE FOLLOWING RISKS AS RESPECTS AUTOMOBILE LIABILITY

        1.   Vehicles used in or while in practice or preparation for, a
              prearranged racing, speed, exhibition or demolition contest.




                                       7. No. TC407A,B,C-R97
<PAGE>   11
                                                                SWISS RE AMERICA


          2.        All vehicles classified as "Public Automobiles" except
                    church buses, social service agency automobiles, van pools
                    and vehicles used for the transportation of employees.

          3.        Fire, police, emergency or municipal vehicles.

          4.        Motorcycles.

          5.        Logging trucks.

          6.        Vehicles regularly used to haul property of others and
                    operating beyond a 200 mile radius except when written for
                    the Lessor's Contingent Liability and Excess Coverage
                    Program.

          7.        Newspaper delivery trucks.

          8.        Vehicles engaged in the transportation or distribution of
                    fireworks, fuses, explosives, ammunitions, natural or
                    artificial fuel gas, or liquefied petroleum gases or
                    gasoline except when written for the Lessor's Contingent
                    Liability and Excess Coverage Program.

D.        THE FOLLOWING AS RESPECTS LIABILITY OTHER THAN AUTOMOBILE

          1.        The manufacturing, mining, refining, processing,
                    distribution, installation, removal or encapsulment of
                    asbestos.

          2.        Risks involving known exposure to the following substances:

                    a. dioxin.

                    b. polychlorinated biphenols.

                    c. asbestos.

          3.        Liability as respects Products and Completed Operations:

                    a.        The manufacture, labeling or re-labeling,
                              importation or resale distribution of:

                              (i) Drugs or pharmaceuticals.

                              (ii) Cosmetics.

                              (iii) Herbicides, insecticides or pesticides. 

                              (iv) Petrochemical or electrical equipment used
                              for heating, lighting or cooking.

                              (v) Industrial or toxic chemicals.

                              (vi) Valves, gaskets or seals of a hydraulic,
                              petrochemical or high pressure nature.

                              (vii) Medical supplies.

                              (viii) Heavy machinery and equipment.

                              (ix) Power tools.

                              (x) Medical equipment used for diagnostic or life
                              sustaining purposes.

                    b.        The manufacture or importing of motorized or
                              self-propelled vehicles and equipment.

                    c.        The manufacturing, importing, packing, canning,
                              bottling or processing of foodstuffs.



                                       8. No. TC407A,B,C-R97
<PAGE>   12
                                                                SWISS RE AMERICA


                    d.        The blending, mixing, processing or importing of
                              animal feed.

                    e.        The manufacture, sale, distribution, handling,
                              servicing or maintenance of aircraft,
                              aerospacecraft, missiles, satellites or any
                              component or components thereof.

          4.        Ownership, operation or use of vessels exceeding 50 feet in
                    length.

          5.        All railway operations except sidetrack agreements.

          6.        Amusement parks, carnivals or circuses.

          7.        Public assembly exposure in excess of 5,000.

          8.        Gas, electric and water utility companies.

          9.        Subaqueous operations.

          10.       Mining.

          11.       Blasting operations.

          12.       Demolition of buildings or structures in excess of two
                    stories.

          13.       Shoring, underpinning or moving of buildings or structures.

          14.       Manufacture, sale, rental, lease, erection or repair of
                    scaffolds.

          15.       Construction of bridges, tunnels or dams.

          16.       a.        Manufacturers or importers of fireworks, fuses, or
                              any substance, as defined and noted below,
                              intended for use as an explosive.

                    b.        Loading of fireworks, fuses, or any explosive
                              substance defined below into containers for use as
                              explosive objects, propellant charges or
                              detonation devices and the storage thereof.

                    c.        Manufacturers or importers of any product in
                              which fireworks, fuses, or any explosive substance
                              defined below is an ingredient.

                    d.        Handling, storage, transportation or use of
                              fireworks, fuses, or any explosive substance
                              defined below.

                    NOTE: An explosive substance is defined as any substance
                    manufactured for the express purpose of exploding as
                    differentiated from commodities used industrially and which
                    are only incidentally explosive.






                                       9. No. TC407A,B,C-R97
<PAGE>   13
                                                                SWISS RE AMERICA


          17.       Manufacture, production, refining, storage, wholesale
                    distribution or transportation of natural or artificial fuel
                    gas, butane, propane or liquefied petroleum gases or
                    gasoline.

          18.       Onshore and offshore gas and oil drilling operations.

          19.       Ownership, maintenance or use of any airport or aircraft,
                    including fueling, or any device or machine intended for
                    and/or aiding in the achievement of atmospheric flight,
                    projection or orbit.

          20.       Municipalities.

E.        Those exclusions, set forth under Items 6. and 17. of Section D. shall
          not apply if the exposure is incidental to the regular operations of
          the insured covered hereunder.

F.        In the event the Company is inadvertently bound on any risk which is
          excluded under this Agreement and identified below, the reinsurance
          provided under this Agreement shall apply to such risk until discovery
          by the Company within its Home Office of the existence of such risk
          and for 60 days thereafter, and shall then cease unless within the 60
          day period, the Company has received from the Reinsurer written notice
          of its approval of such risk:

          1.        As respects Automobile Liability:

                    Items 2. through 8. of Section C. of this Article.

          2.        As respects Liability Other Than Automobile:

                    Items 3. through 20. of Section D. of this Article.

ARTICLE IX - LOSS OCCURRENCE

The term "Loss Occurrence" shall mean any accident or occurrence or series of
accidents or occurrences arising out of any one event and happening within the
term and scope of this Agreement. Without limiting the generality of the
foregoing, the term "Loss Occurrence" shall be held to include:

A.        As respects Products Bodily Injury and Products Property Damage
          Liability, injuries to all persons and all damage to property of
          others occurring during a Policy Period and proceeding from or
          traceable to the same causative agency shall be deemed to arise out of
          one Loss Occurrence, and the date of such Loss Occurrence shall be
          deemed to be the commencing date of the Policy Period. For the purpose
          of this provision, each annual period of a Policy which continues in
          force for more than one year shall be deemed to be a separate Policy
          Period.





                                       10. No. TC407A,B,C-R97
<PAGE>   14
                                                                SWISS RE AMERICA


B.        As respects Bodily Injury Liability (other than Automobile and
          Products), said term shall also be understood to mean, as regards each
          original assured, injuries to one or more than one person resulting
          from infection, contagion, poisoning, or contamination proceeding from
          or traceable to the same causative agency.

C.        As respects Property Damage Liability (other than Automobile and
          Products), said term shall also, subject to Provisions 1. and 2.
          below, be understood to mean loss or losses caused by a series of
          operations, events, or occurrences arising out of operations at one
          specific site and which cannot be attributed to any single one of such
          operations, events or occurrences, but rather to the cumulative effect
          of the same. In assessing each and every Loss Occurrence within the
          foregoing definition, it is understood and agreed that:

          1.        the series of operations, events or occurrences shall not
                    extend over a period longer than 12 consecutive months; and

          2.        the Company may elect the date on which the period of not
                    exceeding 12 consecutive months shall be deemed to have
                    commenced.

          In the event that the series of operations, events or occurrences
          extend over a period longer than 12 consecutive months, then each
          consecutive period of 12 months, the first of which commences on the
          date elected under 2. above, shall form the basis of claim under this
          Agreement.

D.        As respects those Policies of the Company which provide aggregate
          limits of liability, the total of all individual losses occurring
          during any one Policy year which proceed from or are traceable to the
          same causative agency.


ARTICLE X - REINSURANCE PREMIUM

A.        The Company shall pay to the Reinsurer a premium for the reinsurance
          provided under the First Excess of Loss Layer at a rate set forth
          below. Such rates shall be applied to the Company's Subject Earned
          Premium for the quarterly period being reported.

                                                            Net Rate
                                                            --------

      First Excess (Accounting Code No. TC407A-R97)
             Commercial Package Business                      3.50%
             Specialty Business                              10.00%




                                       11. No. TC407A,B,C-R97
<PAGE>   15
                                                                SWISS RE AMERICA

<TABLE>
<CAPTION>
                                                                                         Net Rate
                                                                                         --------

          Rental Supplemental Liability Business:

<S>                                                                                  <C>
          (i)       Private Passenger and light trucks -                             $0.33 per vehicle,
                    Gross rate of $6.63 per vehicle, per day, subject to                   per day
                    a fixed commission allowance of 95.02%

          (ii)      Medium trucks and heavy trucks -                                 $1.10 per vehicle,
                    Gross rate of $9.20 per vehicle, per day, subject to a                 per day
                    fixed commission allowance of 88.04%
</TABLE>

B.        A deposit premium for the Second and Third Excess Layers set forth
          below shall be payable in advance by the Company to the Reinsurer in
          four equal installments each due January 1, April 1, July 1 and
          October 1. Within 60 days after the end of the calendar year the
          Company shall render a statement to the Reinsurer showing the actual
          reinsurance premiums due hereunder. If such premium calculations
          differ from the deposit previously paid, the debtor party shall pay
          the outstanding balance within 30 days upon receipt of said
          statement. However, in no event shall the annual adjusted premium be
          less than the minimum premium for each layer, set forth below.

<TABLE>
<CAPTION>

                                                  Annual         Annual         Quarterly
                                                    Rate         Minimum        Deposit             Deposit
                                                    ----         -------        -------             -------
<S>                                               <C>            <C>            <C>                 <C>
          Second Excess                           0.096%         $110,000       $110,000            $27,500
          (Accounting Code
            No. TC407B-R97)

          Third Excess                            0.121%         $140,000       $140,000            $35,000
          (Accounting Code
            No. TC407C-R97)
</TABLE>

C.    In the event this Agreement is terminated prior to the end of the calendar
      year, it is understood that the annual minimum premium stated above shall
      be pro rated accordingly and such annual minimum premium shall be
      calculated based on the fraction of expired time subject to the
      calculations set forth in Paragraph A. for said period.

D.    The term "Subject Earned Premium" as used herein is equal to the sum of
      the Net Premiums Written on the business covered hereunder during the
      period under consideration, plus the unearned premium reserve as respects
      premiums in force at the beginning of such period, less the unearned
      premium reserve as respects premiums in force at the end of the period,
      said unearned premium is to be calculated on a monthly pro rata basis.







                                       12. No. TC407A,B,C-R97
<PAGE>   16
                                                                SWISS RE AMERICA

E.        The term "Net Premiums Written" shall mean gross premiums written less
          returns, allowances and reinsurances which inure to the benefit of the
          Reinsurer.


ARTICLE XI - CONTINGENT COMMISSION

Applicable solely to Part I - First Excess of Loss (Code No. TC407A-R97)

A.        The Reinsurer shall allow the Company a contingent commission of
          50.00% of the net profit, if any, accruing to the Reinsurer hereunder,
          such profit to be computed on the following formula:

         CONTINGENT COMMISSION COMPUTATION FOR THE PERIOD

                                     INCOME

          1.        Premiums received by the Reinsurer as determined under
                    Article X - Reinsurance Premium of this Agreement, during
                    the Accounting Period.

                                      OUTGO

          2.        Losses incurred by the Reinsurer during the Accounting
                    Period.

          3.        Allowance for Reinsurer's management expenses during the
                    Accounting Period of 15% of the Premiums received by the
                    Reinsurer, as determined under Article X - Reinsurance
                    Premium of this Agreement, during the Accounting Period.

          4.        Deficit, or underwriting loss, if any, brought forward from
                    the preceding period.

                    The amount by which INCOME exceeds OUTGO is profit.

                    The amount by which OUTGO exceeds INCOME is deficit.

B.        The term "Accounting Period" means the actual time covered by each
          adjustment of commission.

C.        The term "losses incurred" means losses and loss adjustment expenses
          paid less salvages recovered during each Accounting Period, or part
          thereof, as respects losses which occurred during the Accounting
          Period, plus the reserve for losses outstanding at the end of the
          current period for which computation is being made. The reserve for
          losses outstanding at the end of each Accounting Period shall include
          a reserve for incurred but not reported losses.








                                       13. No. TC407A,B,C-R97

<PAGE>   17
                                                                SWISS RE AMERICA


D.        The phrase "reserve for incurred but not reported losses" as respects
          provisional calculations in each Accounting Period under this
          Agreement shall mean the total sum produced by multiplying the
          Premiums received by the Reinsurer, as determined under Article X -
          Reinsurance Premium of this Agreement, in each Accounting Period for
          which calculation is being made by the applicable percentages set
          forth in the table below:

                Provisional Calculations           Percentages Applicable
                Each Accounting Period             for Each Accounting Period

                         lst                                  60%
                         2nd                                  40%
                         3rd                                  30%
                         4th                                  20%
                         5th                                  10%
                         6th and subsequent                   0%

E.        If for any Accounting Period, the total of Premiums received by the
          Reinsurer as shown under "INCOME" of the plan exceeds the total of the
          items shown under "OUTGO" of the plan, the Reinsurer shall pay to the
          Company 50.00% of the difference. If, for any Accounting Period, the
          total of the items shown under "OUTGO" of the plan exceeds the total
          of Premiums received by the Reinsurer as shown under "INCOME" of the
          plan, the difference shall be carried forward to the next Accounting
          Period's calculation of profit or loss as a deficit.

F.        The first calculation of profit or loss shall cover the Accounting
          Period beginning January 1997 and ending December 31, 1997. Each
          subsequent calculation shall cover an Accounting Period of one year,
          January 1 through December 31.

G.        Provisional computations of profit or loss shall be made by the
          Reinsurer within six months after the close of each Accounting Period.
          Subsequent calculations of profit or loss for each Accounting Period
          shall be made by the Reinsurer annually until all losses occurring
          during each Accounting Period have been finally settled.

H.        The Reinsurer, upon verification by the Company, shall promptly pay
          to the Company the amount of contingent commission, if any, shown in
          each provisional calculation and final calculation for each Accounting
          Period, less any contingent commission previously paid for the
          Accounting Period. If the contingent commission previously paid for
          the Accounting Period exceeds the amount of contingent commission, if
          any, shown in any calculation for the Accounting Period the Company
          shall promptly refund the difference to the Reinsurer.


                                      14. No. TC407A,B,C-R97
<PAGE>   18
                                                                SWISS RE AMERICA


I.        In case notice of termination of this Agreement shall be given by
          either party, calculations and adjustments of profit or loss shall
          continue to be made until the termination, expiration, or
          cancellation of all liability and the settlement of all losses covered
          under this Agreement.

J.        In the event this Agreement is terminated at a date other than the end
          of an Accounting Period, the fractional part of the last Accounting
          Period shall be combined with the previous Accounting Period and such
          combined period shall be considered one Accounting Period for which
          the calculations of profit or loss shall be made.


ARTICLE XII - REPORTS AND REMITTANCES

A.        The Company shall furnish the Reinsurer with all necessary data
          respecting premiums and losses for as long as one of the parties
          hereto has a claim against the other arising from this Agreement.

B.        Within 30 days after the close of each calendar quarter, the Company
          shall submit an account to the Reinsurer summarizing Subject Earned
          Premium for the First Excess of Loss (Code TC407A-R97) by annual
          statement line of business, company program, company business group
          and the reinsurance premium due. Such reinsurance premium shall be
          remitted within 45 days after the close of each calendar quarter.

C.        Payment by the Reinsurer of its portion of loss and Allocated Loss
          Adjustment Expenses paid by the Company shall be made by the Reinsurer
          to the Company within 15 days after proof of payment is received by
          the Reinsurer.


ARTICLE XIII - CLAIMS

A.        The Company shall promptly notify the Reinsurer of each claim which
          may involve the reinsurance provided hereunder and of all subsequent
          developments relating thereto, stating the amount claimed and estimate
          of the Company's Ultimate Net Loss and Allocated Loss Adjustment
          Expenses.

B.        The Company shall advise the Reinsurer of all claims which:

          1.        Are reserved by the Company for an amount in excess of 50%
                    of its retention;

          2.        Originate from fatal injuries;

          3.        Originate from the following kinds of bodily injury:

                    a.        Brain injuries resulting in impairment of physical
                              function;



                                      15. No. TC407A,B,C-R97

<PAGE>   19
                                                                SWISS RE AMERICA


                    b.        Spinal injuries resulting in a partial or total
                              paralysis of upper or lower extremities;

                    c.        Amputation or permanent loss of use of upper or
                              lower extremities;

                    d.        Severe burn injuries;

                    e.        Loss of sight in one or both eyes;

                    f.        All other injuries likely to result in a permanent
                              disability rate of 50% or more.

C.        The Company shall have the responsibility to investigate, defend or
          negotiate settlements of all claims and lawsuits related to Policies
          written by the Company and reinsured under this Agreement. The
          Reinsurer, at its own expense, may associate with the Company in the
          defense or control of any claim, suit or other proceeding which
          involves or is likely to involve the reinsurance provided under this
          Agreement, and the Company shall cooperate in every respect in the
          defense of any such claim, suit or proceeding.


ARTICLE XIV - SALVAGE AND SUBROGATION

A.        In the event of the payment of any indemnity by the Reinsurer under
          this Agreement, the Reinsurer shall be subrogated, to the extent of
          such payment, to all of the rights of the Company against any person
          or entity legally responsible for damages of the loss. The Company
          agrees to enforce such rights; but, in case the Company refuses or
          neglects to do so, the Reinsurer is hereby authorized and empowered to
          bring any appropriate action in the name of the Company or their
          policyholders or otherwise to enforce such rights.

B.        From any amount recovered by subrogation, salvage or other means,
          there shall first be deducted the expenses incurred in effecting the
          recovery. The balance shall then be used to reimburse the excess
          carriers in the inverse order to that in which their respective
          liabilities attached, before being used to reimburse the Company for
          its primary loss.


ARTICLE XV - ACCESS TO RECORDS

The Reinsurer or its duly authorized representatives shall have the right to
examine, at the offices of the Company at a reasonable time, during the currency
of this Agreement or anytime thereafter, all books and records of the Company
relating to business which is the subject of this Agreement.






                                      16. No. TC407A,B,C-R97
<PAGE>   20
                                                                SWISS RE AMERICA


ARTICLE XVI - TAXES

The Company shall be liable for all taxes on premiums paid to the Reinsurer
under this Agreement, except income or profit taxes of the Reinsurer, and shall
indemnify and hold the Reinsurer harmless for any such taxes which the Reinsurer
may become obligated to pay to any local, state or federal taxing authority.


ARTICLE XVII - CURRENCY

Wherever the word "dollars" or the "$" symbol is used in this Agreement, it
shall mean dollars of the United States of America, excepting in those cases
where the Policy is issued by the Company in Canadian dollars, in which case it
shall mean dollars of Canada. In the event the Company is involved in a loss
requiring payment in United States and Canadian currency, the Company's
retention and the limit of liability of the Reinsurer shall be apportioned
between the two currencies in the same proportion as the amount of net loss in
each currency bears to the total amount of net loss paid by the Company. For the
purposes of this Agreement, where the Company receives premiums or pays losses
in currencies other than United States or Canadian currency, such premiums and
losses shall be converted into United States dollars at the actual rates of
exchange at which the premiums and losses are entered in the Company's books.


ARTICLE XVIII - OFFSET

Each party to this Agreement together with their successors or assigns shall
have and may exercise, at any time, the right to offset any balance or balances
due the other (or, if more than one, any other). Such offset may include
balances due under this Agreement and any other agreements heretofore or
hereafter entered into between the parties regardless of whether such balances
arise from premiums, losses or otherwise, and regardless of capacity of any
party, whether as assuming insurer and/or ceding insurer, under the various
agreements involved, provided however, that in the event of insolvency of a
party hereto, offsets shall only be allowed in accordance with the provisions of
Section 7427 of the Insurance Law of the State of New York to the extent such
statute or any other applicable law, statute or regulation governing such offset
shall apply.


ARTICLE IX - ERRORS OR OMISSIONS

Errors or omissions of a ministerial nature on the part of the Company shall not
invalidate the reinsurance under this Agreement, provided such errors or
omissions are corrected promptly after discovery thereof; but the liability of
the Reinsurer under this Agreement or any exhibits, addenda, or endorsements
attached hereto shall in no event exceed the limits specified herein nor be
extended to cover any risks, perils,



                                       17. No. TC407A,B,C-R97
<PAGE>   21
                                                                SWISS RE AMERICA

lines of business or classes of insurance generally or specifically excluded
herein.


ARTICLE XX - DISPUTE RESOLUTION

Part I - Choice Of Law And Forum

Any dispute arising under this Agreement shall be resolved in the State of
Pennsylvania, and the laws of the State of Pennsylvania shall govern the
interpretation and application of this Agreement.

Part II - Mediation

If a dispute between the Company and the Reinsurer, arising out of the
provisions of this Agreement or concerning its interpretation or validity and
whether arising before or after termination of this Agreement has not been
settled through negotiation, both parties agree to try in good faith to settle
such dispute by nonbinding mediation, before resorting to arbitration.

Part III - Arbitration

A.        Resolution of Disputes - As a condition precedent to any right arising
          hereunder, any dispute not resolved by mediation between the Company
          and the Reinsurer arising out of the provisions of this Agreement or
          concerning its interpretation or validity, whether arising before or
          after termination of this Agreement, shall be submitted to arbitration
          in the manner hereinafter set forth.

B.        Composition of Panel - Unless the parties agree upon a single
          arbitrator within 15 days after the receipt of a notice of intention
          to arbitrate, all disputes shall be submitted to an arbitration panel
          composed of two arbitrators and an umpire chosen in accordance with
          Paragraph C. hereof.

C.        Appointment of Arbitrators - The members of the arbitration panel
          shall be chosen from persons knowledgeable in the insurance and
          reinsurance business. Unless a single arbitrator is agreed upon, the
          party requesting arbitration (hereinafter referred to as the
          "claimant") shall appoint an arbitrator and give written notice
          thereof by certified mail, to the other party (hereinafter referred to
          as the "respondent") together with its notice of intention to
          arbitrate. Within 30 days after receiving such notice, the respondent
          shall also appoint an arbitrator and notify the claimant thereof by
          certified mail. Before instituting a hearing, the two arbitrators so
          appointed shall choose an umpire. If, within 20 days after the
          appointment of the arbitrator chosen by the respondent, the two
          arbitrators fail to agree upon the appointment of an umpire, each of
          them shall nominate three individuals to serve as umpire, of whom the
          other shall decline two and the umpire shall be chosen from




                                      18. No. TC407A,B,C-R97


<PAGE>   22
                                                                SWISS RE AMERICA


          the remaining two by drawing lots. The name of the individual first
          drawn shall be the umpire.

D.        Failure of Party to Appoint an Arbitrator - If the respondent fails to
          appoint an arbitrator within 30 days after receiving a notice of
          intention to arbitrate, the claimant's arbitrator shall appoint an
          arbitrator on behalf of the respondent, such arbitrator shall then,
          together with the claimant's arbitrator, choose an umpire as provided
          in Paragraph C. of Part III of this Article.

E.        Involvement of Other Reinsurers - If more than one reinsurer is
          involved in the same dispute, all such reinsurers shall constitute and
          act as one party for purposes of this Article and communications shall
          be made by the Company to each of the reinsurers constituting the one
          party; provided, however, nothing herein shall impair the right of
          such reinsurers to assert several, rather than joint, defenses or
          claims, nor be construed as changing the liability of the reinsurers
          under the terms of this Agreement from several to joint.

F.        If the Company is involved in a dispute under the terms of this
          Agreement and in one or more separate disputes with one or more other
          reinsurers in which common questions of law or fact are in issue, the
          Company or the Reinsurer, at its option, may join with such other
          reinsurers in a common arbitration proceeding under the terms of this
          Article. If the Company and such other reinsurers have commenced
          arbitration, the Reinsurer may at its option join such proceeding for
          the determination of the dispute between the Company and the
          Reinsurer.

G.        Submission of Dispute to Panel - Unless otherwise extended by the
          arbitration panel or agreed to by the parties, each party shall submit
          its case to the panel within 30 days after the selection of the
          umpire.

H.        Procedure Governing Arbitration - All proceedings before the panel
          shall be informal and the panel shall not be bound by the formal rules
          of evidence. The panel shall have the power to fix all procedural
          rules relating to the arbitration proceeding. In reaching any
          decision, the panel shall give due consideration to the customs and
          usages of the insurance and reinsurance business.

I.        Arbitration Award - The arbitration panel shall render its decision
          within 60 days after termination of the proceeding, which decision
          shall be in writing, stating the reasons therefor. The decision of the
          majority of the panel shall be final and binding on the parties to the
          proceeding.

J.        Cost of Arbitration - Unless otherwise allocated by the panel, each
          party shall bear the expense of its own arbitrator and shall jointly
          and equally bear with the other parties the expense of the umpire and
          the arbitration.



                                       19. No. TC407A,B,C-R97
<PAGE>   23
                                                                SWISS RE AMERICA

ARTICLE XXI - INSOLVENCY

A.        In the event of insolvency of the Company, the reinsurance provided by
          this Agreement shall be payable by the Reinsurer on the basis of the
          liability of the Company as respects Policies covered hereunder,
          without diminution because of such insolvency, directly to the Company
          or its liquidator, receiver, conservator or statutory successor except
          as provided in Sections 4118(a)(1)(A) and 1114(c) of the New York
          Insurance Law.

B.        The Reinsurer shall be given written notice of the pendency of each
          claim or loss which may involve the reinsurance provided by this
          Agreement within a reasonable time after such claim or loss is filed
          in the insolvency proceedings. The Reinsurer shall have the right to
          investigate each such claim or loss and interpose, at its own expense,
          in the proceedings where the claim or loss is to be adjudicated, any
          defense which it may deem available to the Company, its liquidator,
          receiver, conservator or statutory successor. 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.

C.        In addition to the offset provisions set forth in Article XVIII - 
          Offset, any debts or credits, liquidated or unliquidated, in favor of
          or against either party on the date of the receivership or liquidation
          order (except where the obligation was purchased by or transferred to
          be used as an offset) are deemed mutual debts or credits and shall be
          set off with the balance only to be allowed or paid. Although such
          claim on the part of either party against the other may be
          unliquidated or undetermined in amount on the date of the entry of the
          receivership or liquidation order, such claim will be regarded as
          being in existence as of such date and any claims then in existence
          and held by the other party may be offset against it.

D.        Nothing contained in this Article is intended to change the
          relationship or status of the parties to this Agreement or to enlarge
          upon the rights or obligations of either party hereunder except as
          provided herein.


ARTICLE XXII - SPECIAL TERMINATION

A.        Notwithstanding the termination provisions set forth in Article II - 
          Effective Date and Termination, this Agreement may be:

          1.        Terminated by either party upon the happening of any of the
                    following events:





                                       20. No. TC407A,B,C-R97
<PAGE>   24
                                                                SWISS RE AMERICA

                    a.        Entry of an order of liquidation, rehabilitation,
                              receivership or conservatorship with respect to
                              the Company or the Reinsurer by any court or
                              regulatory authority;

                    b.        Assignment of this Agreement by either party;

                    c.        Any transfer of control of either party by change
                              in ownership or otherwise;

                    d.        General reinsurance of any portion of the
                              Company's business it retains net for its own
                              account, as determined under the provisions of
                              this Agreement without prior consent of the
                              Reinsurer.

          2.        Terminated in accordance with the provisions set forth in
                    this Paragraph, upon the discovery of the following event:

                              A reduction of 50% or more of the Company's
                              policyholders surplus during any calendar year.
                              Such reduction shall be determined by calculating
                              the difference between the Company's prior year
                              annual statement and each subsequent quarterly
                              statutory statement within such current calendar
                              year.

                    As respects the event set forth in this Paragraph A.2., the
                    Company shall be obligated to notify the Reinsurer in
                    writing within 30 days after the filing of its quarterly
                    statement. Upon receipt of such notification the Reinsurer
                    shall have the right to terminate this Agreement, by giving
                    not less than 30 days notice of its intention to do so.

B.        Any notice of termination pursuant to provisions set forth in
          Paragraph A.2. above shall be sent by certified mail, return receipt
          requested. Such notice period shall commence upon the other party's
          receipt of the notice of termination.

C.        In the event of termination, the Reinsurer shall not be liable for
          losses occurring subsequent to the date of termination.


ARTICLE XXIII - AMENDMENTS

This Agreement may be amended by mutual consent of the parties expressed in an
addendum; and such addendum, when executed by both parties, shall be deemed to
be an integral part of this Agreement and binding on the parties hereto.








                                       21. No. TC407A,B,C-R97

<PAGE>   25
                                                                SWISS RE AMERICA


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the following dates:

In Bala Cynwyd, Pennsylvania, this 28th day of September, 1997.

ATTEST:                 PHILADELPHIA CONSOLIDATED HOLDING
                          CORPORATION'S
                        following member companies:
                        PHILADELPHIA INDEMNITY INSURANCE COMPANY
                        PHILADELPHIA INSURANCE COMPANY

/s/ James J. Maguire    /s/ Christopher J. Maguire
--------------------    -------------------------------------

And in New York, New York, this 18th day of September, 1997.

ATTEST:                 SWISS REINSURANCE AMERICA CORPORATION

/s/ Peter Thomson       /s/ Gerard M. Hopkins
--------------------    -------------------------------------
Member of Management          Member of Senior Management

                                        22. No. TC407A,B,C-R97
<PAGE>   26
                                                                SWISS RE AMERICA


                          SUPPLEMENT TO THE ATTACHMENTS


         DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS

A.  Wherever the term "Company" or "Reinsured" or "Reassured" or whatever other
    term is used to designate the reinsured company or companies within the
    various attachments to the reinsurance agreement, the term shall be
    understood to mean Company or Reinsured or Reassured or whatever other term
    is used in the attached reinsurance agreement to designate the reinsured
    company or companies.

B.  Wherever the term "Agreement" or "Contract" or "Policy" or whatever other
    term is used to designate the attached reinsurance agreement within the
    various attachments to the reinsurance agreement, the term shall be
    understood to mean Agreement or Contract or Policy or whatever other term is
    used to designate the attached reinsurance agreement.

C.  Wherever the term "Reinsurer" or "Reinsurers" or "Underwriters" or whatever
    other term is used to designate the reinsurer or reinsurers in the various
    attachments to the reinsurance agreement, the term shall be understood to
    mean Reinsurer or Reinsurers or Underwriters or whatever other term is used
    to designate the reinsuring company or companies.
<PAGE>   27
                                                                SWISS RE AMERICA


                        INSOLVENCY FUNDS EXCLUSION CLAUSE


This Agreement excludes all liability of the Company arising by contract,
operation of law, or otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund or from reimbursement of any
person for any such liability. "Insolvency fund" includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any assessment of or
payment or assumption by any person of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.
<PAGE>   28
                                                                SWISS RE AMERICA


    NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A.

    N.M.A. 1590


1   This reinsurance does not cover any loss or liability accruing to the
    Reassured as a member of, or subscriber to, any association of insurers or
    reinsurers formed for the purpose of covering nuclear energy risks or as a
    direct or indirect reinsurer of any such member, subscriber or association.

2.  Without in any way restricting the operation of paragraph 1. of this Clause
    it is understood and agreed that for all purposes of this reinsurance all
    the original policies of the Reassured (new, renewal and replacement) of the
    classes specified in Clause II. in this paragraph 2. from the time specified
    in Clause III. in this paragraph 2. shall be deemed to include the following
    provision (specified as the Limited Exclusion Provision):


    LIMITED EXCLUSION PROVISION*

         I.   It is agreed that the policy does not apply under any liability
              coverage, to INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION,
              bodily injury or property damage with respect to which an insured
              under the policy is also an insured under a nuclear energy
              liability policy issued by Nuclear Energy Liability Insurance
              Association, Mutual Atomic Energy Liability Underwriters or
              Nuclear Insurance Association of Canada, or would be an insured
              under any such policy but for its termination upon exhaustion of
              its limit of liability.

         II.  Family Automobile Policies (liability only), Special Automobile
              Policies (private passenger automobiles, liability only), Farmers
              Comprehensive Personal Liabilities Policies (liability only),
              Comprehensive Personal Liability Policies (liability only) or
              policies of a similar nature; and the liability portion of
              combination forms related to the four classes of policies stated
              above, such as the Comprehensive Dwelling Policy and the
              applicable types of Homeowners Policies.

         III. The inception dates and thereafter of all original policies as
              described in II. above, whether new, renewal or replacement, being
              policies which either


                                           - 1 -
<PAGE>   29
                                                                SWISS RE AMERICA



         (a)  become effective on or after 1st May, 1960, or

         (b)  become effective before that date and contain the Limited
              Exclusion Provision set out above; provided this paragraph 2.
              shall not be applicable to Family Automobile Policies, Special
              Automobile Policies, or policies or combination policies of a
              similar nature, issued by the Reassured on New York risks, until
              90 days following approval of the Limited Exclusion Provision by
              the Governmental Authority having jurisdiction thereof.

3.  Except for those classes of policies specified in Clause II. of paragraph 2.
    and without in any way restricting the operation of paragraph 1. of this
    Clause, it is understood and agreed that for all purposes of this
    reinsurance the original liability policies of the Reassured (new, renewal
    and replacement) affording the following coverages:

    Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
    Liability, Owners or Contractors (including railroad) Protective Liability,
    Manufacturers and Contractors Liability, Product Liability, Professional and
    Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile
    Liability (including Massachusetts Motor Vehicle or Garage Liability) shall
    be deemed to include with respect to such coverages, from the time specified
    in Clause V. of this paragraph 3., the following. provision (specified as
    the Broad Exclusion Provision):


    BROAD EXCLUSION PROVISION*

    It is agreed that the policy does not apply:

    I.   Under any Liability Coverage to INJURY, SICKNESS, DISEASE, DEATH OR
         DESTRUCTION, bodily injury or property damage

         (a) with respect to which an insured under the policy is also an
             insured under nuclear energy liability policy issued by Nuclear
             Energy Liability Insurance Association, Mutual Atomic Energy
             Liability Underwriters or Nuclear Insurance Association of Canada,
             or would be an insured under any such policy but for its
             termination upon exhaustion of its limit of liability; or


                                      - 2 -


N.M.A. 1590
<PAGE>   30
                                                                SWISS RE AMERICA


         (b) resulting from the hazardous properties of nuclear material and
             with respect to which (1) any person or organization is required to
             maintain financial protection pursuant to the Atomic Energy Act of
             1954, or any law amendatory thereof, or (2) the insured is, or had
             this policy not been issued would be, entitled to indemnity from
             the United States of America, or any agency thereof, under any
             agreement entered into by the United States of America, or any
             agency thereof, with any person or organization.

    II.  Under any Medical Payments Coverage, or under any Supplementary
         Payments Provision relating to IMMEDIATE MEDICAL OR SURGICAL RELIEF,
         first aid, to expenses incurred with respect to BODILY INJURY,
         SICKNESS, DISEASE OR DEATH, bodily injury resulting from the hazardous
         properties of nuclear material and arising out of the question of a
         nuclear facility by any person or organization.

    III. Under any Liability Coverage, to INJURY, SICKNESS, DISEASE, DEATH OR
         DESTRUCTION, bodily injury or property damage resulting from the
         hazardous properties of nuclear material, if

         (a) the nuclear material (1) is at any nuclear facility owned by, or
             operated by or on behalf of, an insured or (2) has been discharged
             or dispersed therefrom;

         (b) the nuclear material is contained in spent fuel or waste at any
             time possessed, handled, used, processed, stored, transported or
             disposed of by or on behalf of an insured; or

         (c) the INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION, bodily injury
             or property damage arises out of the furnishing by an insured of
             services, materials, parts or equipment in connection with the
             planning, construction, maintenance, operation or use of any
             nuclear facility, but if such facility is located within the United
             States of America, its territories, or possessions or Canada, this
             exclusion (c) applies only to INJURY TO OR DESTRUCTION OF PROPERTY
             AT SUCH NUCLEAR FACILITY, property damage to such nuclear facility
             and any property thereat.


                                      - 3 -

N.M.A. 1590
<PAGE>   31
                                                                SWISS RE AMERICA


   IV.   As used in this endorsement:

         "hazardous properties" include radioactive, toxic or explosive
         properties; "nuclear material" means source material, special nuclear
         material or byproduct material; "source material," special nuclear
         material," and "byproduct material" have the meanings given them in the
         Atomic Energy Act of 1954 or in any law amendatory thereof; "spent
         fuel" means any fuel element or fuel component, solid or liquid, which
         has been used or exposed to radiation in a nuclear reactor; "waste"
         means any waste material (1) containing byproduct material other than
         the tailings or wastes produced by the extraction or concentration of
         uranium or thorium from any ore processed for its source material
         content and (2) resulting from the operation by any person or
         organization of any nuclear facility included within the definition of
         nuclear facility under paragraph (a) or (b) thereof; "nuclear facility"
         means

         (a) any nuclear reactor,


         (b) any equipment or device designed or used for (1) separating the
             isotopes of uranium or plutonium, (2) processing or utilizing spent
             fuel, or (3) handling, processing or packaging waste,

         (c) any equipment or device used for the processing, fabricating or
             alloying of special nuclear material if at any time the total
             amount of such material in the custody of the insured at the
             premises where such equipment or device is located consists of or
             contains more than 25 grams of plutonium or uranium 233 or any
             combination thereof, or more than 250 grams of uranium 235,

         (d) any structure, basin, excavation, premises or place prepared or
             used for the storage or disposal of waste

         and includes the site on which any of the foregoing is located, all
         operations conducted on such site and all premises used for such
         operations; "nuclear reactor" means any apparatus designed or used to
         sustain nuclear fission in a self-supporting chain reaction or to
         contain a critical mass of fissionable material; WITH RESPECT TO INJURY
         TO OR DESTRUCTION OF PROPERTY, THE WORD "INJURY" OR "DESTRUCTION"
         INCLUDES ALL FORMS OF RADIOACTIVE CONTAMINATION OF PROPERTY; "property
         damage" includes all forms of radioactive contamination of property.

   V.    The inception dates and thereafter of all original policies affording
         coverages specified in this paragraph 3., whether new, renewal or
         replacement, being policies which become effective on or after 1st May,
         1960, provided this paragraph 3. shall not be applicable to


N.M.A. 1590                           - 4 -
<PAGE>   32
                                                                SWISS RE AMERICA


            (i)   Garage and Automobile Policies issued by the Reassured on
                  New York risks, or

            (ii)  Statutory liability insurance required under Chapter 90,
                  General Laws of Massachusetts,

            until 90 days following approval of the Broad Exclusion Provision by
            the Governmental Authority having jurisdiction thereof.

4.  Without in any way restricting the operations of paragraph 1. of this
    Clause, it is understood and agreed that paragraphs 2. and 3. above are not
    applicable to original liability policies of the Reassured in Canada, and
    that with respect to such policies, this Clause shall be deemed to include
    the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
    Underwriters' Association or the Independent Insurance Conference of Canada.


*NOTE:  The words printed in BOLD TYPE in the Limited Exclusion Provision and in
        the Broad Exclusion Provision shall apply only in relation to original
        liability policies which include a Limited Exclusion Provision or a
        Broad Exclusion Provision containing those words.


N.M.A. 1590                           - 5 -
<PAGE>   33
                                                                SWISS RE AMERICA


    NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA

    N.M.A. 1979


1.  This Agreement does not cover any loss or liability accruing to the Company
    as a member of, or subscriber to, any association of insurers or reinsurers
    formed for the purpose of covering nuclear energy risks or as a direct or
    indirect reinsurer of any such member, subscriber or association.

2.  Without in any way restricting the operation of Paragraph 1. of this Clause,
    it is agreed that for all purposes of this Agreement all the original
    liability contracts of the Company, whether new, renewal or replacement, of
    the following classes, namely,

            Personal Liability
            Farmers' Liability
            Storekeepers' Liability

    which become effective on or after 31st December 1984, shall be deemed to
    include, from their inception dates and thereafter, the following
    provision:

    Limited Exclusion Provision -

    This Policy does not apply to bodily injury or property damage with respect
    to which the Insured is also insured under a contract of nuclear energy
    liability insurance (whether the Insured is unnamed in such contract and
    whether or not it is legally enforceable by the Insured) issued by the
    Nuclear Insurance Association of Canada or any other group or pool of
    insurers or would be an Insured under any such policy but for its
    termination upon exhaustion of its limits of liability.

    With respect to property, loss of use of such property shall be deemed to be
    property damage.

3.  Without in any way restricting the operation of Paragraph 1. of this Clause,
    it is agreed that for all purposes of this Agreement all the original
    liability contracts of the Company, whether new, renewal or replacement, of
    any class whatsoever (other than Personal Liability, Farmers' Liability,
    Storekeepers' Liability or Automobile Liability contracts), which become
    effective on or after 31st December 1984, shall be deemed to include, from
    their inception dates and thereafter, the following provision:


                                      - 1 -
<PAGE>   34
                                                                SWISS RE AMERICA


Broad Exclusion Provision -

It is agreed that this Policy does not apply:

(a) to liability imposed by or arising under the Nuclear Liability Act; nor

(b) to bodily injury or property damage with respect to which an Insured under
    this Policy is also insured under a contract of nuclear energy liability
    insurance (whether the Insured is unnamed in such contract and whether or
    not it is legally enforceable by the Insured) issued by the Nuclear
    Association of Canada or any other insurer or group or pool of insurers or
    would be an Insured under any such policy but for its termination upon
    exhaustion of its limit of liability; nor

(c) to bodily injury or property, damage resulting directly or indirectly from
    the nuclear energy hazard arising from:

    (i)   the ownership, maintenance, operation or use of a nuclear facility
          by or on behalf of an Insured;

    (ii)  the furnishing of an Insured of services, materials, parts or
          equipment in connection with the planning, construction, maintenance,
          operation or use of any nuclear facility; and

    (iii) the possession, consumption, use, handling, disposal or transportation
          of fissionable substances, or of other radioactive material (except
          radioactive isotopes, away from a nuclear facility, which have reached
          the final stage of fabrication so as to be usable for any scientific,
          medical, agricultural, commercial or industrial purpose) used,
          distributed, handled or sold by an Insured.

As used in this Policy:

(1) The term "nuclear energy hazard" means the radioactive, toxic, explosive, or
    other hazardous properties of radioactive material,

(2) The term "radioactive material" means uranium, thorium, plutonium,
    neptunium, their respective derivatives and compounds, radioactive isotopes
    of other elements and any other substances that the Atomic Energy Control
    Board may, by regulation, designate as being prescribed substances capable
    of releasing atomic energy, or as being requisite for the production, use or
    application of atomic energy;


N.M.A. 1979                           - 2 -
<PAGE>   35
                                                                SWISS RE AMERICA


(3) The term "nuclear facility" means:

    (a) any apparatus designed or used to sustain nuclear fission in a
        self-supporting chain reaction or to contain a critical mass of
        plutonium, thorium and uranium or any one or more of them;

    (b) any equipment or device designed or used for (i) separating the isotopes
        of plutonium, thorium and uranium or any one or more of them, (ii)
        processing or utilizing spent fuel, or (iii) handling, processing or
        packaging waste;

    (c) any equipment or device used for the processing, fabricating or alloying
        of plutonium, thorium or uranium enriched in the isotope uranium 233 or
        in the isotope uranium 235, or any one or more of them if at any time
        the total amount of such material in the custody of the Insured at the
        premises where such equipment or device is located consists of or
        contains more than 25 grams of plutonium or uranium 233 or any
        combination thereof, or more than 250 grams of uranium 235;

    (d) any structure, basin, excavation, premises or place prepared or used for
        the storage or disposal of waste radioactive material;

    and includes the site on which any of the foregoing is located, together
    with all operations conducted thereon and all premises used for such
    operations.

(4) The term "fissionable substance" means any prescribed substance that is, or
    from which can be obtained, a substance capable of releasing atomic energy
    by nuclear fission.

(5) With respect to property, loss of use of such property shall be deemed to be
    property damage.


N.M.A. 1979                           - 3 -
<PAGE>   36
                                                                SWISS RE AMERICA


             NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4

1.  This Reinsurance does not cover any loss or liability accruing to the
    Reassured as a member of, or subscriber to, any association of insurers or
    reinsurers formed for the purpose of covering nuclear energy risks or as a
    direct or indirect reinsurer of any such member, subscriber or association.

2.  Without in any way restricting the operations of Nuclear Incident Exclusion
    Clauses, - Liability, - Physical Damage, - Boiler and Machinery and
    paragraph 1. of this Clause, it is understood and agreed that for all
    purposes of the reinsurance assumed by the Reinsurer from the Reinsured, all
    original insurance policies or contracts of the Reinsured (new, renewal and
    replacement) shall be deemed to include the applicable existing Nuclear
    Clause and/or Nuclear Exclusion Clause(s) in effect at the time and any
    subsequent revisions thereto as agreed upon and approved by the Insurance
    Industry and/or a qualified Advisory or Rating Bureau.

<PAGE>   37
                                                       SWISS RE AMERICA

                        PROPERTY PER RISK EXCESS OF LOSS
                              REINSURANCE AGREEMENT
                                 NO. TP1308A-R97

                            EFFECTIVE January 1, 1997

                                     between

                 PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
                           following member companies:
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                         PHILADELPHIA INSURANCE COMPANY
                        both of Bala Cynwyd, Pennsylvania

                                       and

                      SWISS REINSURANCE AMERICA CORPORATION
                               New York, New York
<PAGE>   38
                                                                SWISS RE AMERICA

         PROPERTY PER RISK EXCESS OF LOSS REINSURANCE AGREEMENT NO. TP1308A-R97

ARTICLE                    CONTENTS                                     PAGE
                           PREAMBLE                                     1
I                          BUSINESS COVERED                             1
II                         EFFECTIVE DATE AND TERMINATION               2
III                        TERRITORY                                    3
IV                         LIMIT AND RETENTION                          3
V                          ULTIMATE NET LOSS                            4
VI                         LOSS IN EXCESS OF POLICY LIMITS              5
VII                        EXTRA CONTRACTUAL OBLIGATIONS                5
VIII                       DEFINITION OF RISK                           6
IX                         EXCLUSIONS                                   6
X                          LOSS OCCURRENCE                              8
XI                         REINSURANCE PREMIUM                          9
XII                        CONTINGENT COMMISSION                        9
XIII                       REPORTS AND REMITTANCES                      11
XIV                        CLAIMS                                       12
XV                         SALVAGE AND SUBROGATION                      12
XVI                        ACCESS TO RECORDS                            12
XVII                       TAXES                                        12
XVIII                      CURRENCY                                     13
XIX                        OFFSET                                       13
XX                         ERRORS OR OMISSIONS                          13
XXI                        DISPUTE RESOLUTION                           14
XXII                       INSOLVENCY                                   16
XXIII                      SPECIAL TERMINATION                          16
XXIV                       AMENDMENTS                                   17
                           SIGNATURES                                   18

ATTACHMENTS:      INSOLVENCY FUNDS EXCLUSION CLAUSE
                  POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE
                  TOTAL INSURED VALUE EXCLUSION CLAUSE
                  NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -
                           REINSURANCE - U.S.A.
                  NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -
                           REINSURANCE - CANADA
                  NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE NO. 4
<PAGE>   39
                                                                SWISS RE AMERICA

                        PROPERTY PER RISK EXCESS OF LOSS
                              REINSURANCE AGREEMENT
                                 NO. TP1308A-R97
                  (hereinafter referred to as the "Agreement")

                                     between

                 PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
                           following member companies:
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                         PHILADELPHIA INSURANCE COMPANY
                        both of Bala Cynwyd, Pennsylvania
     (hereinafter referred to individually or collectively as the "Company")

                                       and

                      SWISS REINSURANCE AMERICA CORPORATION
                               New York, New York
                  (hereinafter referred to as the "Reinsurer")

ARTICLE I - BUSINESS COVERED

A.       The Reinsurer shall indemnify the Company on an excess of loss basis in
         respect of the Company's Ultimate Net Loss paid or to be paid by the
         Company as a result of losses occurring during the term of the
         Agreement, for Policies in force as of January 1, 1997, and new and
         renewal Policies becoming effective on or after said date, subject to
         the terms and conditions contained herein.

B.       This Agreement is solely between the Company and the Reinsurer, and
         nothing contained in this Agreement shall create any obligations or
         establish any rights against the Reinsurer in favor of any person or
         entity not a party hereto.

C.       The performance of obligations by both parties under this Agreement
         shall be in accordance with a fiduciary standard of good faith and fair
         dealing.

D.       The term "Policies" shall mean each of the Company's binders, policies
         and contracts of insurance or reinsurance on the business covered
         hereunder.

E.       Under this Agreement, the indemnity for reinsured loss applies to those
         Policies issued by the Company with respect to the following Lines of
         Business as classified in the Company's Annual Statement, subject to
         the exclusions set forth in Article IX - Exclusions.


                                       1. No. TP1308A-R97

<PAGE>   40
                                                                SWISS RE AMERICA

NAIC
CODE:             LINES OF BUSINESS:
01                Fire
02                Allied Lines
21                Commercial Auto Physical Damage -
                  Comprehensive (coverage written on a garage open lot basis)
09                Inland Marine
05                Commercial Multiple Peril (Section I only)

ARTICLE  II - EFFECTIVE DATE AND TERMINATION

A.       This Agreement shall become effective with respect to losses occurring
         on and after 12:01 a.m., Eastern Standard Time, January 1, 1997, and
         shall remain in full force until terminated. This Agreement may be
         terminated at the close of any calendar year by either party giving to
         the other 90 days prior written notice by certified mail of its
         intention to do so.

B.       In the event of termination of this Agreement, the Company shall have
         the option of continuing or terminating the liability in force at the
         date of termination as set forth below. The Company may exercise such
         option provided written notice of the Company's election is given by
         certified mail to the Reinsurer prior to the date of termination.

         1.       All Policies covered hereunder and in force at the date of
                  termination of this Agreement shall continue until their
                  natural expiry, cancellation or next anniversary of such
                  business, whichever first occurs; but in no case shall this
                  reinsurance be extended for longer than one year, plus odd
                  time, after the termination date.

         2.       All reinsurance hereunder shall be automatically cancelled as
                  of the date of termination and the Reinsurer shall be released
                  of all liability as respects losses occurring subsequent to
                  the date of termination.

C.       If the Company chooses to exercise the option of continuing the
         liability, the Company and the Reinsurer shall renegotiate the terms
         and conditions relating to such option.

D.       If this Agreement shall terminate while a loss covered hereunder is in
         progress, it is agreed that, subject to the other conditions of this
         Agreement, the Reinsurer shall indemnify the Company as if the entire
         loss had occurred during the time this Agreement is in force provided
         the loss covered hereunder started before the date of termination.


                                       2.
No. TP1308A-R97

<PAGE>   41
                                                                SWISS RE AMERICA

ARTICLE III - TERRITORY

This Agreement applies to risks located in the United States of America, its
territories and possessions, and Canada, except that with respect to Inland
Marine and Multiple Peril Policies covered hereunder, the territorial limits of
this Agreement shall be those of the original Policies when such Policies are
written to cover risks primarily located in the United States of America, its
territories and possessions, and Canada.

ARTICLE IV - LIMIT AND RETENTION

A.       The limit and retention provided under this Agreement is set forth
         below:

         (i)      As respects one or more than one Line of Business covered
                  under this Agreement, the Company shall retain the first
                  $500,000 of Ultimate Net Loss as respects each risk in any one
                  Loss Occurrence. The Reinsurer shall then be liable for the
                  amount by which the Company's Ultimate Net Loss exceeds the
                  Company's retention of $500,000, but the liability of the
                  Reinsurer shall never exceed $1,500,000 each risk any one Loss
                  Occurrence, nor shall the Reinsurer's liability from all risks
                  in each Loss Occurrence exceed $3,500,000.

         (ii)     Notwithstanding the provisions set forth in Paragraph B. of
                  Article V - Ultimate Net Loss, the Reinsurer shall provide
                  coverage for 100% of losses arising out of Extra Contractual
                  Obligations as defined herein in addition to the Company's
                  retention and Reinsurer's limit of liability set for in (i)
                  above, subject to a maximum limit of liability of $4,500,000.

         (iii)    However, in the event an Ultimate Net Loss exceeds $500,000 as
                  respects each risk in any one Loss Occurrence, the liability
                  of the Reinsurer shall be increased to $1,700,000 each risk
                  any one Loss Occurrence and the retention of the Company shall
                  be reduced to $300,000 each risk any one Loss Occurrence as
                  respects subsequent losses resulting from that same Loss
                  Occurrence, however, in no event shall the Reinsurer's
                  liability from all risks in such Loss Occurrence exceed
                  $3,500,000.

B.       In the event of a loss involving a combination of the Property business
         subject to this agreement and Casualty business subject to the
         Company's Casualty Excess of Loss Reinsurance Agreement No.
         TC407A,B,C-R97, further reinsurance is provided when the Company's
         combined retention under these two referenced agreements, resulting
         from one occurrence, exceeds $500,000. In regard to such a combination
         loss, the Company will retain the first $500,000 of its combined
         retention each occurrence and the Reinsurer will reimburse the Company
         for the amount in excess of $500,000 subject to a


                                       3.
No. TP1308A-R97

<PAGE>   42
                                                                SWISS RE AMERICA

         maximum reimbursement under this provision of $2,000,000 for each
         occurrence. Such additional reinsurance will be pro-rated between this
         agreement and the Company's Casualty Excess of Loss Reinsurance
         Agreement No. TC407A,B,C-R97 in the amount that the Ultimate Net Loss
         under each agreement bears to the combined Ultimate Net Loss, subject
         to a maximum combined recovery of $2,000,000.

C.       Reinsurance of the Company's retention, set forth above, shall not be
         deducted in arriving at the Company's Ultimate Net Loss herein.

ARTICLE V - ULTIMATE NET LOSS

A.       The term "Ultimate Net Loss" shall mean the actual sum paid or to be
         paid by the Company in settlement of losses or liability after making
         deductions for all recoveries, including subrogation, salvages, and
         claims upon other reinsurances, whether collectible or not, which inure
         to the benefit of the Reinsurer under this Agreement, and shall include
         Allocated Loss Adjustment Expenses incurred by the Company.

B.       The term "Ultimate Net Loss" shall include 100% of Extra Contractual
         obligations, as defined herein, but only as respects business covered
         under this Agreement.

C.       The term "Ultimate Net Loss" shall also include "Ex-gratia Payments" as
         defined in Paragraph D. below, subject to the terms and conditions of
         this Agreement.

D.       The term "Ex-gratia Payments" shall mean payments made as an
         accommodation by the Company in settlement of a claim for which no
         coverage exists under the Policy reinsured hereunder, subject to the
         prior approval of the Reinsurer.

E.       The term "Allocated Loss Adjustment Expenses" shall mean all allocated
         expenses incurred by the Company in connection with the investigation,
         settlement, defense or litigation of any claim or loss covered by the
         Policies reinsured under this Agreement, and shall exclude the salaries
         of Company employees, office expenses or any other unallocated
         expenses.

F.       All recoveries, salvages or payments recovered or received subsequent
         to a loss settlement under this Agreement shall be applied as if
         recovered or received prior to the aforesaid settlement and all
         necessary adjustments to the loss settlement shall be made by the
         parties hereto.

G.       Nothing in this Article shall be construed to mean that losses are not
         recoverable hereunder until the Ultimate Net Loss of the Company has
         been ascertained.


                                       4.
No. TP1308A-R97
<PAGE>   43
                                                                SWISS RE AMERICA

ARTICLE VI - LOSS IN EXCESS OF POLICY LIMITS

A.       In the event the Company is liable to a policyholder as the result of a
         settlement or judgment rendered against the policyholder which is in
         excess of the Policy limit, 100% of that portion of the award made to
         the third party claimant which is in excess of the Company's Policy
         limit shall be added to the amount of the Company's Policy limit and
         the sum thereof shall be considered one loss, subject to the provision
         in Paragraph B. below and all other provisions set forth in this
         Agreement.

B.       With respect to coverage provided under this Article, recoveries from
         any insurance or reinsurance other than this Agreement, shall inure to
         the benefit of the Reinsurer and shall be deducted to arrive at the
         amount of the Company's Ultimate Net Loss.

ARTICLE VII - EXTRA CONTRACTUAL OBLIGATIONS

A.       "Extra Contractual Obligations" are defined as those liabilities not
         covered under any other provision of this Agreement and which arise
         from the handling of any claim on business covered hereunder, such
         liabilities arising because of, but not limited to, the following:
         failure by the Company to settle within the Policy limit, or by reason
         of alleged or actual negligence, fraud or bad faith in rejecting an
         offer of settlement or in the preparation of the defense or in the
         trial of any action against its insured or reinsured or in the
         preparation or prosecution of an appeal consequent upon such action.

B.       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 accident, casualty, disaster or loss occurrence.

C.       However, coverage hereunder as respects Extra Contractual Obligations
         shall not apply where the loss has been incurred due to the fraud of a
         member of the Board of Directors or a corporate officer of the Company
         acting individually or collectively or in collusion with any individual
         or corporation or any other organization or party involved in the
         presentation, defense or settlement of any claim covered hereunder.

D.       Extra Contractual Obligations shall not include loss arising out of
         engineering or other services or any other non-claims related activity
         provided to the insured by the Company.

E.       Recoveries, collectibles or retention from any other form of insurance
         or reinsurance including deductibles or self-insured retention which
         protect the Company against Extra Contractual Obligations shall inure
         to the benefit of the Reinsurer and shall be deducted from the total
         amount of Extra Contractual Obligations for purposes of determining the
         loss hereunder.


                                       5. No. TP1308A-R97
<PAGE>   44
                                                                SWISS RE AMERICA

ARTICLE VIII - DEFINITION OF RISK

The Company shall be the sole judge of what constitutes one risk provided,
however, that:

A.       A risk shall never be less than all insurable values at one general
         location regardless of the number of policies involved, and whether
         there is a single, multiple or unrelated named insureds involved in
         such risk.

B.       A risk shall be determined from the standpoint of the predominant peril
         and such peril shall be noted in the Company's records.

ARTICLE IX - EXCLUSIONS

THIS AGREEMENT DOES NOT COVER:

A.       THE FOLLOWING GENERAL CATEGORIES

         1.       All Lines of Business not specifically listed in Article I - 
                  Business Covered.

         2.       Policies issued with a deductible of $100,000 or more;
                  provided this exclusion shall not apply to Policies which
                  customarily provide a percentage deductible on the perils of
                  earthquake or windstorm.

         3.       Reinsurance assumed, except pro rata local agency reinsurance
                  on specific risks and except reinsurance assumed from an
                  affiliated company.

         4.       Ex-gratia Payments greater than $500,000, except with
                  Reinsurer's prior consent.

         5.       Loss or damage occasioned by war, invasion, revolution,
                  bombardment, hostilities, acts of foreign enemies, civil war,
                  rebellion, insurrection, military or usurped power, martial
                  law, or confiscation by order of any government or public
                  authority, but not excluding loss or damage which would be
                  covered under a standard form of policy containing a standard
                  war exclusion clause.

         6.       Insolvency Funds as per the attached Insolvency Funds
                  Exclusion Clause, which is made part of this Agreement.

         7.       Pool, Association and Syndicate business as per the attached
                  Pools, Associations and Syndicates Exclusion Clause, which is
                  made part of this Agreement.

         8.       Risks where the Total Insured Value, per risk, exceeds the
                  figure specified as per the attached Total Insured Value
                  Exclusion Clause, which is made part of this Agreement.


                                       6. No. TP1308A-R97
<PAGE>   45
                                                                SWISS RE AMERICA

B.      THE FOLLOWING CLASSES OF BUSINESS AND TYPES OF RISKS

         1.       Mortgage Impairment.

         2.       Growing and/or standing crops.

         3.       Mortality and Health covering birds, animals or fish.

         4.       All onshore and offshore gas and oil drilling rigs.

         5.       Petrochemical operations engaged in the production, refining
                  or upgrading of petroleum or petroleum derivatives or natural
                  gas.

         6.       Satellites.

         7.       All railroad business.

         8.       As respects Inland Marine business:

                  a.       Registered Mail and Armored Car Policies.

                  b.       Jeweler's Block Policies.

                  C.       Furrier's Customers Policies.

                  d.       Rolling Stock.

                  e.       Parcel Post when written to cover banks and financial
                           institutions.

                  f.       Commercial Negative Film Insurance.

                  g.       Garment Contractors Policies.

                  h.       Mining Equipment while underground.

                  i.       Radio and Television Broadcasting Towers.

                  j.       Motor Truck Cargo Insurance written for common
                           carriers operating beyond a radius of 200 miles.

         9.       Overhead transmission and distribution lines and their
                  supporting structures other than those on or within 1,000 feet
                  of the insured premises.

                  It is understood and agreed that public utilities extension
                  and/or suppliers extension and/or contingent business
                  interruption coverages are not subject to this exclusion,
                  provided that these are not part of a transmitters' or
                  distributors' policy.

C.       THE FOLLOWING PERILS

         1.       Flood and/or Earthquake when written as such.

         2.       Difference in Conditions, however styled.

         3.       Pollution to the extent excluded in the Company's original
                  Policies. It is warranted that the Reinsurer's prior approval
                  is required for all changes to the Company's Policy pollution
                  wording.

         4.       Nuclear Incident Exclusion Clauses which are attached and made
                  part of this Agreement:

                  a.       Nuclear Incident Exclusion Clause - Physical Damage -
                           Reinsurance - U.S.A.


                                       7. No. TP1308A-R97
<PAGE>   46
                                                                SWISS RE AMERICA

                  b.       Nuclear Incident Exclusion Clause - Physical Damage -
                           Reinsurance - Canada

                  c.       Nuclear Incident Exclusion Clause - Reinsurance - No.
                           4.

D.       In the event the Company is inadvertently bound on any risk which is
         excluded under this Agreement the reinsurance provided under this
         Agreement shall apply to such risk until discovery by the Company
         within its Home Office of the existence of such risk and for 60 days
         thereafter, and shall then cease unless within the 60 day period, the
         Company has received from the Reinsurer written notice of its approval
         of such risk.

ARTICLE X - LOSS OCCURRENCE

A.       The term "Loss Occurrence" shall mean the sum of all individual losses
         directly occasioned by any one disaster, accident or loss or series of
         disasters, accidents or losses arising out of one event which occurs
         within the area of one state of the United States or province of Canada
         and states or provinces contiguous thereto and to one another. However,
         the duration and extent of any one Loss Occurrence shall be limited to
         all individual losses sustained by the Company occurring during any
         period of 168 consecutive hours arising out of and directly occasioned
         by the same event except that the term "Loss Occurrence" shall be
         further defined as follows:

         1.       As regards windstorm, hail, tornado, hurricane, cyclone,
                  including ensuing collapse and water damage, all individual
                  losses sustained by the Company occurring during any period of
                  72 consecutive hours arising out of and directly occasioned by
                  the same event. However, the event need not be limited to one
                  state or province or states or provinces contiguous thereto.

         2.       As regards riot, riot attending a strike, civil commotion,
                  vandalism and malicious mischief, all individual losses
                  sustained by the Company, occurring during any period of 72
                  consecutive hours within the area of one municipality or
                  county and the municipalities or counties contiguous thereto
                  arising out of and directly occasioned by the same event. The
                  maximum duration of 72 consecutive hours may be extended in
                  respect of individual losses which occur beyond such 72
                  consecutive hours during the continued occupation of an
                  assured's premises by strikers, provided such occupation
                  commenced during the aforesaid period.

         3.       As regards earthquake (the epicentre of which need not
                  necessarily be within the territorial confines referred to in
                  the opening paragraph of this Article) and fire following
                  directly occasioned by the earthquake, only those individual
                  fire losses which commence during the period of 168
                  consecutive hours may be included in the Company's Loss
                  Occurrence.


                                       8. No. TP1308A-R97
<PAGE>   47
                                                                SWISS RE AMERICA

         4.       As regards Freeze, only individual losses directly occasioned
                  by collapse, breakage of glass and water damage (caused by
                  bursting of frozen pipes and tanks) may be included in the
                  Company's Loss Occurrence.

B.       For all Loss Occurrences the Company may choose the date and time when
         any such period of consecutive hours commences provided that it is not
         earlier than the date and time of the occurrence of the first recorded
         individual loss sustained by the Company arising out of that disaster,
         accident or loss and provided that only one such period of 168
         consecutive hours shall apply with respect to one event except for
         those Loss Occurrences referred to in 1. and 2. above, where only one
         such period of 72 consecutive hours shall apply with respect to one
         event, regardless of the duration of the event.

C.       No individual losses occasioned by an event that would be covered by
         '72 hours clauses may be included in any Loss Occurrence claimed under
         the 168 hours provision.

ARTICLE XI - REINSURANCE PREMIUM

A.       The premium to the Reinsurer for this Agreement shall be calculated by
         applying a rate of 5.00% to the Subject Earned Premium by the Company
         for the quarterly period being reported on the Lines of Business
         reinsured by this Agreement.

B.       The term "Subject Earned Premium" as used herein is equal to the sum of
         the Net Premiums Written on the Lines of Business covered hereunder
         during the period under consideration, plus the unearned premium
         reserve as respects premiums in force at the beginning of such period,
         less the unearned premium reserve as respects premiums in force at the
         end of the period, said unearned premium is to be calculated on the
         monthly pro rata basis.

C.       The term "Net Premiums Written" shall mean gross premiums written less
         returns, allowances and reinsurances that inure to the benefit of the
         Reinsurer.

ARTICLE XII - CONTINGENT COMMISSION

A.       The Reinsurer shall allow the Company a contingent commission of 50% of
         the profit, if any, accruing to the Reinsurer hereunder, such profit
         shall be computed on the following formula:


                                       9. No. TP1308A-R97
<PAGE>   48
                                                                SWISS RE AMERICA

                CONTINGENT COMMISSION COMPUTATION FOR THE PERIOD

                                     INCOME

                  1.       Earned Premium received by the Reinsurer during the
                           Period.

                                      OUTGO

                  2.       Losses Incurred of the Reinsurer during the Period.

                  3.       Allowance for Reinsurer's management expenses during
                           the Period of 15% of the Earned Premium received by
                           the Reinsurer during the Period.

                  4.       Deficit, if any, brought forward from the preceding
                           Period.

         The amount by which Income exceeds Outgo is profit.

         The amount by which Outgo exceeds Income is deficit.

B.       The term "Losses Incurred" means losses and loss adjustment expenses
         paid less salvages recovered during each Accounting Period, or part
         thereof, as respects losses which occurred during the Accounting
         Period, plus the reserve for losses outstanding at the end of the
         current period for which computation is being made.

C.       The term "Earned Premium" means the total of the Net Premiums Written,
         ceded during the current Period plus the unearned premiums at the close
         of the preceding Period less the unearned premiums at the close of the
         current Period, said unearned premiums to be calculated on a monthly
         pro rata basis.

D.       The term "Period" means the actual time covered by each adjustment of
         commission.

E.       Within 90 days after the close of each Period, the Company shall
         calculate the commission adjustment for such Period. The first
         calculation of commission adjustment shall cover the Period January 
         1, 1997 through December 31, 1999, and thereafter adjustments shall be
         made annually for each subsequent Period commencing January 1 and
         ending the following December 31.

F.       If, for any Period, the Income of the plan exceeds the total of the
         Items shown under Outgo of the plan, the Reinsurer shall pay to the
         Company, within 30 days after verification of the Company's
         calculations, 50% of the difference. If, for any Period, the total of
         the Items shown under Outgo of the plan exceeds the Income of the plan,
         the difference shall be carried forward to the next Period's
         calculation of commission adjustment as a deficit.


                                      10. No. TP1308A-R97
<PAGE>   49
                                                                SWISS RE AMERICA

G.       The Reinsurer, upon verification by the Company, shall promptly pay to
         the Company the amount of contingent commission, if any, shown in each
         provisional calculation and final calculation for each Accounting
         Period, less any contingent commission previously paid for the
         Accounting Period. If the contingent commission previously paid for the
         Accounting Period exceeds the amount of contingent commission, if any,
         shown in any calculation for the Accounting Period the Company shall
         promptly refund the difference to the Reinsurer.

H.       In case notice of termination has been given, no further adjustments of
         commission shall be made until the expiration of all liability and the
         settlement of all losses covered under this Agreement.

ARTICLE XIII - REPORTS AND REMITTANCES

A.       The Company shall furnish the Reinsurer with all necessary data
         respecting premiums and losses for as long as one of the parties hereto
         has a claim against the other arising from this Agreement.

B.       Within 30 days after the close of each calendar quarter, the Company
         shall submit an account to the Reinsurer summarizing Subject Earned
         Premium by Line of Business, and the reinsurance premium due. Such
         reinsurance premium shall be remitted within 45 days after the close of
         each calendar quarter.

C.       Payment by the Reinsurer of its portion of loss and Allocated Loss
         Adjustment Expenses paid by the Company shall be made by the Reinsurer
         to the Company within 15 days after proof of payment is received by the
         Reinsurer.

D.       The Company shall furnish the following to the Reinsurer with respect
         to occurrences designated as catastrophes by Property Claim Services:

         1.       Prompt preliminary estimate of amount recoverable from the
                  Reinsurer;

         2.       Within 30 days after the close of each quarter the amount of
                  losses and Allocated Loss Adjustment Expenses paid, less all
                  recoveries, including salvage and subrogation, at the end of
                  each quarter segregated by Line of Business;

         3.       Within 30 days after the close of each quarter the amount of
                  losses and Allocated Loss Adjustment Expenses outstanding at
                  the end of each quarter segregated by Line of Business.


                                      11. No. TP1308A-R97
<PAGE>   50
                                                                SWISS RE AMERICA

ARTICLE XIV - CLAIMS

A.       The Company shall promptly notify the Reinsurer of each claim which may
         involve the reinsurance provided hereunder and of all subsequent
         developments relating thereto, stating the amount claimed and estimate
         of the Company's Ultimate Net Loss and Allocated Loss Adjustment
         Expenses.

B.       The Company shall have the responsibility to investigate, defend or
         negotiate settlements of all claims and lawsuits related to Policies
         written by the Company and reinsured under this Agreement. The
         Reinsurer, at its own expense, may associate with the Company in the
         defense or control of any claim, suit or other proceeding which
         involves or is likely to involve the reinsurance provided under this
         Agreement, and the Company shall cooperate in every respect in the
         defense of any such claim, suit or proceeding.

ARTICLE XV - SALVAGE AND SUBROGATION

A.       In the event of the payment of any indemnity by the Reinsurer under
         this Agreement, the Reinsurer shall be subrogated, to the extent of
         such payment, to all of the rights of the Company against any person or
         entity legally responsible for damages of the loss. The Company agrees
         to enforce such rights; but, in case the Company refuses or neglects to
         do so, the Reinsurer is hereby authorized and empowered to bring any
         appropriate action in the name of the Company or their policyholders or
         otherwise to enforce such rights.

B.       From any amount recovered by subrogation, salvage or other means, there
         shall first be deducted the expenses incurred in effecting the
         recovery. The balance shall then be used to reimburse the excess
         carriers in the inverse order to that in which their respective
         liabilities attached, before being used to reimburse the Company for
         its primary loss.

ARTICLE XVI - ACCESS TO RECORDS

The Reinsurer or its duly authorized representatives shall have the right to
examine, at the offices of the Company at a reasonable time, during the currency
of this Agreement or anytime thereafter, all books and records of the Company
relating to business which is the subject of this Agreement.

ARTICLE XVII - TAXES

The Company shall be liable for all taxes on premiums paid to the Reinsurer
under this Agreement, except income or profit taxes of the Reinsurer, and shall
indemnify and hold the Reinsurer harmless for any


                                      12. No. TP1308A-R97
<PAGE>   51
                                                                SWISS RE AMERICA

such taxes which the Reinsurer may become obligated to pay to any local, state
or federal taxing authority.

ARTICLE XVIII - CURRENCY

Wherever the word "dollars" or the "$" symbol is used in this Agreement, it
shall mean dollars of the United States of America, excepting in those cases
where the Policy is issued by the Company in Canadian dollars, in which case it
shall mean dollars of Canada. In the event the Company is involved in a loss
requiring payment in United States and Canadian currency, the Company's
retention and the limit of liability of the Reinsurer shall be apportioned
between the two currencies in the same proportion as the amount of net loss in
each currency bears to the total amount of net loss paid by the Company. For the
purposes of this Agreement, where the Company receives premiums or pays losses
in currencies other than United States or Canadian currency, such premiums and
losses shall be converted into United States dollars at the actual rates of
exchange at which the premiums and losses are entered in the Company's books.

ARTICLE XIX - OFFSET

Each party to this Agreement together with their successors or assigns shall
have and may exercise, at any time, the right to offset any balance or balances
due the other (or, if more than one, any other). Such offset may include
balances due under this Agreement and any other agreements heretofore or
hereafter entered into between the parties regardless of whether such balances
arise from premiums, losses or otherwise, and regardless of capacity of any
party, whether as assuming insurer and/or ceding insurer, under the various
agreements involved, provided however, that in the event of insolvency of a
party hereto, offsets shall only be allowed in accordance with the provisions of
Section 7427 of the Insurance Law of the State of New York to the extent such
statute or any other applicable law, statute or regulation governing such offset
shall apply.

ARTICLE XX - ERRORS OR OMISSIONS

Errors or omissions of a ministerial nature on the part of the Company shall not
invalidate the reinsurance under this Agreement, provided such errors or
omissions are corrected promptly after discovery thereof; but the liability of
the Reinsurer under this Agreement or any exhibits, addenda, or endorsements
attached hereto shall in no event exceed the limits specified herein nor be
extended to cover any risks, perils, lines of business or classes of insurance
generally or specifically excluded herein.


                                      13. No. TP1308A-R97
<PAGE>   52
                                                                SWISS RE AMERICA

ARTICLE XVIII - DISPUTE RESOLUTION

Part I - Choice Of Law And Forum

Any dispute arising under this Agreement shall be resolved in the State of
Pennsylvania, and the laws of the State of Pennsylvania, shall govern the
interpretation and application of this Agreement.

Part II - Mediation

If a dispute between the Company and the Reinsurer, arising out of the
provisions of this Agreement or concerning its interpretation or validity and
whether arising before or after termination of this Agreement has not been
settled through negotiation, both parties agree to try in good faith to settle
such dispute by non binding mediation, before resorting to arbitration.

Part III - Arbitration

A.       Resolution of Disputes - As a condition precedent to any right arising
         hereunder, any dispute not resolved by mediation between the Company
         and the Reinsurer arising out of the provisions of this Agreement or
         concerning its interpretation or validity, whether arising before or
         after termination of this Agreement, shall be submitted to arbitration
         in the manner hereinafter set forth.

B.       Composition of Panel - Unless the parties agree upon a single
         arbitrator within 15 days after the receipt of a notice of intention to
         arbitrate, all disputes shall be submitted to an arbitration panel
         composed of two arbitrators and an umpire chosen in accordance with
         Paragraph C. hereof.

C.       Appointment of Arbitrators - The members of the arbitration panel shall
         be chosen from persons knowledgeable in the insurance and reinsurance
         business. Unless a single arbitrator is agreed upon, the party
         requesting arbitration (hereinafter referred to as the "claimant")
         shall appoint an arbitrator and give written notice thereof by
         certified mail, to the other party (hereinafter referred to as the
         "respondent") together with his notice of intention to arbitrate.
         Within 30 days after receiving such notice, the respondent shall also
         appoint an arbitrator and notify the claimant thereof by certified
         mail. Before instituting a hearing, the two arbitrators so appointed
         shall choose an umpire. If, within 20 days after the appointment of the
         arbitrator chosen by the respondent, the two arbitrators fail to agree
         upon the appointment of an umpire, each of them shall nominate three
         individuals to serve as umpire, of whom the other shall decline two and
         the umpire shall be chosen from the remaining two by drawing lots. The
         name of the individual first drawn shall be the umpire.


                                      14. No. TP1308A-R97
<PAGE>   53
                                                                SWISS RE AMERICA

D.       Failure of Party to Appoint an Arbitrator - If the respondent fails to
         appoint an arbitrator within 30 days after receiving a notice of
         intention to arbitrate, the claimant's arbitrator shall appoint an
         arbitrator on behalf of the respondent, such arbitrator shall then,
         together with the claimant's arbitrator, choose an umpire as provided
         in Paragraph C. of Part III of this Article.

E.       Involvement of Other Reinsurers - If more than one reinsurer is
         involved in the same dispute, all such reinsurers shall constitute and
         act as one party for purposes of this Article and communications shall
         be made by the Company to each of the reinsurers constituting the one
         party; provided, however, nothing herein shall impair the right of such
         reinsurers to assert several, rather than joint, defenses or claims,
         nor be construed as changing the liability of the reinsurers under the
         terms of this Agreement from several to joint.

F.       If the Company is involved in a dispute under the terms of this
         Agreement and in one or more separate disputes with one or more other
         reinsurers in which common questions of law or fact are in issue, the
         Company or the Reinsurer, at its option, may join with such other
         reinsurers in a common arbitration proceeding under the terms of this
         Article. If the Company and such other reinsurers have commenced
         arbitration, the Reinsurer may at its option join such proceeding for
         the determination of the dispute between the Company and the Reinsurer.

G.       Submission of Dispute to Panel - Unless otherwise extended by the
         arbitration panel or agreed to by the parties, each party shall submit
         its case to the panel within 30 days after the selection of the umpire.

H.       Procedure Governing Arbitration - All proceedings before the panel
         shall be informal and the panel shall not be bound by the formal rules
         of evidence. The panel shall have the power to fix all procedural rules
         relating to the arbitration proceeding. In reaching any decision, the
         panel shall give due consideration to the customs and usages of the
         insurance and reinsurance business.

I.       Arbitration Award - The arbitration panel shall render its decision
         within 60 days after termination of the proceeding, which decision
         shall be in writing, stating the reasons therefor. The decision of the
         majority of the panel shall be final and binding on the parties to the
         proceeding.

J.       Cost of Arbitration - Unless otherwise allocated by the panel, each
         party shall bear the expense of its own arbitrator and shall jointly
         and equally bear with the other parties the expense of the umpire and
         the arbitration.


                                      15. No. TP1308A-R97
<PAGE>   54
                                                                SWISS RE AMERICA

ARTICLE XXII - INSOLVENCY

A.       In the event of insolvency of the Company, the reinsurance provided by
         this Agreement shall be payable by the Reinsurer on the basis of the
         liability of the Company as respects Policies covered hereunder,
         without diminution because of such insolvency, directly to the Company
         or its liquidator, receiver, conservator or statutory successor except
         as provided in Sections 4118(a)(1)(A) and 1114(c) of the New York
         Insurance Law.

B.       The Reinsurer shall be given written notice of the pendency of each
         claim or loss which may involve the reinsurance provided by this
         Agreement within a reasonable time after such claim or loss is filed in
         the insolvency proceedings. The Reinsurer shall have the right to
         investigate each such claim or loss and interpose, at its own expense,
         in the proceedings where the claim or loss is to be adjudicated, any
         defense which it may deem available to the Company, its liquidator,
         receiver, conservator or statutory successor. 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.

C.       In addition to the offset provisions set forth in Article XVIII -
         Offset, any debts or credits, liquidated or unliquidated, in favor of
         or against either party on the date of the receivership or liquidation
         order (except where the obligation was purchased by or transferred to
         be used as an offset) are deemed mutual debts or credits and shall be
         set off with the balance only to be allowed or paid. Although such
         claim on the part of either party against the other may be unliquidated
         or undetermined in amount on the date of the entry of the receivership
         or liquidation order, such claim will be regarded as being in existence
         as of such date and any claims then in existence and held by the other
         party may be offset against it.

D.       Nothing contained in this Article is intended to change the
         relationship or status of the parties to this Agreement or to enlarge
         upon the rights or obligations of either party hereunder except as
         provided herein.

ARTICLE XXIII - SPECIAL TERMINATION

A.       Notwithstanding the termination provisions set forth in Article II -
         Effective Date and Termination, this Agreement may be:

         1.       Terminated by either party upon the happening of any of the
                  following events:


                                      16. No. TP1308A-R97
<PAGE>   55
                                                                SWISS RE AMERICA

                  a.       Entry of an order of liquidation, rehabilitation,
                           receivership or conservatorship with respect to the
                           Company or the Reinsurer by any court or regulatory
                           authority;

                  b.       Assignment of this Agreement by either party;

                  c.       Any transfer of control of either party by change in
                           ownership or otherwise;

                  d.       General reinsurance of any portion of the Company's
                           business it retains net for its own account, as
                           determined under the provisions of this Agreement
                           without prior consent of the Reinsurer.

         2.       Terminated in accordance with the provisions set forth in this
                  Paragraph, upon the discovery of the following event:

                           A reduction of 50% or more of the Company's
                           policyholders surplus during any calendar year. Such
                           reduction shall be determined by calculating the
                           difference between the Company's prior year annual
                           statement and each subsequent quarterly statutory
                           statement within such current calendar year.

                  As respects the event set forth in this Paragraph A.2., the
                  Company shall be obligated to notify the Reinsurer in writing
                  within 30 days after the filing of its quarterly statement.
                  Upon receipt of such notification the Reinsurer shall have the
                  right to terminate this Agreement, by giving not less than 30
                  days notice of its intention to do so.

B.       Any notice of termination pursuant to provisions set forth in Paragraph
         A.2. above shall be sent by certified mail, return receipt requested.
         Such notice period shall commence upon the other party's receipt of the
         notice of termination.

C.       In the event of termination, the Reinsurer shall not be liable for
         losses occurring subsequent to the date of termination.

ARTICLE XXIV - AMENDMENTS

This Agreement may be amended by mutual consent of the parties expressed in an
addendum; and such addendum, when executed by both parties, shall be deemed to
be an integral part of this Agreement and binding on the parties hereto.


                                      17. No. TP1308A-R97
<PAGE>   56
                                                                SWISS RE AMERICA

IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed
in duplicate, by their duly authorized representatives.

In Bala Cynwyd, Pennsylvania, this 25th day of September, 1997.

ATTEST:                             PHILADELPHIA CONSOLIDATED HOLDING
                                             CORPORATION'S
                                             following member companies:
                                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                                    PHILADELPHIA INSURANCE COMPANY

/s/ James J. Maguire                /s/ Christopher J. Maguire
---------------------------         ---------------------------

And in New York, New York, this 18th day of September, 1997.

ATTEST:                             SWISS REINSURANCE AMERICA CORPORATION

/s/ Peter Thomson                   /s/ Gerard M. Hopkins
---------------------------         ---------------------------
Member of Management                Member of Senior Management

MC:sb

MA130897


                                      18. No. TP1308A-R97
 
<PAGE>   57
                                                                SWISS RE AMERICA


                          SUPPLEMENT TO THE ATTACHMENTS


         DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS

A.  Wherever the term "Company" or "Reinsured" or "Reassured" or whatever other
    term is used to designate the reinsured company or companies within the
    various attachments to the reinsurance agreement, the term shall be
    understood to mean Company or Reinsured or Reassured or whatever other term
    is used in the attached reinsurance agreement to designate the reinsured
    company or companies.

B.  Wherever the term "Agreement" or "Contract" or "Policy" or whatever other
    term is used to designate the attached reinsurance agreement within the
    various attachments to the reinsurance agreement, the term shall be
    understood to mean Agreement or Contract or Policy or whatever other term is
    used to designate the attached reinsurance agreement.

C.  Wherever the term "Reinsurer" or "Reinsurers" or "Underwriters" or whatever
    other term is used to designate the reinsurer or reinsurers in the various
    attachments to the reinsurance agreement, the term shall be understood to
    mean Reinsurer or Reinsurers or Underwriters or whatever other term is used
    to designate the reinsuring company or companies.


                        INSOLVENCY FUNDS EXCLUSION CLAUSE


This Agreement excludes all liability of the Company arising by contract,
operation of law, or otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund or from reimbursement of any
person for any such liability. "Insolvency fund" includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any assessment of or
payment or assumption by any person of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.
<PAGE>   58
                                                                SWISS RE AMERICA


               POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

SECTION A

Excluding:

(a) All Business derived directly or indirectly from any Pool, Association or
    Syndicate which maintains its own reinsurance facilities.

(b) Any Pool or Scheme (whether voluntary or mandatory) formed after March 1,
    1968, for the purpose of insuring Property whether on a country-wide basis
    or in respect of designated areas. This Exclusion shall not apply to
    so-called Automobile Insurance Plans or other Pools formed to provide
    coverage for Automobile Physical Damage.

SECTION B

It is agreed that business, written by the Company for the same perils, which is
known at the time to be insured by or in excess of underlying amounts placed in
the following Pools, Associations or Syndicates, whether by way of insurance or
reinsurance is excluded hereunder:

    Industrial Risk Insurers (successor to Factory Insurance Association and Oil
    Insurance Association); Associated Factory Mutuals; Improved Risk Mutuals.

    Any Pool, Association or Syndicate formed for the purpose of writing Oil,
    Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs.

    United States Aircraft Insurance Group, Canadian Aircraft Insurance Group,
    Associated Aviation Underwriters, American Aviation Underwriters.

SECTION B does not apply:

(a) Where the Total Insured Value over all interests of the risk in question is
    less than $250,000,000.

(b) To interests traditionally underwritten as Inland Marine or Stock and/or
    Contents written on a Blanket basis.

(c) To Contingent Business Interruption, except when the Company is aware that
    the key location is known at the time to be insured in any Pool, Association
    or Syndicate named above.

(d) To risks as follows: Offices, Hotels, Apartments, Hospitals, Educational
    Establishments, Public Utilities (other than Railroad Schedules) and
    Builders Risks on the classes of risks specified in this subsection (d)
    only.


                                      - 1 -
<PAGE>   59
                                                                SWISS RE AMERICA


SECTION C

NEVERTHELESS the Reinsurer specifically agrees that Liability accruing to the
Company from its participation in:

(a) The following so-called "Coastal Pools":

    ALABAMA INSURANCE UNDERWRITING ASSOCIATION 
    FLORIDA WINDSTORM UNDERWRITING ASSOCIATION 
    GEORGIA UNDERWRITING ASSOCIATION
    LOUISIANA INSURANCE UNDERWRITING ASSOCIATION 
    MISSISSIPPI WINDSTORM INSURANCE UNDERWRITING ASSOCIATION 
    NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION
    SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING ASSOCIATION 
    TEXAS CATASTROPHE PROPERTY INSURANCE ASSOCIATION

    and

(b) All "Fair Plan" and "Rural Risk Plan" Business

for all perils otherwise protected hereunder will not be excluded, except
however, that this reinsurance does not include any increase in such liability
resulting from:

    (1) The inability for any other participant in such "Coastal Pool" and/or
        "Fair Plan" and/or "Rural Risk Plan" to meet its liability.

    (2) Any Claim against such "Coastal Pool" and/or "Fair Plan" and/or "Rural
        Risk Plan" or any participant therein, including the Company, whether by
        way of subrogation or otherwise, brought by or on behalf of any
        insolvency fund (as defined in the Insolvency Funds Exclusion Clause
        incorporated in this agreement).


                                      - 2 -
<PAGE>   60
                                                                SWISS RE AMERICA


                      TOTAL INSURED VALUE EXCLUSION CLAUSE


It is the mutual intention of the parties to exclude risks, other than Offices,
Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities
(except Railroad schedules) and Builders Risk on the above classes where, at the
time of the cession, the Total Insured Value over all interests exceeds
$250,000,000. However, the Company shall be protected hereunder, subject to the
other terms and conditions of this Agreement, if subsequently to cession being
made the Company becomes acquainted with the true facts of the case and
discovers that the mutual intention has been inadvertently breached, the Company
shall at the first opportunity, and certainly by next anniversary of the
original policy, exclude the risk in question.

It is agreed that this mutual intention does not apply to Contingent Business
Interruption or to interest traditionally underwritten as Inland Marine or to
Stock and/or Contents written on a blanket basis except where the Company is
aware that the Total Insured Value of $250,000,000 is already exceeded for
buildings, machinery, equipment and direct use and occupancy at the key
location.

It is understood and agreed that this Clause shall not apply hereunder where the
Company writes 100% of the risk.

Notwithstanding anything contained herein to the contrary, it is the mutual
intention of the parties in respect of bridges and tunnels to exclude such risks
where the Total Insured Value over all interests exceeds $250,000,000.
<PAGE>   61
                                                                SWISS RE AMERICA


NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A.

N.M.A. 1119


1.  This Reinsurance does not cover any loss or liability accruing to the
    Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from
    any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic
    or Nuclear Energy risks.

2.  Without in any way restricting the operation of paragraph 1. of this Clause,
    this Reinsurance does not cover any loss or liability accruing to the
    Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from
    any insurance against Physical Damage (including business interruption or
    consequential loss arising out of such Physical Damage) to:

    I.   Nuclear reactor power plants including all auxiliary property on the
         site, or

    II.  Any other nuclear reactor installation, including laboratories handling
         radioactive materials in connection with reactor installations, and
         critical facilities as such, or

    III. Installations for fabricating complete fuel elements or for processing
         substantial quantities of "special nuclear material," and for
         reprocessing, salvaging, chemically separating, storing or disposing of
         spent nuclear fuel or waste materials, or

    IV.  Installations other than those listed in paragraph 2. III. above using
         substantial quantities of radioactive isotopes or other products of
         nuclear fission.

3.  Without in any way restricting the operation of paragraphs 1. and 2. of this
    Clause, this Reinsurance does not cover any loss or liability by radioactive
    contamination accruing to the Reassured, directly or indirectly, and whether
    as Insurer or Reinsurer, from any insurance on property which is on the same
    site as a nuclear reactor power plant or other nuclear installation and
    which normally would be insured therewith, except that this paragraph 3.
    shall not operate:

        (a) where the Reassured does not have knowledge of such nuclear reactor
            power plant or nuclear installation, or

        (b) where the said insurance contains a provision excluding coverage for
            damage to property caused by or resulting from radioactive
            contamination, however caused. However, on and after 1st January,
            1960, this sub-paragraph (b) shall only apply provided the said
            radioactive contamination exclusion provision has been approved by
            the Governmental Authority having jurisdiction thereof.




                                     - 1 -
<PAGE>   62
                                                                SWISS RE AMERICA


4.  Without in any way restricting the operation of paragraphs 1., 2. and 3. of
    this Clause, this Reinsurance does not cover any loss or liability by
    radioactive contamination accruing to the Reassured, directly or indirectly,
    and whether as Insurer or Reinsurer, when such radioactive contamination is
    a named hazard specifically insured against.

5.  It is understood and agreed this Clause shall not extend to risks using
    radioactive isotopes in any form where the nuclear exposure is not
    considered by the Reassured to be the primary hazard.

6.  The term "special nuclear material" shall have the meaning given to it by
    the Atomic Energy Act of 1954 or by any law amendatory thereof.

7.  Reassured to be sole judge of what constitutes:

    (a) substantial quantities, and

    (b) the extent of installation, plant or site.

NOTE: - Without in any way restricting the operation of paragraph 1. hereof, it
is understood and agreed that

    (a) all policies issued by the Reassured on or before 31st December, 1957
        shall be free from the application of the other provisions of this
        Clause until expiry date or 31st December, 1960 whichever first occurs
        whereupon all the provisions of this Clause shall apply,

    (b) with respect to any risk located in Canada policies issued by the
        Reassured on or before 31st December, 1958 shall be free from the
        application of the other provisions of this Clause until expiry date or
        31st December, 1960 whichever first occurs whereupon all the provisions
        of this Clause shall apply.


N.M.A. 1119


                                      - 2 -
<PAGE>   63
                                                                SWISS RE AMERICA


NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE -
CANADA

N.M.A. 1980


1.  This Agreement does not cover any loss or liability accruing to the Company
    directly or indirectly, and whether as Insurer or Reinsurer, from any Pool
    of Insurers or Reinsurers formed for the purpose of covering Atomic or
    Nuclear Energy risks.

2.  Without in any way restricting the operation of paragraph 1. of this clause,
    this Agreement does not cover any loss or liability accruing to the Company,
    directly or indirectly, and whether as Insurer or Reinsurer, from any
    insurance against Physical Damage (including business interruption or
    consequential loss arising out of such Physical Damage) to:

    a.  Nuclear reactor power plants including all auxiliary property on the
        site, or

    b.  Any other nuclear reactor installation, including laboratories handling
        radioactive materials in connection with reactor installations, and
        critical facilities as such, or

    c.  Installations for fabricating complete fuel elements or for processing
        substantial quantities of prescribed substances, and for reprocessing,
        salvaging, chemically separating, storing or disposing of spent nuclear
        fuel or waste materials, or

    d.  Installations other than those listed in c. above using substantial
        quantities of radioactive isotopes or other products of nuclear fission.

3.  Without in any way restricting the operation of paragraphs 1. and 2. of this
    clause, this Agreement does not cover any loss or liability by radioactive
    contamination accruing to the Company, directly or indirectly, and whether
    as Insurer or Reinsurer, from any insurance on property which is on the same
    site as a nuclear reactor power plant or other nuclear installation and
    which normally would be insured therewith, except that this paragraph 3.
    shall not operate:

    a.  where the Company does not have knowledge of such nuclear reactor power
        plant or nuclear installation, or

    b.  where the said insurance contains a provision excluding coverage for
        damage to property caused by or resulting from radioactive
        contamination, however caused.


                                      - 1 -
<PAGE>   64
                                                                SWISS RE AMERICA


4.  Without in any way restricting the operation of paragraphs 1., 2. and 3. of
    this clause, this Agreement does not cover any loss or liability by
    radioactive contamination accruing to the Company, directly or indirectly,
    and whether as Insurer or Reinsurer, when such radioactive contamination is
    a named hazard specifically insured against.

5.  This clause shall not extend to risks using radioactive isotopes in any form
    where the nuclear exposure is not considered by the Company to be the
    primary hazard.

6.  The term "prescribed substances" shall have the meaning given to it by the
    Atomic Energy Control Act R.S.C. 1974 or by any law amendatory thereof.

7.  Company to be sole judge of what constitutes:

    a.  substantial quantities, and

    b.  the extent of installation, plant or site.

8.  Without in any way restricting the operation of paragraphs 1., 2., 3. and 4.
    of this clause, this Agreement does not cover any loss or liability accruing
    to the Company, directly or indirectly, and whether as Insurer or Reinsurer,
    caused by any nuclear incident as defined in The Nuclear Liability Act,
    nuclear explosion or contamination by radioactive material.

NOTE:   Without in any way restricting the operation of paragraphs 1., 2., 3.
        and 4. of this clause, paragraph 8. of this clause shall apply to all
        original contracts of the Company whether new, renewal or replacement
        which become effective on or after December 31, 1984.


N.M.A. 1980


                                      - 2 -
<PAGE>   65
                                                                SWISS RE AMERICA


             NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4

1.  This Reinsurance does not cover any loss or liability accruing to the
    Reassured as a member of, or subscriber to, any association of insurers or
    reinsurers formed for the purpose of covering nuclear energy risks or as a
    direct or indirect reinsurer of any such member, subscriber or association.

2.  Without in any way restricting the operations of Nuclear Incident Exclusion
    Clauses, - Liability, - Physical Damage, - Boiler and Machinery and
    paragraph 1. of this Clause, it is understood and agreed that for all
    purposes of the reinsurance assumed by the Reinsurer from the Reinsured, all
    original insurance policies or contracts of the Reinsured (new, renewal and
    replacement) shall be deemed to include the applicable existing Nuclear
    Clause and/or Nuclear Exclusion Clause(s) in effect at the time and any
    subsequent revisions thereto as agreed upon and approved by the Insurance
    Industry and/or a qualified Advisory or Rating Bureau.
<PAGE>   66
                                                                SWISS RE AMERICA


                       PROPERTY FACULTATIVE EXCESS OF LOSS
                        AUTOMATIC REINSURANCE AGREEMENT
                                   NO. PSA-31

                                     between

                 PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
                           following member companies:
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                         PHILADELPHIA INSURANCE COMPANY
                        Both of Bala Cynwyd, Pennsylvania

                                       and

                      SWISS REINSURANCE AMERICA CORPORATION
                               New York, New York
<PAGE>   67
                                                                SWISS RE AMERICA


       PROPERTY FACULTATIVE EXCESS OF LOSS AUTOMATIC REINSURANCE AGREEMENT
                                   NO. PSA-31

<TABLE>
<CAPTION>
ARTICLE                            CONTENTS                                  PAGE
-------                            --------                                  ----
<S>                                <C>                                       <C>
I                                  PREAMBLE                                    1
II                                 TERM                                        2
III                                TERRITORY                                   2
IV                                 LIMITS AND RETENTION                        2
V                                  ULTIMATE NET LOSS                           2
VI                                 SPECIAL ACCEPTANCES                         3
VII                                BINDING METHOD AND DECLINATIONS             3
VIII                               PREMIUM AND COMMISSIONS                     3
IX                                 EXCLUSIONS                                  4
X                                  REPORTS AND REMITTANCES                     6
XI                                 LOSS PROCEDURE                              7
XII                                SALVAGE AND SUBROGATION                     7
XIII                               CANCELLATION                                8
XIV                                LOSS OCCURRENCE                             8
XV                                 ACCESS TO RECORDS                           9
XVI                                TAXES                                      10
XVII                               INSOLVENCY                                 10
XVIII                              ARBITRATION                                10
XIX                                ERRORS AND OMISSIONS                       11
XX                                 AMENDMENT PROVISIONS                       11
XXI                                REINSURER CERTIFICATE PROVISION            11
                                   SIGNATURES                                 11
</TABLE>


ATTACHMENTS:               INSOLVENCY FUNDS EXCLUSION CLAUSE
                           POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE
                           TOTAL INSURED VALUE EXCLUSION CLAUSE
                           NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -
                                REINSURANCE - U.S.A.
                           POLLUTION AND SEEPAGE EXCLUSION CLAUSE
                           COASTAL PROPERTY UNDERWRITING GUIDELINES
                           GENERAL CONDITIONS
<PAGE>   68
                                                                SWISS RE AMERICA


                       PROPERTY FACULTATIVE EXCESS OF LOSS
                         AUTOMATIC REINSURANCE AGREEMENT
                                   NO. PSA-31
                  (hereinafter referred to as the "Agreement")

                                     between

                 PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
                           following member companies:
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                         PHILADELPHIA INSURANCE COMPANY
                        Both of Bala Cynwyd, Pennsylvania
                   (hereinafter referred to as the "Company")

                                       and

                      SWISS REINSURANCE AMERICA CORPORATION
                               New York, New York
                  (hereinafter referred to as the "Reinsurer")

ARTICLE I - PREAMBLE

A.       This is a property facultative reinsurance agreement which provides
         reinsurance of policies written or renewed by the Company and ceded in
         accordance with the terms and conditions of this Agreement.

B.       The Reinsurer shall indemnify the Company on an excess of loss basis in
         respect of the Company's Ultimate Net Loss paid or to be paid by the
         Company as a result of losses occurring during the term of the
         Agreement, for Policies ceded on or after January 1, 1997, subject to
         the terms and conditions contained herein.

C.       Cessions to this Agreement may be made only on an excess of loss basis.
         The Reinsurer's liability shall attach excess of the Company's net
         retained liability as outlined in Article IV - Limits and Retention.

D.       Under this Agreement, the indemnity for reinsured loss applies to those
         Policies issued by the Company with respect to the following Lines of
         Business as classified in the Company's Annual Statement, subject to
         the exclusions set forth in Article IX - Exclusions.

         NAIC
         CODE:    LINES OF BUSINESS

         01       Fire
         02       Allied Lines
         21       Commercial Auto Physical Damage - Comprehensive (coverage
                  written on a garage open lot basis)
         09       Inland Marine
         05       Commercial Multiple Peril (Section I only)


                                  1. No. PSA-31
<PAGE>   69
                                                                SWISS RE AMERICA


ARTICLE 11 - TERM

This Agreement applies to policies written, bound or renewed by the Company and
ceded to the Reinsurer on or after 12:01 a.m., January 1, 1997, and shall remain
in force until cancelled or terminated as provided in accordance with Article
XIII - Cancellation.


ARTICLE III - TERRITORY

This Agreement shall follow the territorial limits of the Company's original
policies but is limited to policies issued covering property located in the
United States of America, its territories and possessions.


ARTICLE IV -  LIMITS AND RETENTION

A.       The Company shall retain the first $2,000,000 of Ultimate Net Loss as
         respects any one risk, any one loss occurrence. The Reinsurer shall
         then be liable for the amount by which the Company's Ultimate Net Loss
         exceeds the Company's retention of $2,000,000, but the liability of the
         Reinsurer shall never exceed $18,000,000 any one: risk, any one loss
         occurrence.

B.       The Company shall be the sole judge of what constitutes one risk.

C.       Reinsurance of the Company's retention, set forth above, shall not be
         deducted in arriving at the Company's Ultimate Net Loss herein.


ARTICLE V - ULTIMATE NET LOSS

A.       The term "Ultimate Net Loss" shall mean the actual sum paid or to be
         paid by the Company in settlement of losses or liability after making
         deductions for all recoveries, including subrogation, salvages and
         claims upon other reinsurances, whether collectible or not, which inure
         to the benefit of the Reinsurer under this Agreement, and shall include
         Allocated Loss Adjustment Expenses incurred by the Company.

B.       The term "Ultimate Net Loss" shall include 90% of Extra Contractual
         Obligations, as defined herein, but only as respects business covered
         under this Agreement.

C.       The term "Allocated Loss Adjustment Expenses" shall mean all allocated
         expenses incurred by the Company in connection with the investigation,
         settlement, defense or litigation of any claim or loss covered by the
         Policies reinsured under this Agreement, and shall exclude the salaries
         of Company employees, office expenses or any other unallocated
         expenses.


                                  2. No. PSA-31
<PAGE>   70
                                                                SWISS RE AMERICA


D.       All recoveries, salvages or payments recovered or received subsequent
         to a loss settlement under this Agreement shall be applied as if
         recovered or received prior to the aforesaid settlement and all
         necessary adjustments to the loss settlement shall be made by the
         parties hereto.

E.       Nothing in this Article shall be construed to mean that losses are not
         recoverable hereunder until the Ultimate Net Loss of the Company has
         been ascertained.


ARTICLE VI - SPECIAL ACCEPTANCES

Risks which are beyond the terms, conditions or limitations of this Agreement
may be submitted to the Reinsurer as Special Acceptances. Reporting of such
risks and premium, therefore, shall be subject to the terms, conditions or
limitations of this Agreement.


ARTICLE VII - BINDING METHOD AND DECLINATIONS

A.       The liability of the Reinsurer shall attach at the time the Company
         marks the reinsurance in its records. Each cession, after being bound,
         is to be reported to the Reinsurer on a monthly bordereau. If the
         reinsurance inception is prior to the date on which the cession is made
         (or revised), the cession must be made on the basis "Warranted No Known
         or Reported Losses" as of the date on which the cession was made. No
         cession shall be made when the inception of the "Reinsurance Term" is
         more than forty-five (45) days prior to the date on which the
         reinsurance is bound.

B.       If the reinsurance is unacceptable to the Reinsurer for any reason, the
         Reinsurer shall so notify the Company in writing of its declination
         within fifteen (15) days of the Reinsurer's receipt of the bordereau.
         The Company shall replace the reinsurance promptly, but within a period
         not to exceed thirty (30) days after receipt by the Company of the
         notice of declination from the Reinsurer, or as soon as practicable
         under applicable state regulation, but in no event to exceed sixty (60)
         days.


ARTICLE VIII - PREMIUM AND COMMISSIONS

The Company shall rate each submission to this Agreement in accordance with
either the Swiss Reinsurance America Corporation Electronic Rating software,
where applicable, or the hard copy Swiss Reinsurance America Corporation Rating
Scales, but in all cases in accordance with instructions provided by Swiss
Reinsurance America Corporation concerning the applicability of "Sprinklered" or
"Non-Sprinklered" scales. The Company shall deduct 30% commission allowance from
the calculated gross reinsurance premium to determine the excess premium for
each risk. However, in no case will the final rate for calculation of excess
premium be less than .04 gross of commission per $100 of exposure.


                                  3. No. PSA-31
<PAGE>   71
                                                                SWISS RE AMERICA


Excess of Loss policies shall be ceded on a net premium basis with no ceding
commission allowed to the Company.


ARTICLE IX - EXCLUSIONS

THIS AGREEMENT DOES NOT COVER:

A.       THE FOLLOWING GENERAL CATEGORIES

         1.       All Lines of Business not specifically listed in Article I - 
                  Business Covered.

         2.       Policies issued with a deductible of $100,000 or more;
                  provided this exclusion shall not apply to Policies which
                  customarily provide a percentage deductible on the perils of
                  earthquake or windstorm.

         3.       Reinsurance assumed, except pro rata local agency reinsurance
                  on specific risks and except reinsurance assumed from an
                  affiliated company.

         4.       Ex-gratia Payments greater than $500,000, except with
                  Reinsurer's prior consent.

         5.       The Company's liability for all damages, including but not
                  limited to punitive, exemplary, compensatory or consequential
                  damages, to an insured or any other party resulting from any
                  legal proceeding by an insured or any other party against the
                  Company.

         6.       Loss or damage occasioned by war, invasion, revolution,
                  bombardment, hostilities, acts of foreign enemies, civil war,
                  rebellion, insurrection, military or usurped power, martial
                  law, or confiscation by order of any government or public
                  authority, but not excluding loss or damage which would be
                  covered under a standard form of policy containing a standard
                  war exclusion clause.

         7.       Insolvency Funds as per the attached Insolvency Funds
                  Exclusion Clause, which is made part of this Agreement.

         8.       Pool, Association and Syndicate business as per the attached
                  Pools, Associations and Syndicates Exclusion Clause, which is
                  made part of this Agreement.

         9.       Risks where the Total Insured Value, per risk, exceeds the
                  figure specified as per the attached Total Insured Value
                  Exclusion Clause, which is made part of this Agreement.

B.       THE FOLLOWING CLASSES OF BUSINESS AND TYPES OF RISKS

         1.       Mortgage Impairment.


                                  4. No. PSA-31
<PAGE>   72
                                                                SWISS RE AMERICA


         2.       Growing and/or standing crops.

         3.       Mortality and Health covering birds, animals or fish.

         4.       Contingent Business Interruption.

         5.       All onshore and offshore gas and oil drilling rigs.

         6.       Petrochemical operations engaged in the production, refining
                  or upgrading of petroleum or petroleum derivatives or natural
                  gas.

         7.       Satellites.

         8.       All railroad business.

         9.       As respects Inland Marine business:

                  a.       Registered Mail and Armored Car Policies.

                  b.       Jeweler's Block Policies.

                  c.       Furrier's Customers Policies.

                  d.       Rolling Stock.

                  e.       Parcel Post when written to cover banks and financial
                           institutions.

                  f.       Commercial Negative Film Insurance.

                  g.       Garment Contractors Policies.

                  h.       Mining Equipment while underground.

                  i.       Radio and Television Broadcasting Towers.

                  j.       Motor Truck Cargo Insurance written for common
                           carriers operating beyond a radius of 200 miles.

         10.      Overhead transmission and distribution lines and their
                  supporting structures other than those on or within 1,000 feet
                  of the insured premises.

                  It is understood and agreed that public utilities extension
                  and/or suppliers extension and/or contingent business
                  interruption coverages are not subject to this exclusion,
                  provided that these are not part of a transmitters' or
                  distributors' policy.

C.       THE FOLLOWING PERILS

         1.       Flood and/or Earthquake when written as such.

         2.       Difference in Conditions, however styled.

         3.       Pollution to the extent excluded in the Company's original
                  Policies. It is warranted that the Reinsurer's prior approval
                  is required for all changes to the Company's Policy pollution
                  wording.

         4.       Nuclear Incident Exclusion Clauses which are attached and made
                  part of this Agreement:


                                  5. No. PSA-31
<PAGE>   73
                                                                SWISS RE AMERICA


                  a.       Nuclear Incident Exclusion Clause - Physical Damage -
                           Reinsurance - U.S.A.

                  b.       Nuclear Incident Exclusion Clause - Physical Damage -
                           Reinsurance - Canada

                  c.       Nuclear Incident Exclusion Clause - Reinsurance - No.
                           4.

         5.       Risks in wind exposed areas as per the attached Coastal
                  Property Underwriting Guidelines.

D.       In the event the Company is inadvertently bound on any risk which is
         excluded under this Agreement the reinsurance provided under this
         Agreement shall apply to such risk until discovery by the Company
         within its Home Office of the existence of such risk and for 60 days
         thereafter, and shall then cease unless within the 60 day period, the
         Company has received from the Reinsurer written notice of its approval
         of such risk.


ARTICLE X - REPORTS AND REMITTANCES

A.       The Company shall keep sufficient records for the express purpose of
         recording therein the amounts and other particulars of reinsurance
         ceded hereunder.

B.       Payment by the Reinsurer of its portion of loss and Allocated Loss
         Adjustment Expenses paid by the Company shall be made by the Reinsurer
         to the Company within 15 days after proof of payment is received by the
         Reinsurer.

C.       The Company shall furnish the Reinsurer with the following reports:

         1.       Monthly:

                  Monthly account current consisting of total written premiums,
                  less return premiums, on transactions accounted for during the
                  month in question.

         2.       Annually:

                  As soon as practical following the close of each calendar
                  year, the Company will furnish the Reinsurer with unearned
                  premiums and losses and allocated loss adjustment expenses
                  outstanding.

         3.       Payment of Balances:

                  Within 30 days after the close of each month, the Company
                  shall render the monthly account current specified above, for
                  such month and the balance due thereunder shall be payable by
                  the debtor within 60 days after the close of the month under
                  adjustment. It is agreed, however, that the Reinsurer will
                  immediately pay upon request any loss, their share of which
                  exceeds $50,000, arising from any one event. Nevertheless, the
                  Reinsurer shall have the right to reduce any such payment by
                  the amount, if any, standing in its favor per current account.


                                  6. No. PSA-31
<PAGE>   74
                                                                SWISS RE AMERICA


         4.       Losses:

                  The Company shall report all losses to the Reinsurer on an
                  individual case basis.


ARTICLE XI - LOSS PROCEDURE

A.       The Company shall promptly notify the Reinsurer of each claim which may
         involve the reinsurance provided hereunder and of all subsequent
         developments relating thereto, stating the amount claimed and estimate
         of the Company's Ultimate Net Loss and Allocated Loss Adjustment
         Expenses. Notwithstanding the provisions set forth in any other
         Article herein, prompt notification of loss shall be considered a
         condition precedent to liability under this Agreement.

B.       The Company shall have the responsibility to investigate, defend or
         negotiate settlements of all claims and lawsuits related to Policies
         written by the Company and reinsured under this Agreement. The
         Reinsurer, at its own expense, may associate with the Company in the
         defense or control of any claim, suit or other proceeding which
         involves or is likely to involve the reinsurance provided under this
         Agreement, and the Company shall cooperate in every respect in the
         defense of any such claim, suit or proceeding.

C.       Payment of Reinsurance Recoveries

         Recoveries under this Agreement shall be made on an individual case
         basis for all claims settlements and the Reinsurer will remit forthwith
         its share of any loss covered hereunder upon receipt of satisfactory
         evidence of such loss having been paid by the Company unless otherwise
         mutually agreed.


ARTICLE XII - SALVAGE AND SUBROGATION

A.       In the event of the payment of any indemnity by the Reinsurer under
         this Agreement, the Reinsurer shall be subrogated, to the extent of
         such payment, to all of the rights of the Company against any person or
         entity legally responsible for damages of the loss. The Company agrees
         to enforce such rights; but, in case the Company refuses or neglects to
         do so, the Reinsurer is hereby authorized and empowered to bring any
         appropriate action in the name of the Company or their policyholders or
         otherwise to enforce such rights.

B.       From any amount recovered by subrogation, salvage or other means, there
         shall first be deducted the expenses incurred in effecting the
         recovery. The balance shall then be used to reimburse the excess
         carriers in the inverse order to that in which their respective
         liabilities attached, before being used to reimburse the Company for
         its primary loss.


                                  7. No. PSA-31
<PAGE>   75
                                                                SWISS RE AMERICA


ARTICLE XIII - CANCELLATION

A.       Cancellation

         1.       This Agreement may be terminated at the close of any calendar
                  quarter by either party giving to the other 90 days prior
                  written notice by certified mail of its intention to do so.

         2.       Upon termination of this Agreement, the Reinsurer shall be
                  liable for losses occurring prior to the date of termination;
                  however, the Reinsurer shall have no liability for losses
                  occurring subsequent to the termination of this Agreement.

         3.       If this Agreement shall terminate while a loss covered
                  hereunder is in progress, it is agreed that, subject to the
                  other conditions of this Agreement, the Reinsurer shall
                  indemnify the Company as if the entire loss had occurred
                  during the time this Agreement is in force provided the loss
                  covered hereunder started before the date of termination.

B.       Termination

         Notwithstanding any other provisions of this Agreement to the contrary,
         this Agreement shall automatically terminate upon the happening of the
         following events:

         1.       Insolvency of the Company or Reinsurer which results in the
                  intervention of insurance regulatory authorities; or

         2.       Entry of an order of liquidation, rehabilitation, receivership
                  or conservation with respect to the Company or Reinsurer by
                  any court of regulatory authority.


ARTICLE XIV - LOSS OCCURRENCE

A.       The term "Loss Occurrence" shall mean the sum of all individual losses
         directly occasioned by any one disaster, accident or loss or series of
         disasters, accidents or losses arising out of one event which occurs
         within the area of one state of the United States or province of Canada
         and states or provinces contiguous thereto and to one another. However,
         the duration and extent of any one Loss Occurrence shall be limited to
         all individual losses sustained by the Company occurring during any
         period of 168 consecutive hours arising out of and directly occasioned
         by the same event except that the term "Loss Occurrence" shall be
         further defined as follows:

         1.       As regards windstorm, hail, tornado, hurricane, cyclone,
                  including ensuing collapse and water damage, all individual
                  losses sustained by the Company occurring during any period of
                  72 consecutive hours arising out of and directly occasioned by
                  the same event. However, the event need not be limited to one
                  state or province or states or provinces contiguous thereto.


                                  8. No. PSA-31
<PAGE>   76
                                                                SWISS RE AMERICA


         2.       As regards riot, riot attending a strike, civil commotion,
                  vandalism and malicious mischief, all individual losses
                  sustained by the Company, occurring during any period of 72
                  consecutive hours within the area of one municipality or
                  county and the municipalities or counties contiguous thereto
                  arising out of and directly occasioned by the same event. The
                  maximum duration of 72 consecutive hours may be extended in
                  respect of individual losses which occur beyond such 72
                  consecutive hours during the continued occupation of an
                  assured's premises by strikers, provided such occupation
                  commenced during the aforesaid period.

         3.       As regards earthquake (the epicentre of which need not
                  necessarily be within the territorial confines referred to in
                  the opening paragraph of this Article) and fire following
                  directly occasioned by the earthquake, only those individual
                  fire losses which commence during the period of 168
                  consecutive hours may be included in the Company's Loss
                  Occurrence.

         4.       As regards Freeze, only individual losses directly occasioned
                  by collapse, breakage of glass and water damage (caused by
                  bursting of frozen pipes and tanks) may be included in the
                  Company's Loss Occurrence.

B.       For all Loss Occurrences the Company may choose the date and time when
         any such period of consecutive hours commences provided that it is not
         earlier than the date and time of the occurrence of the first recorded
         individual loss sustained by the Company arising out of that disaster,
         accident or loss and provided that only one such period of 168
         consecutive hours shall apply with respect to one event except for
         those Loss Occurrences referred to in 1. and 2. above, where only one
         such period of 72 consecutive hours shall apply with respect to one
         event, regardless of the duration of the event.

C.       No individual losses occasioned by an event that would be covered by 72
         hours clauses may be included in any Loss Occurrence claimed under the
         168 hours provision.


ARTICLE XV - ACCESS TO RECORDS

The Reinsurer shall have the right to examine, at any reasonable time, all
papers, books, accounts, documents and other records in the possession of the
Company related to the business effected hereunder. Upon request, the Company
shall supply the Reinsurer with copies of such records. The Reinsurer's right of
inspection shall continue to exist after termination of this Agreement as long
as one of the parties hereto has a claim against the other.


                                  9. No. PSA-31
<PAGE>   77
                                                                SWISS RE AMERICA


ARTICLE XVI - TAXES

A.       The Company shall be responsible for paying all taxes (other than
         income or profit taxes levied on the Reinsurer) on reinsurance effected
         under this Agreement.

B.       If the Reinsurer is obligated to pay taxes (other than income or profit
         taxes) on reinsurance effected hereunder, the Company shall reimburse
         the Reinsurer. However, the Company shall not be required to pay the
         same tax twice.


ARTICLE XVII - INSOLVENCY

In the event of the insolvency of the Company, reinsurance under this Agreement
shall be payable by the Reinsurer on the basis of the liability of the Company
without diminution because of such insolvency, directly to the Company or its
liquidator, receiver or statutory successor. Nothing contained herein shall in
any manner create any obligations of the Reinsurer or establish any rights
against the Reinsurer in favor of the Company's policyholder or any other
person not party to the Agreement. The Reinsurer shall be given written notice
of the pendency of each claim which may involve the reinsurance afforded by this
Agreement within a reasonable time after such claim is filed in the insolvency
proceeding. The Reinsurer shall have the right to investigate each such claim
and interpose, at its own expense, in the proceeding where the claim is to be
adjudicated, any defense which it may deem available to the Company or its
liquidator, receiver or statutory successor. 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.


ARTICLE XVIII - ARBITRATION

Any dispute between the Company and the Reinsurer arising out of the provisions
of this Agreement or concerning its interpretation or validity shall be
submitted to arbitration. Any party may initiate arbitration by giving written
notice to the other party of its intention to arbitrate together with the name
of its selected arbitrator. Within thirty (30) days of receiving such notice,
the other party shall appoint an arbitrator. In the event that any party fails
to appoint an arbitrator within the time specified, the other party shall have
the right to appoint the said arbitrator forthwith. The two arbitrators named
shall select a third arbitrator. The arbitrators shall be officials or former
officials of insurance or reinsurance companies not under the control or
management of any party to this Agreement. The arbitrators shall not be bound
by judicial formalities or formal rules of evidence and shall give due
consideration to the customs and usage of the insurance and reinsurance
business. A majority decision in writing shall be final and binding. Unless
otherwise allocated by the


                                 10. No. PSA-31
<PAGE>   78
                                                                SWISS RE AMERICA


arbitrators, all costs of the arbitration proceeding, including the fees of the
arbitrators, shall be borne equally by the parties.


ARTICLE XIX - ERRORS AND OMISSIONS

Errors or omissions made in connection with the reporting of any premium, or
with the reporting of any business reinsured hereunder, shall not relieve either
party from any liability which would have attached had such error or omission
not occurred, and provided such error or omission is rectified promptly upon
discovery.


ARTICLE XX - AMENDMENT PROVISIONS

This Agreement may, by mutual consent, be altered in any of its terms and
conditions by a signed addendum thereto.


ARTICLE XXI - REINSURER CERTIFICATE PROVISION

Each cession shall be subject to the General Conditions of the Reinsurer's
certificate of facultative reinsurance which is attached to and made part
hereof, except where in conflict with this Agreement.


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives, as of the following dates:

In Bala Cynwyd, Pennsylvania this 5th day of February, 1998.

ATTEST:                          PHILADELPHIA CONSOLIDATED HOLDING
                                       CORPORATION'S
                                       following member companies:
                                 PHILADELPHIA INDEMNITY INSURANCE COMPANY
                                 PHILADELPHIA INSURANCE COMPANY


/s/ Florence R. McCallum         /s/ Christopher J. Maguire  V.P. Underwriting
--------------------             ---------------------------------------------

And in New York, New York, this 23rd day December, 1997.

ATTEST:                          SWISS REINSURANCE AMERICA CORPORATION

/s/ Joe Boyer                    /s/ Maria A. Hilcox
--------------------             --------------------------------------------
Member of Management                    Member of Management Committee

MC:sb
PHIL-PSA31-97
                                 11. No. PSA-31

<PAGE>   79
                                                                SWISS RE AMERICA

                         SUPPLEMENT TO THE ATTACHMENTS


         DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS

A.       Wherever the term "Company" or "Reinsured" or "Reassured" or whatever
         other term is used to designate the reinsured company or companies
         within the various attachments to the reinsurance agreement, the term
         shall be understood to mean Company or Reinsured or Reassured or
         whatever other term is used in the attached reinsurance agreement to
         designate the reinsured company or companies.

B.       Wherever the term "Agreement" or "Contract" or "Policy" or whatever
         other term is used to designate the attached reinsurance agreement
         within the various attachments to the reinsurance agreement, the term
         shall be understood to mean Agreement or Contract or Policy or whatever
         other term is used to designate the attached reinsurance agreement.

C.       Wherever the term "Reinsurer" or "Reinsurers" or "Underwriters" or
         whatever other term is used to designate the reinsurer or reinsurers in
         the various attachments to the reinsurance agreement, the term shall be
         understood to mean Reinsurer or Reinsurers or Underwriters or whatever
         other term is used to designate the reinsuring company or companies.



                        INSOLVENCY FUNDS EXCLUSION CLAUSE


This Agreement excludes all liability of the Company arising by contract,
operation of law, or otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund or from reimbursement of any
person for any such liability. "Insolvency fund" includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any assessment of or
payment or assumption by any person of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.
<PAGE>   80
                                                                SWISS RE AMERICA


               POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

SECTION A

Excluding:

(a)      All Business derived directly or indirectly from any Pool, Association
         or Syndicate which maintains its own reinsurance facilities.

(b)      Any Pool or Scheme (whether voluntary or mandatory) formed after March
         1, 1968, for the purpose of insuring Property whether on a country-wide
         basis or in respect of designated areas. This Exclusion shall not apply
         to so-called Automobile Insurance Plans or other Pools formed to
         provide coverage for Automobile Physical Damage.

SECTION B

It is agreed that business, written by the Company for the same perils, which is
known at the time to be insured by or in excess of underlying amounts placed in
the following Pools, Associations or Syndicates, whether by way of insurance or
reinsurance is excluded hereunder:

         Industrial Risk Insurers (successor to Factory Insurance Association
         and Oil Insurance Association); Associated Factory Mutuals; Improved
         Risk Mutuals.

         Any Pool, Association or Syndicate formed for the purpose of writing
         Oil, Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs.

         United States Aircraft Insurance Group, Canadian Aircraft Insurance
         Group, Associated Aviation Underwriters, American Aviation
         Underwriters.

SECTION B does not apply:

(a)      Where the Total Insured Value over all interests of the risk in
         question is less than $250,000,000.

(b)      To interests traditionally underwritten as Inland Marine or Stock
         and/or Contents written on a Blanket basis.

(c)      To Contingent Business Interruption, except when the Company is aware
         that the key location is known at the time to be insured in any Pool,
         Association or Syndicate named above.

(d)      To risks as follows: Offices, Hotels, Apartments, Hospitals,
         Educational Establishments, Public Utilities (other than Railroad
         Schedules) and Builders Risks on the classes of risks specified in this
         subsection (d) only.
<PAGE>   81
                                                                SWISS RE AMERICA


                      TOTAL INSURED VALUE EXCLUSION CLAUSE

It is the mutual intention of the parties to exclude risks, other than Offices,
Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities
(except Railroad schedules) and Builders Risk on the above classes where, at the
time of the cession, the Total Insured Value over all interests exceeds
$250,000,000. However, the Company shall be protected hereunder, subject to the
other terms and conditions of this Agreement, if subsequently to cession being
made the Company becomes acquainted with the true facts of the case and
discovers that the mutual intention has been inadvertently breached, the Company
shall at the first opportunity, and certainly by next anniversary of the
original policy, exclude the risk in question.

It is agreed that this mutual intention does not apply to Contingent Business
Interruption or to interest traditionally underwritten as Inland Marine or to
Stock and/or Contents written on a blanket basis except where the Company is
aware that the Total Insured Value of $250,000,000 is already exceeded for
buildings, machinery, equipment and direct use and occupancy at the key
location.

It is understood and agreed that this Clause shall not apply hereunder where the
Company writes 100% of the risk.

Notwithstanding anything contained herein to the contrary, it is the mutual
intention of the parties in respect of bridges and tunnels to exclude such risks
where the Total Insured Value over all interests exceeds $250,000,000.
<PAGE>   82
                                                                SWISS RE AMERICA


NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A.

N.M.A. 1119

1.       This Reinsurance does not cover any loss or liability accruing to the
         Reassured, directly or indirectly, and whether as Insurer or Reinsurer,
         from any Pool of Insurers or Reinsurers formed for the purpose of
         covering Atomic or Nuclear Energy risks.

2.       Without in any way restricting the operation of paragraph 1. of this
         Clause, this Reinsurance does not cover any loss or liability accruing
         to the Reassured, directly or indirectly, and whether as Insurer or
         Reinsurer, from any insurance against Physical Damage (including
         business interruption or consequential loss arising out of such
         Physical Damage) to:

         I.       Nuclear reactor power plants including all auxiliary property
                  on the site, or

         II.      Any other nuclear reactor installation, including laboratories
                  handling radioactive materials in connection with reactor
                  installations, and critical facilities as such, or

         III.     Installations for fabricating complete fuel elements or for
                  processing substantial quantities of "special nuclear
                  material," and for reprocessing, salvaging, chemically
                  separating, storing or disposing of spent nuclear fuel or
                  waste materials, or

         IV.      Installations other than those listed in paragraph 2. III.
                  above using substantial quantities of radioactive isotopes or
                  other products of nuclear fission.

3.       Without in any way restricting the operation of paragraphs 1. and 2. of
         this Clause, this Reinsurance does not cover any loss or liability by
         radioactive contamination accruing to the Reassured, directly or
         indirectly, and whether as Insurer or Reinsurer, from any insurance on
         property which is on the same site as a nuclear reactor power plant or
         other nuclear installation and which normally would be insured
         therewith, except that this paragraph 3. shall not operate:

         (a)      where the Reassured does not have knowledge of such nuclear
                  reactor power plant or nuclear installation, or

         (b)      where the said insurance contains a provision excluding
                  coverage for damage to property caused by or resulting from
                  radioactive contamination, however caused. However, on and
                  after 1st January, 1960, this sub-paragraph (b) shall only
                  apply provided the said radioactive contamination exclusion
                  provision has been approved by the Governmental Authority
                  having jurisdiction thereof.

                                      -1-
<PAGE>   83
                                                                SWISS RE AMERICA


4.       Without in any way restricting the operation of paragraphs 1., 2. and
         3. of this Clause, this Reinsurance does not cover any loss or
         liability by radioactive contamination accruing to the Reassured,
         directly or indirectly, and whether as Insurer or Reinsurer, when such
         radioactive contamination is a named hazard specifically insured
         against.

5.       It is understood and agreed this Clause shall not extend to risks using
         radioactive isotopes in any form where the nuclear exposure is not
         considered by the Reassured to be the primary hazard.

6.       The term "special nuclear material" shall have the meaning given to it
         by the Atomic Energy Act of 1954 or by any law amendatory thereof.

7.       Reassured to be sole judge of what constitutes:

         (a)      substantial quantities, and

         (b)      the extent of installation, plant or site.

NOTE: - Without in any way restricting the operation of paragraph 1. hereof, it
is understood and agreed that

         (a)      all policies issued by the Reassured on or before 31st
                  December, 1957 shall be free from the application of the other
                  provisions of this Clause until expiry date or 31st December,
                  1960 whichever first occurs whereupon all the provisions of
                  this Clause shall apply,

         (b)      with respect to any risk located in Canada policies issued by
                  the Reassured on or before 31st December, 1958 shall be free
                  from the application of the other provisions of this Clause
                  until expiry date or 31st December, 1960 whichever first
                  occurs whereupon all the provisions of this Clause shall
                  apply.


N.M.A. 1119


                                      - 2 -
<PAGE>   84
                                                                SWISS RE AMERICA


                     POLLUTION AND SEEPAGE EXCLUSION CLAUSE


This Reinsurance does not apply to:

         1.       Pollution, seepage, contamination or environmental impairment
                  insurances (hereinafter collectively referred to as
                  "pollution"), however styled;

         2.       Loss or damage caused directly or indirectly by pollution,
                  unless said loss or damage follows as a result of a loss
                  caused directly by a peril covered hereunder;

         3.       Expenses resulting from any governmental direction or request
                  that material present in or part of or utilized on an
                  insured's property be removed or modified, except as provided
                  in 5. below;

         4.       Expenses incurred in testing for and/or monitoring pollutants;

         5.       Expenses incurred in removing debris, unless (A) the debris
                  results from a loss caused directly by a peril covered
                  hereunder, and (B) the debris to be removed is itself covered
                  hereunder, and (C) the debris is on the insured's premises,
                  subject, however, to a limit of $5,000 plus 25% of (i) the
                  property damage loss, any risk, any one location, any one
                  original insured, and (ii) any deductible applicable to the
                  loss;

         6.       Expenses incurred to extract pollutants from land or water at
                  the insured's premises unless (A) the release, discharge, or
                  dispersal of pollutants results from a loss caused directly by
                  a peril covered hereunder, and (B) such expenses shall not
                  exceed $10,000;

         7.       Loss of income due to any increased period of time required to
                  resume operations resulting from enforcement of any law
                  regulating the prevention, control, repair, clean-up or
                  restoration of environmental damage;

         8.       Claims under 5. and/or 6. above, unless notice thereof is
                  given to the Company within 180 days after the date of the
                  loss occurrence to which such claims relate.

"Pollutants" means any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled, reconditioned or reclaimed.


                                       -3-
<PAGE>   85
                                                                SWISS RE AMERICA


Where no pollution exclusion has been accepted or approved by an insurance
regulatory authority for use in a policy that is subject to this Agreement or
where a pollution exclusion that has been used in a policy is overturned, either
in whole or in part, by a court having jurisdiction, there shall be no recovery
for pollution under this Agreement unless said pollution loss or damage follows
as a result of a loss caused directly by a peril covered hereunder.

Nothing herein shall be deemed to extend the coverage afforded by this
reinsurance to property or perils specifically excluded or not covered under the
terms and conditions of the original policy involved.


                                      -2-
<PAGE>   86
                                                                SWISS RE AMERICA


                    COASTAL PROPERTY UNDERWRITING GUIDELINES

<TABLE>
<CAPTION>
                                     Miles         Maximum
        Construction              From Coast     Gross Line
        ------------              ----------     ----------
<S>                                   <C>        <C>
1. Frame                              10         $  150,000
2. Joisted Masonry                     5         $  500,000
3. Non-Combustible                     5         $1,000,000
4. Masonry Non-Combustible             3         $1,000,000
5. Modified Fire Resistive             2         $2,000,000
6. Fire Resistive                      2         $2,000,000
</TABLE>


                                   DEDUCTIBLES


<TABLE>
<CAPTION>
                                                    Minimum
   Miles                    Minimum                 Contents
From Coast                 Bldg. Ded.              (only) Ded.
----------                 ----------              -----------
<S>                        <C>                        <C>
10 or more                 $1,000                     $  500
5 or more                  $1,500                     $  500
2 or more                  $2,500                     $1,000
</TABLE>

If a % deductible is available, the maximum % deductible will apply.

-        No windstorm coverage will be written if risk is eligible for a
         windstorm pool.

-        No blanket coverage in coastal counties.

-        Risks with multiple locations within a four-mile radius should have
         facultative per reinsurance.


MC:sb
PHIL-PSA31-97
<PAGE>   87
                                                                SWISS RE AMERICA


This Certificate is an Agreement of Facultative Reinsurance under which the
Reinsurer, in consideration of the payment of the reinsurance premium and
subject to the terms, conditions and limits stated herein, indemnifies the
Company with respect to its insurance liability for payments made by the
Company on the policy reinsured hereunder. In no event shall anyone other than
the Reinsurer, the Company, its or their receiver, liquidator or statutory
successor have any rights under this Certificate.

REINSURER'S OBLIGATION. The Reinsurer's obligation to indemnify the Company
shall follow the terms and conditions of this Certificate and of the Company's
policy furnished to the Reinsurer at the effective date of this Certificate,
unless otherwise specifically provided herein by endorsement made a part of this
Certificate. Any change in the terms and/or conditions of the policy
reinsured hereunder, subsequent to the effective date of the Certificate, shall
not increase or extend the Reinsurer's liability hereunder unless such change
is made a part of this Certificate by endorsement issued by the Reinsurer.

B. RETENTION OF THE COMPANY. This Certificate is issued in reliance of the
Company's not reducing its net interest in the policy reinsured hereunder as
determined by the amount specified in Item 3 (Company Retention). Should the
Company Retention be reduced by reinsurance or otherwise without notice to the
Reinsurer (except as the Company Retention may be covered by nonspecific excess
of loss catastrophe reinsurance applying to more than one of the Company's
policies in a single event) the Reinsurer shall in no event be liable for a
larger proportion of any loss otherwise fully collectible hereunder than the
percentage which the actual amount of the Company Retention at the time of loss
bears to the amount stipulated in Item 3; and there shall be no return premium
to the Company on account of any such reduction in the Reinsurer's liability
for loss.

C. COOPERATION OF THE COMPANY. The Company shall furnish the Reinsurer with a
copy of its policy reinsured hereunder and all endorsements thereto, which in
any manner affect this Certificate, and shall make available for inspection and
place at the disposal of the Reinsurer at reasonable times, at the office of
the Company during business hours, any of its records relating to this
reinsurance or claims in connection therewith.

D. NOTICE OF LOSS OR CLAIM. The Company shall give prompt written notice to the
Reinsurer (1) of any occurrence or claim in which the Company's estimate of the
value of injuries or damages sought, without regard to liability, might result
in a judgement in an amount sufficient to involve this Certificate; (2) if
this reinsurance is on an excess of loss basis, of any occurrence or claim in
which the Company has created a loss reserve equal to or greater than one-half
of the Company Retention stipulated in Item 3; (3) if this reinsurance is on a
pro rata basis, when notice of claim is received by the Company; and (4) all
material developments pertaining to any notice provided hereunder.

E. DEFENSE OF CLAIMS OR SUITS. The Company shall investigate and defend all
claims involving the reinsurance provided by this Certificate. While the
Reinsurer does not undertake to investigate or defend claims or suits, it shall
nevertheless have the right and be given the opportunity to associate with the
Company and its representatives at its own expense in the defense and control
of any claim, suit or proceeding involving this reinsurance with full
cooperation of the Company.

F. LOSS PAYABLE. The Reinsurer shall indemnify the Company for all losses paid
in accordance with the terms, conditions and limits of this Certificate and the
terms, conditions and limits of the policy reinsured hereunder. The Reinsurer
shall pay to the Company its proportion of such losses promptly following
receipt of satisfactory proof of loss in the following manner:

(1) If this reinsurance is on an excess of loss basis, the amount of the
Reinsurer's liability for loss hereunder shall be its indicated proportion of
the excess amount, if any, by which ultimate loss to the policy reinsured
hereunder exceeds the amount or amounts in excess of which this reinsurance
attaches, after first having deducted all recoveries from any source except
those from such portions of other excess of loss reinsurance which do not
overlap or duplicate this coverage.

(2) If this reinsurance is on a pro rata basis, the amount of the Reinsurer's
liability for each loss shall be in the proportion that the sum reinsured
hereunder bears to the total sum insured by the reinsured policy at the time
this Certificate becomes effective or at the time of loss, whichever proportion
is less (unless otherwise endorsed hereto).

In addition, the Reinsurer shall pay its proportion of expenses which are
within the terms of the policy reinsured hereunder (other than Company
salaries, travel and office expenses) and incurred by the Company in the
investigation and settlement of claims or suits as well as its proportion of
court costs and interest on that part of any judgment or settlement award fixing
the amount of the Company's insurance liability under the reinsured policy as
follows: (i) With respect to reinsurance provided on an excess of loss basis,
in the ratio that the Reinsurer's loss payment bears to the Company's gross
loss payment under the policy reinsured. In the event there is no loss payment
by the Reinsurer, there shall be no expense, court cost or interest payment.

(ii) With respect to reinsurance provided on a pro rata basis, in the ratio
that the Reinsurer's limit of liability bears to the Company's gross limit of
liability under the policy reinsured.

G. SALVAGE. The Reinsurer will be paid or credited by the Company with its
proportion of salvage, i.e. reimbursement obtained or recovery made by the
Company. If the reinsurance afforded by the Certificate is on an excess of loss
basis, salvage shall be applied in the inverse order in which liability
attaches. All costs (other than Company salaries, travel and office expenses) of
such salvage or reimbursement shall be borne by the Company and the Reinsurer in
proportion to the ultimate benefits accruing to each.

H. TAXES. The Company will be liable for all taxes (except income taxes) on
business ceded to the Reinsurer under this Certificate.

I. INSOLVENCY. In the event of the insolvency of the Company, reinsurance under
this Certificate shall be payable by the Reinsurer on the basis of the
liability of the Company without diminution because of such insolvency,
directly to the Company or its liquidator, receiver or statutory successor.
Nothing contained herein shall in any manner create any obligations of the
Reinsurer or establish any rights against the Reinsurer in favor of the
Company's policy holder or any other person not parties to the Certificate. The
Reinsurer shall be given written notice of the pendency of each claim which may
invoke the reinsurance afforded by this Certificate within a reasonable time
after such claim is filed in the insolvency proceeding. It shall have the right
to investigate each such claim and interpose, at its own expense, in the
proceedings where the claim is to be adjudicated, any defense which it may deem
available to the Company or its liquidator, receiver, or statutory successor.
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.

J. ARBITRATION. Any dispute between the Company and the Reinsurer arising out
of the provisions of this Certificate or concerning its interpretation or
validity shall be submitted to arbitration. Any party may initiate arbitration
by giving written notice to the other party of its intention to arbitrate
together with the name of its selected arbitrator. Within 30 days of receiving
such notice the other party shall appoint an arbitrator. In the event that any
party fails to appoint an arbitrator within the time specified, the other party
shall have the right to appoint said arbitrator forthwith. The two arbitrators
named shall select a third arbitrator. The arbitrators shall be officials or
former officials of insurance or reinsurance companies not under the control or
management of any part of this Certificate. The arbitrators shall not be bound
by judicial formalities or formal rules of evidence and shall give due
consideration to the customs and usage of the insurance and reinsurance
business. A majority decision in writing shall be final and binding. Unless
otherwise allocated by the arbitrators, all costs of the arbitration
proceedings, including the fees of the arbitrators, shall be borne equally by
the parties.

K. CANCELLATION. Cancellation of the policy reinsured hereunder shall
constitute automatic cancellation of this Certificate. This Certificate may be
cancelled by either the Company or the Reinsurer by mailing written notice
stating when, not less than 30 days thereafter, such cancellation shall be
effective. Proof of mailing shall be deemed proof of notice. If the reinsured
policy is cancelled, the return premium hereunder shall be proportional to
the original premium returned by the Company, subject to the stipulated
Certificate minimum premium. If the Reinsurer cancels, the return premium shall
be on a pro rata basis with the Certificate minimum premium waived.

In Witness Whereof, the Reinsurer has caused the Certificate to be signed by
its Chairman at New York, N.Y. and countersigned by a duly authorized
representative of the Reinsurer.

                                                     /s/ Leidi E. Lutter
                                              CHAIRMAN & CHIEF EXECUTIVE OFFICER

<PAGE>   88
                                                  SWISS RE AMERICA

This Certificate is an Agreement of Facultative Reinsurance under which the
Reinsurer, in consideration of the payment of the reinsurance premium and
subject to the terms, conditions and limits stated herein, indemnifies the
Company with respect to its insurance liability for payments made by the
Company on the policy reinsured hereunder. In no event shall anyone other than
the Reinsurer, the Company, its or their receiver, liquidator or statutory
successor have any rights under this Certificate.

A. REINSURER'S OBLIGATION.  The Reinsurer's obligation to indemnify the Company
shall follow the terms and conditions of this Certificate and of the Company's
policy furnished to the Reinsurer at the effective date of this Certificate,
unless otherwise specifically provided herein by endorsement made a part of this
Certificate. Any change in the terms and/or conditions of the policy reinsured
hereunder, subsequent to the effective date of the Certificate, shall not
increase or extend the Reinsurer's liability hereunder unless such change is 
made a part of this Certificate by endorsement issued by the Reinsurer.

B. RETENTION OF THE COMPANY.  This Certificate is issued in reliance of the
Company's not reducing its net interest in the policy reinsured hereunder as
determined by the amount specified in Item 3 (Company Retention). Should the
Company Retention be reduced by reinsurance or otherwise without notice to the
Reinsurer (except as the Company Retention may be covered by nonspecific excess
of loss catastrophe reinsurance applying to more than one of the Company's
policies in a single event) the Reinsurer shall in no event be liable for a
larger proportion of any loss otherwise fully collectible hereunder than the
percentage which the actual amount of the Company Retention at the time of loss
bears to the amount stipulated in Item 3; and there shall be no return premium
to the Company on account of any such reduction in the Reinsurer's liability
for loss.

C. COOPERATION OF THE COMPANY.  The Company shall furnish the Reinsurer with a
copy of its policy reinsured hereunder and all endorsements thereto, which in
any manner affect this Certificate, and shall make available for inspection and
place at the disposal of the Reinsurer at reasonable times, at the office of
the Company during business hours, any of its records relating to this
reinsurance or claims in connection therewith.

D. NOTICE OF LOSS OR CLAIM.  The Company shall give prompt written notice to
the Reinsurer (1) of any occurrence or claim in which the Company's estimate of
the value of injuries or damages sought, without regard to liability, might
result in a judgement in an amount sufficient to involve this Certificate; (2)
if this reinsurance is on an excess of loss basis, of any occurrence or claim
in which the Company has created a loss reserve equal to or greater than
one-half of the Company Retention stipulated in Item 3; (3) if this reinsurance
is on a pro rata basis, when notice of claim is received by the Company; and
(4) all material developments pertaining to any notice provided hereunder.

E. DEFENSE OF CLAIMS OR SUITS.  The Company shall investigate and defend all 
claims involving the reinsurance provided by this Certificate. While the
Reinsurer does not undertake to investigate or defend claims or suits, it shall
nevertheless have the right and be given the opportunity to associate with the
Company and its representatives at its own expense in the defense and control of
any claim, suit or proceeding involving this reinsurance with full cooperation
of the Company.

F. LOSS PAYABLE.  The Reinsurer shall indemnify the Company for all losses paid
in accordance with the terms, conditions and limits of this Certificate and the
terms, conditions and limits of the policy reinsured hereunder. The Reinsurer
shall pay to the Company its proportion of such losses promptly following
receipt of satisfactory proof of loss in the following manner:

(1) If this reinsurance is on an excess of loss basis, the amount of the
Reinsurer's liability for loss hereunder shall be its indicated proportion of
the excess amount, if any, by which ultimate loss to the policy reinsured
hereunder exceeds the amount or amounts in excess of which this reinsurance
attaches, after first having deducted all recoveries from any source except
those from such portions of other excess of loss reinsurance which do not
overlap or duplicate this coverage.

(2) If this reinsurance is on a pro rata basis, the amount of the Reinsurer's
liability for each loss shall be in the proportion that the sum reinsured
hereunder bears to the total sum insured by the reinsured policy at the time
this Certificate becomes effective or at the time of loss, whichever proportion
is less (unless otherwise endorsed hereto).

In addition, the Reinsurer shall pay its proportion of expenses which are
within the terms of the policy reinsured hereunder (other than Company
salaries, travel and office expenses) and incurred by the Company in the 
investigation and settlement of claims or suits as well as its proportion of
court costs and interest on that part of any judgment or settlement award
fixing the amount of the Company's insurance liability under the reinsured
policy as follows:

(i) With respect to reinsurance provided on an excess of loss basis, in the
ratio that the Reinsurer's loss payment bears to the Company's gross loss
payment under the policy reinsured. In the event there is no loss payment by the
Reinsurer, there shall be no expense, court cost or interest payment.

(ii) With respect to reinsurance provided on a pro rata basis, in the ratio
that the Reinsurer's limit of liability bears to the Company's gross limit of
liability under the policy reinsured.

G. SALVAGE.  The Reinsurer will be paid or credited by the Company with its
proportion of salvage, i.e. reimbursement obtained or recovery made by the
Company. If the reinsurance afforded by the Certificate is on an excess of loss
basis, salvage shall be applied in the inverse order in which liability
attaches. All costs (other than Company salaries, travel and office expenses)
of such salvage or reimbursement shall be borne by the Company and the
Reinsurer in proportion to the ultimate benefits accruing to each.

H. TAXES.  The Company will be liable for all taxes (except income taxes) on
business ceded to the Reinsurer under this Certificate.

I. INSOLVENCY.  In the event of the insolvency of the Company, reinsurance
under this Certificate shall be payable by the Reinsurer on the basis of the
liability of the Company without diminution because of such insolvency,
directly to the Company or its liquidator, receiver or statutory successor.
Nothing contained herein shall in any manner create any obligations of the
Reinsurer or establish any rights against the Reinsurer in favor of the
Company's policy holder or any other person not parties to the Certificate. The
Reinsurer shall be given written notice of the pendency of each claim which may
invoke the reinsurance afforded by this Certificate within a reasonable time
after such claim is filed in the insolvency proceeding. It shall have the right
to investigate each such claim and interpose, at its own expense, in the
proceedings where the claim is to be adjudicated, any defense which it may deem
available to the Company or its liquidator, receiver, or statutory successor.
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.

J. ARBITRATION.  Any dispute between the Company and the Reinsurer arising out
of the provisions of this Certificate or concerning its interpretation or
validity shall be submitted to arbitration. Any party may initiate arbitration
by giving written notice to the other party of its intention to arbitrate
together with the name of its selected arbitrator. Within 30 days of receiving
such notice the other party shall appoint an arbitrator. In the event that any
party fails to appoint an arbitrator within the time specified, the other party
shall have the right to appoint said arbitrator forthwith. The two arbitrators
named shall select a third arbitrator. The arbitrators shall be officials or
former officials of insurance or reinsurance companies not under the control or
management of any part of this Certificate. The arbitrators shall not be bound
by judicial formalities or formal rules of evidence and shall give due
consideration to the customs and usage of the insurance and reinsurance
business. A majority decision in writing shall be final and binding. Unless
otherwise allocated by the arbitrators, all costs of the arbitration
proceedings, including the fees of the arbitrators, shall be borne equally by
the parties.

K. CANCELLATION.  Cancellation of the policy reinsured hereunder shall
constitute automatic cancellation of this Certificate. This Certificate may be
cancelled by either the Company or the Reinsurer by mailing written notice
stating when, not less than 30 days thereafter, such cancellation shall be
effective. Proof of mailing shall be deemed proof of notice. If the reinsured
policy is cancelled, the return premium hereunder shall be proportional to the
original premium returned by the Company, subject to the stipulated Certificate
minimum premium. If the Reinsurer cancels, the return premium shall be on a pro
rata basis with the Certificate minimum premium waived.

In Witness Whereof, the Reinsurer has caused the Certificate to be signed by
its Chairman at New York, N.Y. and countersigned by a duly authorized
representative of the Reinsurer.



                                   /s/ Leidi E. Lutter
                                       --------------------------

                                       CHAIRMAN & CHIEF EXECUTIVE OFFICER