Exhibit
10.12





PENN MILLERS INSURANCE
COMPANY





AMERICAN MILLERS INSURANCE
COMPANY





PROPERTY EXCESS OF LOSS
REINSURANCE CONTRACT





EFFECTIVE JANUARY 1,
2010





INDEX





ARTICLE
                          
                          SUBJECT
                          
                          PAGEARTICLE
      1
                          
                          BUSINESS
      COVERED
                          
                          1ARTICLE
      2
                          
                          COMMENCEMENT
      AND TERMINATION
                          
                          1ARTICLE
      3
                          
                          SPECIAL
      TERMINATION
                          
                          2ARTICLE
      4
                          
                          EXCLUSIONS
                          
                          4ARTICLE
      5
                          
                          RETENTION
      AND LIMIT
                          
                          6ARTICLE
      6
                          
                          REINSTATEMENT
                          
                          6ARTICLE
      7
                          
                          PREMIUM
                          
                          6ARTICLE
      8
                          
                          DEFINITION
      OF LOSS OCCURRENCE
                          
                          6ARTICLE
      9
                          
                          NET
      LOSS
                          
                          8ARTICLE
      10
                          
                          EXTRA
      CONTRACTUAL OBLIGATIONS/LOSS EXCESS OF POLICY LIMITS
                          
                          9ARTICLE
      11
                          
                          TERRORISM
      RECOVERY
                          
                          10ARTICLE
      12
                          
                          NET
      RETAINED LINE
                          
                          11ARTICLE
      13
                          
                          NOTICE
      OF LOSS AND LOSS SETTLEMENT
                          
                          11ARTICLE
      14
                          
                          ERRORS
      AND OMISSIONS
                          
                          12ARTICLE
      15
                          
                          OFFSET
                          
                          12ARTICLE
      16
                          
                          CURRENCY
                          
                          13ARTICLE
      17
                          
                          FEDERAL
      EXCISE TAX AND OTHER TAXES
                          
                          13ARTICLE
      18
                          
                          ACCESS
      TO RECORDS
                          
                          13ARTICLE
      19
                          
                          INSOLVENCY
                          
                          14ARTICLE
      20
                          
                          ARBITRATION
                          
                          15ARTICLE
      21
                          
                          SERVICE
      OF SUIT
                          
                          18ARTICLE
      22
                          
                          CONFIDENTIALITY
                          
                          19ARTICLE
      23
                          
                          PRIVACY
                          
                          20ARTICLE
      24
                          
                          RESERVES
                          
                          21ARTICLE
      25
                          
                          LATE
      PAYMENTS
                          
                          24ARTICLE
      26
                          
                          MODE
      OF EXECUTION
                          
                          25ARTICLE
      27
                          
                          VARIOUS
      OTHER TERMS
                          
                          26ARTICLE
      28
                          
                          INTERMEDIARY
                          
                          28





ATTACHMENTS:


NUCLEAR
INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE – REINSURANCE (BRMA
35B)




TW
      No. G25573.10/G25574.10/G26233.10FINAL







INFORMATION
TECHNOLOGY HAZARDS CLARIFICATION CLAUSE (NMA2912)


EXHIBIT I
- PROPERTY FIRST EXCESS OF LOSS REINSURANCE


EXHIBIT
II - PROPERTY SECOND EXCESS OF LOSS REINSURANCE


EXHIBIT
III - PROPERTY THIRD EXCESS OF LOSS REINSURANCE




TW
      No. G25573.10/G25574.10/G26233.10FINAL







1.





PENN MILLERS INSURANCE
COMPANY





AMERICAN MILLERS INSURANCE
COMPANY





PROPERTY EXCESS OF LOSS
REINSURANCE CONTRACT





EFFECTIVE JANUARY 1,
2010





ARTICLE
1





BUSINESS
COVERED





A.          This
Contract applies to all Loss Occurrences that occur with a date of loss during
the term of this Contract and arising from those Policies, except as hereinafter
excluded, classified by the Company as Property, that are in force at the
inception of the term of this Contract or written with a Policy period (new or
renewal) effective during the term of this Contract, including renewals
(“Business Covered”).





B.           The
term “Policies”, whenever used herein, shall mean all binders, policies,
contracts, certificates and other obligations, whether oral or written, of
insurance or reinsurance that are Business Covered.





C.           The
reinsurance of all Business Covered hereunder shall be subject in all respects
to the same risks, terms, clauses, conditions, interpretations, alterations,
modifications, cancellations and waivers as the respective insurances (or
reinsurances) of the Company’s Policies and the Reinsurer shall pay losses as
may be paid thereon, subject to the liability of the Company and the terms and
conditions of this Contract.





ARTICLE
2





COMMENCEMENT AND
TERMINATION





A.          This
Contract shall incept at 12:01 a.m., Eastern Standard Time, January 1, 2010, and
shall remain in force until 12:01 a.m., Eastern Standard Time, January 1,
2011.





B.           Should
this Contract terminate while a Loss Occurrence is in progress, Reinsurers shall
remain liable for all losses resulting from such Loss Occurrence as if the
entire loss had occurred during the term of this Contract.





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      No. G25573.10/G25574.10/G26233.10FINAL





2.





ARTICLE
3





SPECIAL
TERMINATION





A.          The
Company or the Reinsurer may terminate, or commute obligations arising under
this Contract in accordance with Paragraph C. below, upon the happening of any
one of the following circumstances at any time by the giving of thirty (30)
days prior written notice to the other party:





1.           A
party ceases active underwriting operations or a State Insurance Department or
other legal authority orders the Reinsurer to cease writing business in all
jurisdictions; or





2.           The
Reinsurer has filed a plan to enter into a Scheme of Arrangement or similar
procedure. “Scheme of Arrangement” is defined as a legislative or regulatory
process that provides a solvent Reinsurer the opportunity to settle its
obligations with the Company either (i) without the Company’s unrestrained
consent or (ii) prior to the Company having the ability to determine, with exact
certainty, the actual amount of the obligations still outstanding and ultimately
due to the Company. or





3.           A
party has: a) become insolvent, b) been placed under supervision (voluntarily or
involuntarily), c) been placed into liquidation or receivership, or d) had
instituted against it proceedings for the appointment of a supervisor, receiver,
liquidator, rehabilitator, conservator or trustee in bankruptcy, or other agent
known by whatever name, to take possession of its assets or control of its
operations; or





4.           A
reduction in the Reinsurer’s surplus, risk-based capital or financial strength
rating occurs:





a.           As
respects Reinsurers domiciled in the United States of America, (i) the
Reinsurer’s policyholders’ surplus (“PHS”) has been reduced by, whichever is
greater, thirty percent (30%) of the amount of PHS at the inception of this
Contract or thirty percent (30%) of the amount of PHS stated in its last filed
quarterly or annual statutory statement with its state of domicile; or (ii) the
Reinsurer’s total adjusted capital is less than two hundred percent (200%) of
its authorized control level risk-based capital; or (iii) the Reinsurer’s A.M.
Best’s insurer financial strength rating becomes less than “A-”.





b.           As
respects Reinsurers domiciled outside the United States of America, other than
Lloyd’s Syndicates (i) the Reinsurer’s Capital & Surplus (“C&S”) has
been involuntarily reduced by, whichever is greater, thirty percent (30%) of the
published currency amount of C&S at the inception of this Contract or thirty
percent (30%) of the published currency amount of C&S stated in its last
filed financial statement with its local regulatory authority; or (ii) as
respects Lloyd’s Syndicates, the Reinsurer’s total stamp capacity has been
reduced by more than thirty percent (30%) of the amount of total stamp capacity
which stood at the inception of this Contract. (This provision does not apply to
any Lloyd’s Syndicate that voluntarily reduces its total stamp capacity.) or
(iii) the Reinsurer’s A.M. Best’s insurer financial strength rating becomes less
than “A-” or the Reinsurer’s Standard & Poor’s Insurance Rating becomes less
than “BBB”. or





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      No. G25573.10/G25574.10/G26233.10FINAL





3.





5.           A
party has entered into a definitive agreement to (a) become merged with,
acquired or controlled by any company, corporation or individual(s) not
controlling or affiliated with the party’s operations previously; or (b)
directly or indirectly assign all or essentially all of its entire liability for
obligations under this Contract to another party without the other party’s prior
written consent; or





6.           There
is either:





a.           a
severance or obstruction of free and unfettered communication and/or normal
commercial or financial intercourse between the United States of America and the
country in which the Reinsurer is incorporated or has its principal office as a
result of war, currency regulations or any circumstances arising out of
political, financial or economic uncertainty; or





b.           a
severance (of any kind) of any two (2) or more of the following executives of
the Reinsurer from active employment of the Reinsurer during the most recent
forty five (45) day period: chief underwriting officer, chief actuary, chief
executive officer or chief financial officer. This condition does not apply
whenever the severance in employment is for the publicly announced purpose of
the individual’s assuming within thirty (30) days a known position with another
identified firm in the (re)insurance industry or related field.





B.           In the event the Company elects to
terminate, the Company shall, with the notice of termination, specify that
termination will be on a Cut-Off basis, in which event the Company shall relieve
the Reinsurer for losses occurring subsequent to the specified termination date,
and that Reinsurer shall not receive deposit premium installments beyond the
date at which termination of the Reinsurer is effected. The Reinsurer shall within thirty
(30) days of the
termination date return a pro-rata portion of any ceded deposit premium paid
hereunder, calculated as of the termination date, and cash in that amount (less
applicablecedingcommission, if any, allowed thereon) and the minimum premium provisions, if any,
shall be waived. (The fraction of the deposit premium to be returned to the
Company shall equal the number of days from the termination date until the
original expiration date of the Contract period divided by the number of days in
the original Contract period.) Upon final determination of the
adjusted premium for the Contract period, the Reinsurer shall be credited with a
portion of premium for this Contract, in the amount equal to the fraction of the
number of days the terminated Reinsurer participated in the Contract period
divided by the number of days in the Contract period multiplied by the
reinsurance premium for the Contract period.





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      No. G25573.10/G25574.10/G26233.10FINAL





4.





C.           If
both parties agree to commute, then within sixty (60) days after such agreement,
the Company shall submit a statement of valuation of the total of the net
present value (“capitalized”) of the ceded (1) Net Loss Reserves, (2) Loss
Adjustment Expense Reserves, and (3) unearned premium reserve, after deduction
for any ceding commission allowed thereon, (the “Valuation Statement”). If
agreement cannot be reached, the effort can be abandoned or alternately the
Company and the Reinsurers may mutually appoint an actuary or appraiser to
investigate, determine the capitalized value of the reserves to be returned to
the Company. Such actuary shall be an independent and neutral actuary, Casualty
Actuarial Society, experienced in such matters and the mutually agreed actuary
shall render a decision. In the event that the Company and the Reinsurer are
unable to agree upon a single actuary within thirty (30) days, the parties shall
ask the then current President of the Casualty Actuarial Society to appoint an
actuary with those qualifications within another thirty (30) days. The decision
of the actuary will be final and binding on both parties. The Company and the
Reinsurer shall share equally the fees and expenses of the actuary. Upon payment
of the amount so agreed or determined by the actuary to the Company, the
Reinsurer and the Company shall each be completely released from all liability
to each other under this Contract.





ARTICLE
4





EXCLUSIONS





A.          This
Contract shall not cover:





1.           Reinsurance
treaty business, including pro rata and excess of loss, assumed by the Company
but not to include business from affiliated companies.





2.           Business
written on a co-indemnity basis not controlled by the Company.





3.           Damage
to growing and standing crops, not to include nursery stock for wholesale or
retail, and not to include crops, including mushrooms, growing in a
building.





4.           Policies
of Excess of Loss Reinsurance.





5.           Financial
Guarantee and Insolvency.





6.           Liability
assumed by the Company as a member of a Syndicate, Pool or Underwriting
Association; however, this does not apply to participation in assigned risk
plans.





7.           Any
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. “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 the Company 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.





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      No. G25573.10/G25574.10/G26233.10FINAL





5.





8.           Policies
classified as Personal Accident, Health, Workers’ Compensation, Bodily Injury
Liability (including Medical Payments), Property Damage Liability, Fidelity,
Surety, Boiler and Machinery, Plate Glass and similar classes of insurance or
reinsurance customarily written by casualty insurance companies.





9.           Flood,
except under Transportation or other Inland Marine or Multiple Peril Policies or
under Automobile Physical Damage Policies or written as a part of the General
Property Form or the Special Property Form.





10.         Loss
or liability excluded by the provisions of the “Nuclear Incident Exclusion
Clause - Physical Damage - Reinsurance (BRMA 35B)” attached to and forming part
of this Contract.





11.         Seepage
and/or Pollution as per original Policies. Furthermore, Reinsurers agree that
this exclusion does not apply to overspraying of anhydrous ammonia, fertilizers
and agricultural chemicals.





12.         Transmission
and Distribution Lines and their supporting structures other than those on or
within one thousand (1,000) feet of the insured premises.





13.         Information
Technology Hazards Clarification Clause (NMA 2912).





14.         Loss
resulting from an act of certified or non-certified terrorism, as defined in the
Article entitled RETENTION
AND LIMIT of this Contract, that involves the use, release, or escape of
nuclear materials, or directly or indirectly results in nuclear reaction or
radiation or radioactive contamination; or that is carried out by means of the
dispersal or application of pathogenic or poisonous biological or chemical
materials that are released.





15.         Regarding
interests which at time of loss or damage are on shore, any loss or damage which
is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war,
rebellion, insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority.





This War Exclusion Clause shall not,
however, apply to interests which at time of loss or damage are within the
territorial limits of the United States of America (comprising the fifty States
of the Union and the District of Columbia and including Bridges between the
U.S.A. and Mexico, provided they are under United States ownership), Canada, St.
Pierre and Miquelon, provided such interests are insured under Policies,
endorsements, or binders containing a standard war or hostilities or warlike
operations exclusion clause.





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      No. G25573.10/G25574.10/G26233.10FINAL





6.





B.           As
respects Paragraph A. above, if the Company, without the knowledge and consent
of its Home Office, is bound on a risk excluded above (other than Exclusions
A(5) Financial Guarantee and Insolvency, A(6) Syndicates, Pools or Underwriting
Associations, A(7) Insolvency Funds Exclusion, A(9) Flood, A(10) Nuclear
Incident Exclusion Clause, A(11) Seepage and/or Pollution Exclusion Clause,
A(12) Transmission and Distribution Lines, A(13) Information Technology Hazards
Clarification Clause (NMA 2912), A(14) NBC Terrorism, and A(15) War) such risk
shall be covered hereunder until the Company receives knowledge
thereof.





The Company agrees to use due diligence
in canceling such risk immediately after knowledge thereof is received by its
Home Office.  However, if any state regulatory authority or the laws
or regulations of any state prohibit the Company from canceling a risk for any
reason, such risk shall remain covered hereunder until the Company is permitted
to cancel the risk by the regulatory authority or the applicable laws or
regulations. However, not to exceed eighteen (18) months.





C.           Any
exclusion listed above (other than exclusions A(5), A(6), A(7), A(9), A(10),
A(11), A(12), A(13), A(14) and A(15)), shall be automatically waived as respects
a Policy issued by the Company on a risk with respect to which only a minor or
incidental part of the operations covered involves the exclusion.  An
incidental part of an insured’s regular operations shall mean not greater than
ten percent (10%) of the insured’s regular operations.





ARTICLE
5





RETENTION AND
LIMIT





See Exhibits I, II and III attached to
and forming part of this Contract.





ARTICLE
6





REINSTATEMENT





See Exhibits I, II and III attached to
and forming part of this Contract.





ARTICLE
7





PREMIUM





See Exhibits I, II and III attached to
and forming part of this Contract.





ARTICLE
8





DEFINITION OF 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 one hundred sixty eight (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:





TW
      No. G25573.10/G25574.10/G26233.10FINAL





7.





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 seventy two (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 seventy two (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 seventy two
(72) consecutive hours may be extended in respect of individual losses which
occur beyond such seventy two (72) consecutive hours during the continued
occupation of an insured’s premises by strikers, provided such occupation
commenced during the aforesaid period.





3.           As
regards earthquake (the epicenter 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 one hundred sixty eight (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”.





5.           As
regards firestorms, brush fires and any other fires or series of fires,
irrespective of origin (except as provided in A(2) and A(3) above), which spread
through trees, grassland or other vegetation, all individual losses sustained by
the Company which commence during any period of one hundred sixty eight (168)
consecutive hours within a one hundred (100) mile radius of any fixed point
selected by the Company where a claim has actually been made may be included in
the Company’s “Loss Occurrence.” However, an individual loss subject to this
subparagraph cannot be included in more than one Loss Occurrence.





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      No. G25573.10/G25574.10/G26233.10FINAL





8.





B.           For
all “Loss Occurrences”, other than those referred to in A(2) of this Article,
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 one hundred sixty eight (168) consecutive hours shall apply with
respect to one event except for any “Loss Occurrences” referred to in A(1) of
this Article where only one such period of seventy two (72) consecutive hours
shall apply with respect to one event.





C.           As
respects those “Loss Occurrences” referred to in A(2) of this Article, if the
disaster, accident or loss occasioned by the event is of greater duration than
seventy two (72) consecutive hours, then the Company may divide that disaster,
accident or loss into two (2) or more “Loss Occurrences” provided no two (2)
periods overlap and no individual loss is included in more than one such period
and provided that no period commences 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.





D.           No
individual losses occasioned by an event that would be covered by seventy two
(72) hours clauses may be included in any “Loss Occurrence” claimed under the
one hundred sixty eight (168) hours provision.





ARTICLE
9





NET LOSS





A.          The
term “Net Loss” shall mean the actual loss incurred by the Company from Business
Covered hereunder including (i) sums paid in settlement of claims and suits and
in satisfaction of judgments, (ii) prejudgment interest when added to a
judgment, (iii) ninety percent (90%) of any Extra-Contractual Obligations (iv)
ninety percent (90%) of any Losses Excess of Policy Limits, and (v) any interest
on judgments other than prejudgment interest when added to a judgment. In the
event that the Company’s original Policies and/or specific coverage parts of
their original Policies are issued on a cost inclusive basis, such loss
adjustment expenses shall be included within the Company’s Net Loss for the
purposes of recovery hereunder.





B.           All
salvages, recoveries, payments and reversals or reductions of verdicts or
judgments whether recovered, received or obtained prior or subsequent to loss
settlement under this Contract, including amounts recoverable under other
reinsurance whether collected or not, shall be applied as if recovered, received
or obtained prior to the aforesaid settlement and shall be deducted from the
actual losses sustained to arrive at the amount of the Net Loss. Nothing in this
Article shall be construed to mean losses are not recoverable until the Net Loss
to the Company finally has been ascertained.





C.           All
Loss Adjustment Expenses paid by the Company as a result of Net Losses covered
hereunder shall be divided between the Company and the Reinsurers, without
regard to the limit of this Contract, in proportion to their share of the Net
Loss. “Loss Adjustment Expenses” shall mean and include but not be limited to:
(i) expenses sustained in connection with adjustment, defense, settlement and
litigation of claims and suits, satisfaction of judgments, resistance to or
negotiations concerning a loss (which shall include the expenses and the pro
rata share of the salaries of the Company’s field employees according to the
time occupied in adjusting such loss and the expenses of the Company’s employees
while diverted from their normal duties to the service of field adjustment but
shall not include any salaries of officers or normal overhead expenses of the
Company), (ii) legal expenses and costs incurred in connection with coverage
questions regarding specific claims and legal actions, including Declaratory
Judgment Expenses, connected thereto, (iii) all interest on judgments other than
prejudgment interest when added to a judgment except when included in Net Loss,
and (iv) expenses sustained to obtain recoveries, salvages or other
reimbursements, or to secure the reversal or reduction of a verdict or
judgment.





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      No. G25573.10/G25574.10/G26233.10FINAL





9.





D.           “Declaratory
Judgment Expenses” as used in this Contract shall mean legal expenses paid by
the Company in the investigation, analysis, evaluation, resolution or litigation
of coverage issues between the Company and its insured(s), under Policies
reinsured hereunder, for a specific loss or losses tendered under such Policies,
which loss or losses are not excluded under this Contract.





E.           In
the event there are any recoveries, salvages, or reimbursements recovered
subsequent to a loss settlement, or in the event a verdict or judgment is
reversed or reduced, Loss Adjustment Expenses incurred in obtaining the
recovery, salvage or reimbursement or in securing the reduction or reversal
shall be divided between the Company and the Reinsurers in proportion to their
share of the benefit therefrom, with the expenses incurred up to the time of the
loss settlement or the original verdict or judgment being divided in proportion
to the share of the Company and the Reinsurers in the original loss settlement
or verdict or judgment.





ARTICLE
10





EXTRA CONTRACTUAL
OBLIGATIONS/LOSS EXCESS OF POLICY LIMITS





A.           “Extra-Contractual
Obligations” means those liabilities not covered under any other provision of
this Contract, other than Loss Excess of Policy Limits, including but not
limited to compensatory, consequential, punitive, or exemplary damages together
with any legal costs and expenses incurred in connection therewith, paid as
damages or in settlement by the Company arising from an allegation or claim of
its insured, its insured’s assignee, or other third party, which alleges
negligence, gross negligence, bad faith or other tortious conduct on the part of
the Company in the handling, adjustment, rejection, defense or settlement of a
claim under a Policy that is the Business Covered.





B.           “Loss
Excess of Policy Limits” means any amount of loss, together with any legal costs
and expenses incurred in connection therewith, paid as damages or in settlement
by the Company in excess of its Policy Limits, but otherwise within the coverage
terms of the Policy, arising from an allegation or claim of its insured, its
insured’s assignee, or other third party, which alleges negligence, gross
negligence, bad faith or other tortious conduct on the part of the Company in
the handling of a claim under a Policy or bond that is the Business Covered, in
rejecting a settlement within the Policy Limits, in discharging a duty to defend
or prepare the defense in the trial of an action against its insured, or in
discharging its duty to prepare or prosecute an appeal consequent upon such an
action. For the avoidance of doubt, the decision by the Company to settle a
claim for an amount within the coverage of the Policy but not within the Policy
Limit when the Company has reasonable basis to believe that it may have legal
liability to its insured or assignee or other third party on the claim will be
deemed a Loss Excess of Policy Limits. The Company will provide Reinsurers an
explanation relating to the Company’s motivation for settlement and use its best
efforts to obtain the Reinsurers’ prior counsel and concurrence in the Company’s
action. A reasonable basis shall mean it is more likely than not a trial would
result in a verdict excess of the Policy Limits, in the opinion of counsel
assigned to defend the insured or otherwise retained by the
Company.





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10.





C.           An
Extra-Contractual Obligation or a Loss Excess of Policy Limits shall be deemed
to have occurred on the same date as the loss covered under the Company’s
original Policy and shall be considered part of the original loss (subject to
other terms of this Contract).





D.           Neither
an Extra-Contractual Obligation nor a Loss Excess of Policy Limits shall include
a loss incurred by the Company as the result of any fraudulent or criminal act
directed against the Company by any officer or director of the Company acting
individually or collectively or in collusion with any other organization or
party involved in the presentation, defense, or settlement of any claim under
this Contract.





E.           Recoveries,
whether collectible or not, including any retentions and/or deductibles, from
any other form of insurance or reinsurance which protect the Company against any
loss or liability covered under this Article shall inure to the benefit of the
Reinsurers and shall be deducted from the total amount of any Extra-Contractual
Obligation and/or Loss Excess of Policy Limits in determining the amount of
Extra-Contractual Obligation and/or Loss Excess of Policy Limits that shall be
indemnified under this Article.





F.           The
Company shall be indemnified in accordance with this Article to the extent
permitted by applicable law.





ARTICLE
11





TERRORISM
RECOVERY





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





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11.





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





C.           “Act”
as used herein shall mean the Terrorism Risk Insurance Act of 2002, the
Terrorism Risk Insurance Extension Act of 2005, and the Terrorism Risk Insurance
Program Reauthorization Act of 2007 (“TRIPRA”) and any subsequent amendment
thereof or any regulations promulgated thereunder. “Company” shall have the same
meaning as “Insurer” under the Act and “Insured Losses”, and “Program Year”
shall follow the definitions as provided in the Act.





ARTICLE
12





NET RETAINED
LINE





A.          This
Contract applies only to that portion of any insurance or reinsurance which the
Company retains net for its own account and, in calculating the amount of any
loss hereunder and also in computing the amount or amounts in excess of which
this Contract attaches, only loss or losses in respect of that portion of any
insurance or reinsurance which the Company retains net for its own account shall
be included.





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





C.           Inter-company
reinsurance among the companies collectively called the “Company” shall be
entirely disregarded for all purposes of this Contract.





D.          Permission
is hereby granted the Company to carry (i) underlying reinsurance and (ii)
layers of catastrophe reinsurance both below and above this layer of coverage
and recoveries made on the latter shall be disregarded for all purposes of this
Contract and shall inure to the sole benefit of the Company.





ARTICLE
13





NOTICE OF LOSS AND LOSS
SETTLEMENT





A.          The
Company shall advise the Reinsurers promptly of all Loss Occurrences which, in
the opinion of the Company, may result in a claim hereunder and of all
subsequent developments thereto which, in the opinion of the Company, may
materially affect the position of the Reinsurers. Inadvertent omission or
oversight in giving such notice shall in no way affect the liability of the
Reinsurers. However, the Reinsurers shall be informed of such omission or
oversight promptly upon its discovery.





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12.





B.           Prompt
notice shall be given to the Reinsurers by the Company on any Loss Occurrence
wherein the Company’s reserve exceeds fifty percent (50%) of the Company’s loss
retention.





C.           The
Company shall have the right to settle all claims under its Policies. All loss
settlements made by the Company, whether under strict policy conditions or by
way of compromise, that are the Business Covered and that are not an ex-gratia
settlement shall be final and binding subject to the liability of the Company
and the terms and conditions of this Contract. The Reinsurer shall follow the
liability of the Company (to the extent provided in this Contract) and shall pay
or allow, as the case may be, its share of each such settlement in accordance
with this Contract all amounts for which it is obligated as soon as possible,
but not later than ten (10) business days, of being furnished by the Company
with reasonable evidence of the amount due. Reasonable evidence of the amount
due shall consist of a certification by the Company, accompanied by proof of
loss documentation the Company customarily presents with its claims payment
requests, that the amount requested to be paid and submitted by the
certification, is, upon information and belief, due and payable to the Company
by the Reinsurers under the terms and conditions of this Contract.





ARTICLE
14





ERRORS AND
OMISSIONS





Inadvertent delays, errors or omissions
made by the Company in connection with this Contract shall not relieve the
Reinsurer from any liability which would have attached had such error or
omission not occurred, provided always that such error or omission shall be
rectified as soon as possible, provided that the liability of the Reinsurer
shall not extend beyond the coverage provided by this Contract nor to extend
coverage to Policies that are not the Business Covered hereunder. This Article
shall not apply to a sunset provision, if any in this Contract, nor to a
commutation made in connection with this Contract.





ARTICLE
15





OFFSET





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





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13.





ARTICLE
16





CURRENCY





A.          Whenever
the word “Dollars” or the “$” sign appears in this Contract, they shall be
construed to mean United States Dollars and all transactions under this Contract
shall be in United States Dollars.





B.           Amounts
paid or received by the Company in any other currency shall be converted to
United States Dollars at the rate of exchange at the date such transaction is
entered on the books of the Company.





ARTICLE
17





FEDERAL EXCISE TAX AND OTHER
TAXES





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





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





ARTICLE
18





ACCESS TO
RECORDS





A.          The
Company shall place at the disposal of the Reinsurer at all reasonable times,
and the Reinsurer shall have the right to inspect (and make reasonable copies)
through its designated representatives during the term of this Contract and
thereafter, all non-privileged books, records and papers of the Company directly
related to any reinsurance hereunder, or the subject matter hereof, provided
that if the Reinsurer has ceased active market operations, this right of access
shall be subject to that Reinsurer being current in all payments owed the
Company that are not currently the subject of a formal dispute (such as the
initiation of an Arbitration or Mediation). For the purposes of this Article,
“non-privileged” refers to books, records and papers that are not subject to the
Attorney-client privilege and Attorney-work product doctrine.





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14.





B.           “Attorney-client
privilege” and “Attorney-work product” shall have the meanings ascribed to each
by statute and/or the court of final adjudication in the jurisdiction whose laws
govern the substantive law of a claim arising under a Policy reinsured under
this Contract.





C.           Notwithstanding
anything to the contrary in this Contract, for any claim or loss under a Policy
reinsured under this Contract, should the Reinsurer assert, pursuant to the
Common Interest Doctrine (“Doctrine”), that it has the right to examine any
document that the Company alleges is subject to the Attorney-client privilege or
the Attorney-work product privilege, upon the Reinsurer providing to the Company
substantiation of any law which reasonably supports the basis for the
Reinsurer’s conclusion that the Doctrine applies and the Doctrine will be upheld
as applying between the Company and the Reinsurer as against third parties
pursuant to the substantive law(s) which govern the claim or loss, the Company
shall give the Reinsurer access to such document.





D.           Notwithstanding
any other provision to the contrary, once a claim and all directly related
claims are finally settled by the Company, the Reinsurer shall be entitled to
review all reasonable and applicable claims records that support a Company
request for payment of a claim hereunder for Net Loss for Business Covered
hereunder. In the event that the Reinsurer shall have paid an amount for Net
Loss to the Company and the records do not support the obligation of the
Reinsurer to have paid the claim, the Company shall promptly return any payment
made in error.





ARTICLE
19





INSOLVENCY


(This
Article shall be deemed to read as required to meet the statutory insolvency
clause requirements of the Company.)





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





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





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15.





C.           In
the event of the insolvency of the Company, the liquidator, receiver,
conservator or statutory successor of the Company shall give written notice to
the Reinsurer of the pendency of a claim against the insolvent Company on the
Policy or Policies reinsured within a reasonable time after such claim is filed
in the insolvency proceeding and during the pendency of such claim any Reinsurer
may investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses which it may deem
available to the Company or 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.





D.          Where
two (2) or more Reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such expense
had been incurred by the Company.





ARTICLE
20





ARBITRATION





A.          Any
and all disputes between the Company and the Reinsurer arising out of, relating
to, or concerning this Contract, whether sounding in contract or tort and
whether arising during or after termination of this Contract, shall be submitted
to the decision of a Board of arbitration composed of two (2) arbitrators and an
umpire (“Board”) meeting at a site in the city in which the principal
headquarters of the Company are located. The arbitration shall be conducted
under the Federal Arbitration Act and shall proceed as set forth
below.





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





C.           The
members of the Board shall be impartial, disinterested and not currently
representing any party participating in the arbitration, and shall be current or
former senior officers of insurance or reinsurance concerns, experienced in the
line(s) of business that are the subject of this Contract. The Company and the
Reinsurer as aforesaid shall each appoint an arbitrator and the two (2)
arbitrators shall choose an umpire before instituting the hearing. As time is of
the essence, if the respondent fails to appoint its arbitrator within thirty
(30) days after having received claimant’s written request for arbitration, the
claimant is authorized to and shall appoint the second arbitrator. If the two
(2) arbitrators fail to agree upon the appointment of an umpire within thirty
(30) days after notification of the appointment of the second arbitrator, within
ten (10) days thereof, the two (2) arbitrators shall request ARIAS U.S.
(“ARIAS”) to apply its procedures to appoint an umpire for the arbitration with
the qualifications set forth above in this Article. If the use of ARIAS
procedures fails to name an umpire, either party may apply to a court of
competent jurisdiction to appoint an umpire with the above required
qualifications. The umpire shall promptly notify in writing all parties to the
arbitration of his selection and of the scheduled date for the hearing. Upon
resignation or death of any member of the Board, a replacement shall be
appointed in the same fashion as the resigning or deceased member was
appointed.





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16.





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





E.           The
Board shall make a decision and award with regard to the terms expressed in this
Contract, the original intentions of the parties to the extent reasonably
ascertainable, and the custom and usage of the insurance and reinsurance
business that is the subject of this Contract. Notwithstanding any other
provision of this Contract, the Board shall have the right and obligation to
consider underwriting and submission-related documents in any dispute between
the parties.





F.           The
Board shall be relieved of all judicial formalities and the decision and award
shall be based upon a hearing in which evidence shall be allowed though the
formal rules of evidence shall not strictly apply. Cross examination and
rebuttal shall be allowed. The Board may request a post-hearing brief to be
submitted within twenty (20) days of the close of the hearing.





G.           The
Board shall render its decision and award in writing within thirty (30) days
following the close of the hearing or the submission of post-hearing briefs,
whichever is later, unless the parties consent to an extension. Every decision
by the Board shall be by a majority of the members of the Board and each
decision and award by the majority of the members of the Board shall be final
and binding upon all parties to the proceeding. Such decision shall be a
condition precedent to any right of legal action arising out of the arbitrated
dispute which either party may have against the other. However, the Board is not
authorized to award punitive, exemplary or enhanced compensatory
damages.





H.           The
Board may award (i) interest at a rate not in excess of that set forth in the
Article entitled LATE
PAYMENTS, calculated from the date the Board determines that any amounts
due the prevailing party should have been paid to the prevailing party, and (ii)
applicable Attorneys’ fees and costs.





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17.





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





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





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





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





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





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





O.           If
the parties mutually agree to or the Board orders a consolidated hearing, all
other affected participating Reinsurers shall join and participate in the
arbitration under time frames established by the Board and will be bound by the
Board’s decision and award unless excused by the Board in its discretion. A
consolidated hearing shall not result in any change or modification of any
Reinsurer’s liability for its participation, that is several, but not joint
shall remain the same.





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18.





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





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





ARTICLE
21





SERVICE OF
SUIT





A.          This
Article only applies to a Reinsurer domiciled outside of the United States
and/or unauthorized in any state, territory or district of the United States
having jurisdiction over the Company. Furthermore, this Article will not be read
to conflict with or override any obligations of the parties to arbitrate their
disputes under this Contract. This Article is intended as an aid to compelling
arbitration if called for by this Contract or enforcing any such arbitration or
arbitral award, not as an alternative to any Arbitration provision in this
Contract that is applicable for resolving disputes arising out of this
Contract.





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





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19.





C.           The
Reinsurer, once the appropriate court is selected, whether such court is the one
originally chosen by the Company and accepted by the Reinsurer or is determined
by removal, transfer, or otherwise, as provided above, will comply with all
requirements necessary to give said court jurisdiction and, in any suit
instituted against any of them upon this Contract, will abide by the final
decision of such court or any appellate court in the event of an
appeal.





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





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





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





ARTICLE
22





CONFIDENTIALITY





A.          The
information, data, statements, representations and other materials provided by
the Company or the Reinsurer to the other arising from consideration and
participation in this Contract whether contained in the reinsurance submission,
this Contract, or in materials or discussions arising from or related to this
Contract, may contain confidential or proprietary information as expressly
indicated by the Disclosing Party (“Disclosing Party”) in writing from time to
time to the other party of the respective parties (“Confidential Information”).
This Confidential Information is intended for the sole use of the parties to
this Contract (and their affiliates involved in management or operation of
assumed reinsurance business, retrocessionaires, prospective retrocessionaires,
intermediaries involved in such placements, respective auditors and legal
counsel) as may be necessary in analyzing and/or accepting a participation in
and/or executing their respective responsibilities under or related to this
Contract. Disclosing or using Confidential Information relating to this
Contract, without the prior written consent of the Disclosing Party, for any
purpose beyond (i) the scope of this Contract, (ii) the reasonable extent
necessary to perform rights and responsibilities expressly provided for under
this Contract, (iii) the reasonable extent necessary to administer, report to
and effect recoveries from retrocessional Reinsurers, (iv) the reporting to
regulatory or other governmental authorities as may be legally required or (v)
persons with a need to know the information, (all of the preceding persons or
entities who are legally obligated by either written agreement or otherwise to
maintain the confidentiality of the Confidential Information) is expressly
forbidden. Copying, duplicating, disclosing, or using Confidential Information
for any purpose beyond this expressed purpose is forbidden without the prior
written consent of the Disclosing Party.





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20.





B.           Should
a party (“Receiving Party”) receive a third party demand pursuant to subpoena,
summons, or court or governmental order, to disclose Confidential Information
that has been provided by another party to this Contract, the Receiving Party
shall make commercially reasonable efforts to provide the Disclosing Party with
written notice of any subpoena, summons, or court or governmental order, at
least ten (10) days prior to such release or disclosure. Unless the Disclosing
Party has given its prior permission to release or disclose the Confidential
Information, the Receiving Party shall not comply with the subpoena prior to the
actual date required by the subpoena. If a protective order or appropriate
remedy is not obtained, the Receiving Party may disclose only that portion of
the Confidential Information that it is legally obligated to disclose. However,
notwithstanding anything to the contrary in this Contract, in no event, to the
extent permitted by law, shall this Article require the Receiving Party not to
comply with the subpoena, summons, or court or governmental order.





ARTICLE
23





PRIVACY





A.          Privacy Awareness.
The Company and the Reinsurer are aware of and in compliance with their
responsibilities and obligations under:





1.           The
Gramm-Leach-Bliley Act of 1999 (the “Act”) and applicable Federal and State laws
and regulations implementing the Act. The Company and the Reinsurer will only
use Non-Public Personal Information as permitted by law; and





2.           The
applicable provisions of the Health Insurance Portability and Accountability Act
(“HIPAA”) and the related requirements of any regulations promulgated thereunder
including without limitation the Federal Privacy Regulations as contained in 45
CFR Part 160 and 164 (the “Federal Privacy Regulations”). The Company and the
Reinsurer will only use protected health information as permitted by
law.





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21.





B.           Non-Disclosure. To
the extent required or prohibited by applicable law or regulation, the Reinsurer
shall not disclose any (a) Non-Public Personal Information or (b) protected
health information (as defined in 45 CFR 164.501) it receives from the Company
to anyone other
than:





1.           The
Reinsurer, the Reinsurer’s affiliates, legal counsel, auditors, consultants,
regulators, rating agencies and any other persons or entities to whom such
disclosure is required to effect, administer, or enforce a reinsurance contract;
or any retrocessional reinsurance contract applicable to the losses that are the
subject of this Contract, or





2.           Persons
or entities to whom disclosure is required by applicable law or
regulation.





C.           Non-Public Personal
Information. “Non-Public Personal Information” shall for the purpose of
this Contract mean financial or health information that personally identifies an
individual, including claimants under Policies reinsured under this Contract,
and which information is not otherwise available to the public.





ARTICLE
24





RESERVES





A.          If,
at any time during the period of this Contract and thereafter the reinsurance
provided by a Reinsurer participating in this Contract does not qualify for full
statutory accounting credit for reinsurance by regulatory authorities having
jurisdiction over the Company (whether by reason of lack of license,
accreditation or otherwise) such that a financial penalty to the Company would
result on any statutory statement or report the Company is required to make or
file with insurance regulatory authorities (or a court of law in the event of
insolvency), the Reinsurer shall secure the Reinsurer’s share of Obligations for
which such full statutory credit is not granted by those authorities in a
manner, form, and amount acceptable to the Company and to all applicable
insurance regulatory authorities in accordance with this Article.





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





1.           Clean,
irrevocable, and unconditional evergreen letter(s) of credit issued and
confirmed, if confirmation is required by the applicable insurance regulatory
authorities, by a qualified United States financial institution as defined under
the Insurance Law of the Company’s domiciliary state and acceptable to the
Company and to insurance regulatory authorities;





2.           A
trust account meeting at least the standards of New York’s Insurance Regulation
114 and the Insurance Law of the Company’s domiciliary state; or





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22.





3.           Cash
advances or funds withheld or a combination of both, which will be under the
exclusive control of the Company (“Funds Deposit”).





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





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





2.           amount
of Net Losses and Loss Adjustment Expenses and other amounts paid by the Company
for which the Reinsurer is responsible to the Company but has not yet
paid;





3.           amount
of ceded reserves for Net Losses and Loss Adjustment Expenses for which the
Reinsurer is responsible to the Company;





4.           amount
of return and refund premiums paid by the Company for which the Reinsurer is
responsible to the Company but has not yet paid.





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





1.           Established
letter of credit (or subsequent cash deposit);





2.           Established
trust account (or subsequent cash deposit); or





3.           Funds
Deposit;





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





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





1.           To
make payment to and reimburse the Company for the Reinsurer’s share of Net Loss
and Loss Adjustment Expense and other amounts paid by the Company under its
Policies and for which the Reinsurer is responsible under this Contract that is
due to the Company but unpaid by the Reinsurer including but not limited to the
Reinsurer’s share of premium refunds and returns; and





2.           To
obtain a cash advance of the entire amount of the remaining balance under any
letter of credit in the event that the Company:





a.           has
received notice of non-renewal or expiration of the letter of credit or trust
account;





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23.





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





c.           has
been made aware that others may attempt to attach or otherwise place in jeopardy
the security represented by the letter of credit or trust account;
or





d.           has
concluded that the trustee or issuing (or confirming) bank’s financial condition
is such that the value of the security represented by the letter of credit or
trust account may be in jeopardy;





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





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





1.           Upon
the complete and final liquidation and discharge of all of the Reinsurer’s
Obligations to the Company under this Contract; or





2.           In
the event the Reinsurer subsequently provides alternate or replacement security
consistent with the terms hereof and acceptable to the Company.





G.           The
Company will prepare and forward at annual intervals or more frequently as
determined by the Company, but not more frequently than quarterly to the
Reinsurer a statement for the purposes of this Article, showing the Reinsurer’s
share of Obligations as set forth above. If the Reinsurer’s share thereof
exceeds the then existing balance of the security provided, the Reinsurer will,
within fifteen (15) days of receipt of the Company’s statement, but never later
than December 31 of any year, increase the amount of the letter of credit, (or
subsequent cash deposit), trust account or Funds Deposit to the required amount
of the Reinsurer’s share of Obligations set forth in the Company’s statement,
but never later than December 31 of any year. If the Reinsurer’s share thereof
is less than the then existing balance of the security provided, the Company
will release the excess thereof to the Reinsurer upon the Reinsurer’s written
request. The Reinsurer will not attempt to prevent the Company from holding the
security provided or Funds Deposit
so long as the Company is acting in accordance with this Article. The Company
shall pay interest earned on the deposited amounts to the Reinsurers as the
parties shall have agreed at the time of the deposit.





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24.





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





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





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





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





ARTICLE
25





LATE
PAYMENTS





A.          Payments
from the Reinsurer to the Company for coverage providing pro rata forms of
reinsurance shall have a due date as expressed in the Article entitled NOTICE OF
LOSS AND LOSS SETTLEMENT. Payments from the Reinsurer to the Company for
coverage providing excess of loss reinsurance shall have as a due date the date
on which the proof of loss or demand for payment is received by the Reinsurer.
Payment not received within sixty (60) days of the due date shall be deemed
overdue (the “Overdue Date”). Payments due from the Reinsurer to the Company
will not be considered overdue if the Reinsurer requests, in writing, that such
payment be made by drawing on a letter of credit or other similar method of
funding that has been established for this Contract, provided that there is an
adequate balance in place, and further provided that such advice to draw is
received by the Company within the sixty (60) day deadline set forth above.
Payments from the Company to the Reinsurer will have a due date as the date
specified in this Contract and will be overdue sixty (60) days thereafter.
Premium adjustments will be overdue sixty (60) days from the Contract due date
or one hundred twenty (120) days after the expiration or renewal date, whichever
is greater.





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25.





B.           In
the event that this Contract provides excess of loss reinsurance, the Company
will provide the Reinsurer with a reasonable proof of loss and a copy of the
claim adjuster’s report(s) or any other reasonable evidence of indemnification.
If subsequent to receipt of this evidence, the information contained therein is
unreasonably insufficient or not in substantial accordance with the contractual
conditions of this Contract, then the payment due date as specified above will
be deemed to be the date upon which the Reinsurer received the additional
information necessary to approve payment of the claim and the claim is presented
in a reasonably acceptable manner. This paragraph is only for the purpose of
establishing when a claim payment is overdue, and will not alter the provisions
of the Article entitled NOTICE OF
LOSS AND LOSS SETTLEMENT or other pertinent contractual stipulations of
this Contract.





C.           If
payment is made of overdue amounts within thirty (30) days of the Overdue Date,
overdue amounts will bear simple interest from the Overdue Date at a rate
determined by the annualized one month London Interbank Offered Rate for the
first business day of the calendar month in which the amount becomes overdue, as
published in The Wall
Street Journal, plus two hundred (200) basis points to be calculated
weekly. If payment is made of overdue amounts more than thirty (30) days after
the Overdue Date, overdue amounts will bear simple interest from the Overdue
Date at a rate determined by the annualized one month London Interbank Offered
Rate for the first business day of the calendar month in which the amount
becomes overdue, as published in The Wall Street
Journal, plus four hundred (400) basis points to be calculated on a
weekly basis, but in no event less than eight percent (8%) simple interest. If
the sum of the compensating additional amount computed in respect of any overdue
payment is less than one quarter of one percent (0.25%) of the amount overdue,
or one thousand dollars ($1,000), whichever is greater, and/or the overdue
period is one week or less, then the interest amount shall be waived. The basis
point standards referred to above shall be doubled if the late payment is due
from a Reinsurer who is no longer an active reinsurance market. Interest shall
cease to accrue upon the party’s payment of an overdue amount to the
Intermediary.





ARTICLE
26





MODE OF
EXECUTION





A.           This
Contract may be executed by:





1.           an
original written ink signature of paper documents;





2.           an
exchange of facsimile copies showing the original written ink signature of paper
documents;





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26.





3.           electronic
signature technology employing computer software and a digital signature or
digitizer pen pad to capture a person’s handwritten signature in such a manner
that the signature is unique to the person signing, is under the sole control of
the person signing, is capable of verification to authenticate the signature and
is linked to the document signed in such a manner that if the data is changed,
such signature is invalidated.





B.           The
use of any one or a combination of these methods of execution shall constitute a
legally binding and valid signing of this Contract.





ARTICLE
27





VARIOUS OTHER
TERMS





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





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





C.           This
Contract shall constitute the entire agreement between the parties with respect
to the Business Covered hereunder. There are no understandings between the
parties other than as expressed in this Contract. Any change or modification of
this Contract shall be null and void unless made by amendment to the Contract
and signed by both parties.





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





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





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





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





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      No. G25573.10/G25574.10/G26233.10FINAL





27.





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





I.   
        Each party shall be excused for
any reasonable failure or delay in performing any of its respective obligations
under this Contract, if such failure or delay is caused by Force Majeure. “Force
Majeure” shall mean any act of God, strike, lockout, act of public enemy, any
accident, explosion, fire, storm, earthquake, flood, drought, peril of sea,
riot, embargo, war or foreign, federal, state or municipal order or directive
issued by a court or other authorized official, seizure, requisition or
allocation, any failure or delay of transportation, shortage of or inability to
obtain supplies, equipment, fuel or labor or any other circumstance or event
beyond the reasonable control of the party relying upon such circumstance or
event; provided, however, that no such Force Majeure circumstance or event shall
excuse any failure or delay beyond a period exceeding thirty (30) days from the
date such performance would have been due but for such circumstance or
event.





J.  
         All Articles of this
Contract shall survive the termination of this Contract until all Obligations
between the parties have been finally settled.





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





L.           Whenever
the word “Company” is used in this Contract, such term shall mean each and all
affiliated companies which are or may hereafter be under common control provided
notice be given to the Reinsurers of any newly affiliated companies which may
hereafter come under common control as soon as practicable, with full
particulars as to how such affiliation is likely to affect this Contract. In the
event that either party maintains that such affiliation calls for altering the
terms of this Contract and an agreement for alteration not being arrived at,
then the Business Covered of such newly affiliated company is covered at
existing terms for a period not to exceed (90) ninety days after notice by
either party that it does not wish to cover the business of the newly affiliated
company at the existing terms.





M.         The
term “Reinsurer” shall refer to each Reinsurer participating severally and not
jointly in this Contract. The subscribing (Re)insurers’ obligations under
contracts of (re)insurance to which they subscribe are several and not joint and
are limited solely to the extent of their individual subscriptions. The
subscribing (Re)insurers are not responsible for the subscription of any
co-subscribing (Re)insurer who for any reason does not satisfy all or part of
its obligations.





N.           For
purposes of sending and receiving notices and payments required by this Contract
other than in respect of the Articles entitled SERVICE
OF SUIT and RESERVES
herein, the reinsured company that is set forth first in the definition of
“Company” is deemed the agent of all other reinsured companies referenced
herein. In no event, however, shall any reinsured company be deemed the agent of
another with respect to the terms of the Article entitled INSOLVENCY.





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28.





O.           Whenever
the content of this Contract requires, the gender of all words shall include the
masculine, feminine and neuter, and the number of all words shall include the
singular and the plural. This Contract shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Contract to be drafted.





P.           The
Company shall furnish the Reinsurer, in accordance with regulatory requirements,
periodic reporting of premiums and losses that relate to the Business Covered in
this Contract as may be needed for Reinsurers’ completion of financial
statements to regulatory authorities.





Q.          When
so requested in writing, the Company shall afford the Reinsurer or its
representatives an opportunity to be associated with the Company, at the expense
of the Reinsurer, in the defense of any claim, suit or proceeding involving this
reinsurance, and the Company and the Reinsurer shall cooperate in every respect
in the defense of such claim, suit or proceeding, provided the Company shall
have the right to make any decision in the event of disagreement over any matter
of defense or settlement.





ARTICLE
28





INTERMEDIARY





A.          Towers
Watson Pennsylvania Inc. (“Towers Watson”) is hereby recognized as the
Intermediary negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements, premium,
return premium, commissions, taxes, losses, loss adjustment expense, salvages
and loss settlements) relating thereto shall be transmitted to the Company or
the Reinsurer through Towers Watson, Centre Square East, 1500 Market Street,
Philadelphia, Pennsylvania, 19102-4790. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the Reinsurer.
Payments by the Reinsurer to the Intermediary shall be deemed to constitute
payment to the Company only to the extent that such payments are actually
received by the Company.  In acting as Intermediary for this Contract,
the Intermediary shall (i) comply with all aspects of New York Regulation 98 and
shall (ii) be entitled to withdraw funds in accordance with section 32.3(a)(3)
of that Regulation including commissions, excise tax and interest received on
its premium and loss accounts, and shall also (iii) return to the Reinsurer any
brokerage allowed by the Reinsurer and taken on premium ceded to the Reinsurer
but refunded or returned to the Company.





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




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      No. G25573.10/G25574.10/G26233.10FINAL







NUCLEAR
INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
 (BRMA
35B)





1.           This
reinsurance 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
reinsurance 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:





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 operations of paragraphs (1) and (2) hereof, this
reinsurance 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
      Company does not have knowledge of such nuclear reactor power plant or
      nuclear installation, or


(b)
            where
      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.





4.           Without
in any way restricting the operations of paragraphs (1), (2) and (3) hereof,
this reinsurance 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.   
        It is understood and agreed that
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 “special nuclear material”
shall have the meaning given it in the Atomic Energy Act of 1954 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.





Notes:
            Without
      in any way restricting the operation of paragraph (1) hereof, it is
      understood and agreed that:





(a)
            All
      Policies issued by the Company 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 Company 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.





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      No. G25573.10/G25574.10/G26233.10FINAL





INFORMATION
TECHNOLOGY HAZARDS CLARIFICATION CLAUSE





Losses
arising directly or indirectly, out of:





(i)
            loss
      of, alteration of, or damage to





or





(ii)
            a
      reduction in the functionality, availability or operation
    of





a
computer system, hardware, program, software, data, information repository,
microchip, integrated circuit or similar device in computer equipment or
non-computer equipment, whether the property of the policyholder of the
reinsured or not, do not in and of themselves constitute an event unless arising
out of one or more of the following perils:





fire,
lightning, explosion, aircraft or vehicle impact, falling objects, windstorm,
hail, tornado, cyclone, hurricane, earthquake, volcano, tsunami, flood, freeze
or weight of snow.





23/11/00


NMA2912





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      No. G25573.10/G25574.10/G26233.10FINAL





EXHIBIT I
- Page 1.


TW No.
G25573.10





EXHIBIT
I





PROPERTY FIRST EXCESS OF
LOSS REINSURANCE CONTRACT





EFFECTIVE JANUARY 1,
2010





issued
to





PENN MILLERS INSURANCE
COMPANY





AMERICAN MILLERS INSURANCE
COMPANY





ARTICLE
5





RETENTION AND
LIMIT





A.          The
Reinsurers shall be liable to, indemnify and reinsure the Company for each and
every Risk, in each and every Loss Occurrence for one hundred percent (100%) of
the excess Net Loss above an initial Net Loss to the Company of one million
dollars ($1,000,000) but the Reinsurers shall not be liable for more than four
million dollars ($4,000,000) of Net Loss in each and every Risk, in each and
every Loss Occurrence, nor shall Reinsurers be liable for more than eight
million dollars ($8,000,000) of Net Loss in excess loss from any one Loss
Occurrence.





B.           The
Reinsurers shall be liable to, indemnify and reinsure the Company for each and
every Risk, each and every Loss Occurrence, involving a certified or non
certified Act of Terrorism, irrespective of the number and kinds of perils
involved, for one hundred percent (100%) of the excess Net Loss above an initial
Net Loss to the Company of one million dollars ($1,000,000) each and every Risk;
but the Reinsurers shall not be liable for more than four million dollars
($4,000,000) of Net Loss for each and every Risk, and not more than four million
dollars ($4,000,000) of Net Loss during the term of this Contract.





C.           Coverage
for loss caused by Mold, as defined within the terms of the Company’s Policy,
shall be limited to an annual amount not to exceed eight hundred thousand
dollars ($800,000), namely twenty percent (20%) of the layer limit.





D.           The
Company shall be the sole judge of what constitutes “one risk” and the Probable
Maximum Loss applicable to such risk.





E.           An
“Act of Terrorism” shall mean any act, including both Certified Acts of
Terrorism in accordance with the Terrorism Risk Insurance Act of 2002 (“TRIA”),
the Terrorism Risk Insurance Extension Act of 2005 (“TRIEA”) and the Terrorism
Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) and any subsequent
extension and those not so certified, or preparation in respect of action, or
threat of action designed to influence the government de jure or de facto of any
nation or any political division thereof, or in pursuit of any political,
religious, ideological, or similar purpose to intimidate the public or a section
of the public of any nation by any person or group(s) of persons whether acting
alone or on behalf of or in connection with any organization(s) or government(s)
de jure or de facto, and which:





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EXHIBIT I
- Page 2.


TW No.
G25573.10





1.           involves
violence against one or more persons; or


2.           involves
damage to property; or


3.           endangers
life other than that of the person committing the action; or


4.           creates
a risk to health or safety of the public or a section of the public;
or


5.           is
designed to interfere with or to disrupt an electronic system; or


6.           involves
loss, damage, cost, or expense directly or indirectly caused by, contributed to
by, resulting from, or arising out of or in connection with any action in
controlling, preventing, suppressing, retaliating against, or responding to any
Act of Terrorism.





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





ARTICLE
6





REINSTATEMENT





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





B.           For
the first four million dollars ($4,000,000) so reinstated, there shall be no
additional premium. For the next four million dollars ($4,000,000) so reinstated
thereafter, there shall be no additional premium. For the next four million
dollars ($4,000,000) so reinstated thereafter, the Company agrees to pay an
additional premium calculated by multiplying one hundred percent (100%) of the
annual reinsurance premium hereon by the product of the percentage that the
amount reinstated bears to the limit (i.e., four million dollars ($4,000,000))
of this Contract. Nevertheless, the liability of the Reinsurers shall never be
more than four million dollars ($4,000,000) in respect of any one Loss, eight
million dollars ($8,000,000) in respect of any one Loss Occurrence, nor more
than sixteen million dollars ($16,000,000) in all in respect of all losses
occurring during the Contract period.





C.           A
provisional statement of reinstatement premium due the Reinsurers shall be
prepared by the Company and submitted to the Reinsurers as soon as practicable
after payment of a claim hereunder. The provisional reinstatement premium shall
be based on one hundred percent (100%) of the estimated annual reinsurance
premium hereunder. The amount of reinstatement premium due Reinsurers shall be
offset against the loss payment due the Company with only the net amount due to
be remitted by the debtor party.





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EXHIBIT I
- Page 3.


TW No.
G25573.10





D.          As
promptly as possible after the annual reinsurance premium hereunder has been
finally determined, the Company shall prepare and submit to the Reinsurers a
final statement of reinstatement premium due. Any reinstatement premium shown to
be due the Reinsurers (less prior payments, if any) shall be remitted by the
Company with its statement. Any return reinstatement premium shown to be due the
Company shall be remitted by the Reinsurers as promptly as possible after
receipt of the Company’s final statement.





E.           In
the event there are any mid-term terminations in the participation of any
Reinsurer in this Contract, payment of any such reinstatement premium in full
shall be paid to the Reinsurer who incurred the loss that generates the
reinstatement premium.





ARTICLE
7





PREMIUM





A.          The
premium payable to Reinsurers shall be calculated by applying a rate of ten
point six seven five percent (10.675%) to the Company’s Subject Matter Premium
Income.





B.           The
term “Subject Matter Premium Income” shall mean the Company’s gross net premiums
earned on the Business Covered hereunder less premiums paid on reinsurance, if
any, recoveries under which would reduce the Net Loss to this
Contract.





C.           The
Company shall pay the Reinsurers a deposit premium of three million nine hundred
ninety nine thousand seven hundred nine dollars ($3,999,709)shall be paid to
Reinsurers in four (4) equal installments of nine hundred ninety nine thousand
nine hundred twenty seven dollars and twenty five cents ($999,927.25) each on
January 1, April 1, July 1 and October 1, 2010. As promptly as possible after
the termination of this Contract, however no longer than sixty (60) days, the
Company shall render a report to the Reinsurers showing the actual reinsurance
premium due hereunder, calculated as provided in Paragraph A. of this Article;
and, if the premium so calculated is greater than the previously paid deposit
premium, the balance shall be remitted by the Company with its report. However,
in no event shall the premium to the Reinsurers for the Contract be less than
three million one hundred ninety nine thousand seven hundred sixty seven dollars
($3,199,767).





TW
      No. G25573.10/G25574.10/G26233.10FINAL







EXHIBIT
II - Page 1.


TW No.
G25574.10








EXHIBIT
II





PROPERTY SECOND EXCESS OF
LOSS REINSURANCE CONTRACT





EFFECTIVE JANUARY 1,
2010





issued
to





PENN MILLERS INSURANCE
COMPANY





AMERICAN MILLERS INSURANCE
COMPANY








ARTICLE
5





RETENTION AND
LIMIT





A.          The
Reinsurers shall be liable to, indemnify and reinsure the Company for each and
every Risk, in each and every Loss Occurrence for one hundred percent (100%) of
the excess Net Loss above an initial Net Loss to the Company of five million
dollars ($5,000,000) but the Reinsurers shall not be liable for more than five
million dollars ($5,000,000) of Net Loss in each and every Risk in each and
every Loss Occurrence, nor shall Reinsurers be liable for more than ten million
dollars ($10,000,000) of Net Loss in excess loss from any one Loss
Occurrence.





B.           The
Reinsurers shall be liable to, indemnify and reinsure the Company for the
Company’s Net Loss, each and every Risk, involving a certified or non certified
Act of Terrorism, irrespective of the number and kinds of perils involved, for
one hundred percent (100%) of the excess Net Loss above an initial Net Loss to
the Company of five million dollars ($5,000,000) of Net Loss each and every
Risk; but the Reinsurers shall not be liable for more than five million dollars
($5,000,000) of Net Loss for each and every Risk, and not more than five million
dollars ($5,000,000) of Net Loss during the term of this Contract.





C.           Coverage
for loss caused by Mold, as defined within the terms of the Company’s Policy,
shall be limited to an annual amount not to exceed one million dollars
($1,000,000), namely twenty percent (20%) of the layer limit.





D.           The
Company shall be the sole judge of what constitutes “one risk” and the Probable
Maximum Loss applicable to such risk.





E.           An
“Act of Terrorism” shall mean any act, including both Certified Acts of
Terrorism in accordance with the Terrorism Risk Insurance Act of 2002 (“TRIA”),
the Terrorism Risk Insurance Extension Act of 2005 (“TRIEA”) and Terrorism Risk
Insurance Program Reauthorization Act of 2007 (“TRIPRA”) and the and any
subsequent extension and those not so certified, or preparation in respect of
action, or threat of action designed to influence the government de jure or de
facto of any nation or any political division thereof, or in pursuit of any
political, religious, ideological, or similar purpose to intimidate the public
or a section of the public of any nation by any person or group(s) of persons
whether acting alone or on behalf of or in connection with any organization(s)
or government(s) de jure or de facto, and which:





TW
      No. G25573.10/G25574.10/G26233.10FINAL





EXHIBIT
II - Page 2.


TW No.
G25574.10





1.           involves
violence against one or more persons; or


2.           involves
damage to property; or


3.           endangers
life other than that of the person committing the action; or


4.           creates
a risk to health or safety of the public or a section of the public;
or


5.           is
designed to interfere with or to disrupt an electronic system; or


6.           involves
loss, damage, cost, or expense directly or indirectly caused by, contributed to
by, resulting from, or arising out of or in connection with any action in
controlling, preventing, suppressing, retaliating against, or responding to any
Act of Terrorism.





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





ARTICLE
6





REINSTATEMENT





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





B.           For
the first five million dollars ($5,000,000) so reinstated, the Company agrees to
pay an additional premium calculated by multiplying fifty percent (50%) of the
annual reinsurance premium hereon by the product of the percentage that the
amount reinstated bears to the limit (i.e., five million dollars ($5,000,000))
of this Contract. For the next five million dollars ($5,000,000) so reinstated
thereafter, the Company agrees to pay an additional premium calculated by
multiplying one hundred percent (100%) of the annual reinsurance premium hereon
by the product of the percentage that the amount reinstated bears to the limit
(i.e., five million dollars ($5,000,000)) of this Contract. Nevertheless, the
liability of the Reinsurers shall never be more than five million dollars
($5,000,000) in respect of any one loss, ten million dollars ($10,000,000) in
respect of any one Loss Occurrence, nor more than fifteen million dollars
($15,000,000) in all in respect of all losses occurring during the Contract
period.





C.           A
provisional reinstatement premium shall be paid by the Company at the time the
Reinsurers pay the loss giving rise to the reinstatement premium through an
offset of the provisional reinstatement premium due the Reinsurers against the
loss payment due the Company, with only the net amount due to be remitted by the
debtor party. The amount of this provisional reinstatement premium shall be
based on one hundred percent (100%) of the estimated annual reinsurance premium
hereunder.





TW
      No. G25573.10/G25574.10/G26233.10FINAL





EXHIBIT
II - Page 3.


TW No.
G25574.10





D.          As
promptly as possible after the loss has been paid by the Reinsurers and the
annual reinsurance premium hereunder has been finally determined, the Company
shall prepare and submit to the Reinsurers a final statement of reinstatement
premium due. Any reinstatement premium shown to be due the Reinsurers (less
prior payments, if any) shall be remitted by the Company with its statement. Any
return reinstatement premium shown to be due the Company shall be remitted by
the Reinsurers as promptly as possible after receipt of the Company’s final
statement.





E.           In
the event there are any mid-term terminations in the participation of any
Reinsurer in this Contract, payment of any such reinstatement premium in full
shall be paid to the Reinsurer who incurred the loss that generates the
reinstatement premium.





ARTICLE
7





PREMIUM





A.          The
premium payable to Reinsurers shall be calculated by applying a rate of one
point eight zero zero percent (1.800%) to the Company’s Subject Matter Premium
Income.





B.           The
term “Subject Matter Premium Income” shall mean the Company’s gross net premiums
earned on the business covered hereunder less premiums paid on reinsurance, if
any, recoveries under which would reduce the Net Loss to this
Contract.





C.           The
Company shall pay the Reinsurers a deposit premium of six hundred seventy four
thousand four hundred twenty four dollars ($674,424) shall be paid to Reinsurers
in four (4) equal installments of one hundred sixty eight thousand six hundred
six dollars ($168,606) each on January 1, April 1, July 1 and October 1, 2010.
As promptly as possible after the termination of this Contract, however no
longer than sixty (60) days, the Company shall render a report to the Reinsurers
showing the actual reinsurance premium due hereunder, calculated as provided in
Paragraph A. of this Article; and, if the premium so calculated is greater than
the previously paid deposit premium, the balance shall be remitted by the
Company with its report. However, in no event shall the premium to the
Reinsurers for the Contract be less than five hundred thirty nine thousand five
hundred thirty nine dollars ($539,539).





TW
      No. G25573.10/G25574.10/G26233.10FINAL





EXHIBIT
III - Page 1.


TW No.
G26233.10








EXHIBIT
III





PROPERTY THIRD EXCESS OF
LOSS REINSURANCE CONTRACT





EFFECTIVE JANUARY 1,
2010





issued
to





PENN MILLERS INSURANCE
COMPANY





AMERICAN MILLERS INSURANCE
COMPANY





ARTICLE
5





RETENTION AND
LIMIT





A.          The
Reinsurers shall be liable to, indemnify and reinsure the Company for each and
every risk, in each and every Loss Occurrence, for one hundred percent (100%) of
the excess Net Loss above an initial Net Loss to the Company of ten million
dollars ($10,000,000) but the Reinsurers shall not be liable for more than ten
million dollars ($10,000,000) of Net Loss in each and every risk, in each and
every Loss Occurrence, nor shall Reinsurers be liable for more than ten million
dollars ($10,000,000) Net Loss in excess loss from any one Loss
Occurrence.





B.           The
Reinsurers shall be liable to, indemnify and reinsure the Company for each and
every Risk, each and every Loss Occurrence, involving a Certified or Non
Certified Act of Terrorism, irrespective of the number of kinds of perils
involved, for one hundred percent (100%) of the excess Net Loss above an initial
Net Loss to the Company of ten million dollars ($10,000,000) of Net Loss each
and every Risk; but the Reinsurers shall not be liable for more than ten million
dollars ($10,000,000) of Net Loss for each and every Risk, and not more than ten
million dollars ($10,000,000) of Net Loss during the term of this
Contract.





C.           Coverage
for loss caused by Mold, as defined within the terms of the Company’s Policy,
shall be limited to an annual amount not to exceed two million dollars
($2,000,000), namely twenty percent (20%) of the layer limit.





D.          The
Company shall be the sole judge of what constitutes “one risk” and the Probable
Maximum Loss applicable to such risk.





E.           An
“Act of Terrorism” shall mean any act, including both Certified Acts of
Terrorism in accordance with the Terrorism Risk Insurance Act of 2002 (“TRIA”),
the Terrorism Risk Insurance Extension Act of 2005 (“TRIEA”) and the Terrorism
Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) and any subsequent
extension and those not so certified, or preparation in respect of action, or
threat of action designed to influence the government de jure or de facto of any
nation or any political division thereof, or in pursuit of any political,
religious, ideological, or similar purpose to intimidate the public or a section
of the public of any nation by any person or group(s) of persons whether acting
alone or on behalf of or in connection with any organization(s) or government(s)
de jure or de facto, and which:





TW
      No. G25573.10/G25574.10/G26233.10FINAL





EXHIBIT
III - Page 2.


TW No.
G26233.10





1.           involves
violence against one or more persons; or


2.           involves
damage to property; or


3.           endangers
life other than that of the person committing the action; or


4.           creates
a risk to health or safety of the public or a section of the public;
or


5.           is
designed to interfere with or to disrupt an electronic system; or


6.           involves
loss, damage, cost, or expense directly or indirectly caused by, contributed to
by, resulting from, or arising out of or in connection with any action in
controlling, preventing, suppressing, retaliating against, or responding to any
Act of Terrorism.





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





ARTICLE
6





REINSTATEMENT





A.          Each
claim hereunder shall reduce the amount of the Reinsurers’ limit of liability
from the time of the occurrence of the loss by the sum paid, but the sum so
exhausted shall be reinstated immediately from the time of the occurrence of the
loss.





B.           For
each amount so reinstated, the Company shall pay an additional premium
calculated by multiplying one hundred percent (100%) of the reinsurance premium
earned by the Reinsurer hereon by the percentage that the amount reinstated
bears to the limit (i.e., ten million dollars ($10,000,000)) of this Contract.
Nevertheless, the liability of the Reinsurers shall never be more than ten
million dollars ($10,000,000) of Net Loss in respect of any one Loss Occurrence,
nor more than twenty million dollars ($20,000,000) in Net Loss in all in respect
of all losses occurring during the Contract period.





C.           A
provisional statement of reinstatement premium due the Reinsurers shall be
prepared by the Company and submitted to the Reinsurers as soon as practicable
after payment of a claim hereunder. The provisional reinstatement premium shall
be based on one hundred percent (100%) of the estimated annual reinsurance
premium earned by the Reinsurer hereunder. The amount of reinstatement premium
due Reinsurers shall be offset against the loss payment due the Company with
only the net amount due to be remitted by the debtor party.





TW
      No. G25573.10/G25574.10/G26233.10FINAL





EXHIBIT
III - Page 3.


TW No.
G26233.10





D.          As
promptly as possible after the annual reinsurance premium earned hereunder has
been finally determined, the Company shall prepare and submit to the Reinsurers
a final statement of reinstatement premium due. Any reinstatement premium shown
to be due the Reinsurers (less prior payments, if any) shall be remitted by the
Company with its statement. Any return reinstatement premium shown to be due the
Company shall be remitted by the Reinsurers as promptly as possible after
receipt of the Company’s final statement.





E.           In
the event there are any mid-term terminations in the participation of any
Reinsurer in this Contract, payment of any such reinstatement premium in full
shall be paid to the Reinsurer who incurred the loss that generates the
reinstatement premium.





ARTICLE
7





PREMIUM





A.          The
premium payable to Reinsurers shall be calculated by applying a rate of one
point three eight zero percent (1.380%) to the Company’s Subject Matter Premium
Income.





B.           The
term “Subject Matter Premium Income” shall mean the Company’s gross net premiums
earned on the Business Covered hereunder less premiums paid on reinsurance, if
any, recoveries under which would reduce the Net Loss to this
Contract.





C. 
         The Company shall pay the
Reinsurers a deposit premium of five hundred seventeen thousand fifty eight
dollars ($517,058) shall be paid to Reinsurers in four (4) equal installments of
one hundred twenty nine thousand two hundred sixty four dollars and fifty cents
($129,264.50) each on January 1, April 1, July 1 and October 1, 2010. As
promptly as possible after the termination of this Contract, however no longer
than sixty (60) days, the Company shall render a report to the Reinsurers
showing the actual reinsurance premium due hereunder, calculated as provided in
Paragraph A. of this Article; and, if the premium so calculated is greater than
the previously paid deposit premium, the balance shall be remitted by the
Company with its report. However, in no event shall the premium to the
Reinsurers for the Contract be less than four hundred thirteen thousand six
hundred forty seven dollars ($413,647).





TW
      No. G25573.10/G25574.10/G26233.10FINAL