(Ex. O, Mayer Aff. § 48.)

74. — There was nothing unclear or vague about those statements and representations to
PXRE. (Ex. O, Mayer Aff. 4 49.)

75. Those representations were false and misleading when they were made. As
reflected in the documents attached as Exs. F-K, Equus Re had adopted an approach to
underwriting that was utterly inconsistent with the above mentioned representations. Equus Re
consistently and intentionally compromised its stated underwriting standards, apparently for the
purpose of ingratiating itself or building relationships with brokers or ceding insurers in the hope
of a future payoff. (Mayer Aff. { 50.)

76. Equus Re even documented the side deal or side arrangement it had made with the
broker or ceding company in which Equus Re would either be provided, or could expect,
profitable business in the future. As one Equus Re official noted in connection with of these
instances, the approach Equus Re had adopted was “not the norm” for the industry. (Ex. G.)

77. The Lexington/Thor (Ex. F) file indicates that, in or around August 1998, Equus
Re was solicited to reinsure a book of professional indemnity business of Lexington Insurance
Company (“Lexington”), an affiliate company of American Insurance Group (“AIG”) that was

_produced by Thor Underwriting Limited, a managing general agent located in the U.K.
Apparently due to the fact that Equus Re was not appropriately staffed at the time to write U.K.
business, it declined consideration of the account. (Ex. F at ALEA 00065181.)

78. Following Lexington’s request that Equus Re reconsider its declination, Equus
Re’s actuary analyzed the account and concluded that it would produce significant losses. After
Equus Re communicated the results of its actuarial review to Lexington in October 1998 (Ex. F

at ALEA 00065144), the parties apparently began exploring other ways to get a deal done.

-22-



(Ex. B), and the Tillinghast Report (Ex. C). The verbal statements were made by Lumbermens’
broker and agent, Lawrence Frank, as well as former Equus Re personnel including Lydia Kam,
Elizabeth Sander and Daniel Anelante. These written materials and verbal statements concerned
Equus Re’s underwriting of the contracts included within the Protected Portfolio. They were
material to PXRE and PXRE relied upon them, as well as its review of a sampling of the
Protected Portfolio documents, in binding the Retro Treaty. (Ex. O, Mayer Aff. { 25.)

50. The Equus Re Presentation (Ex. B) made the following statements about Equus
Re, and, in particular, its underwriting approaches and methodologies, which were material to
PXRE’s decision to enter into the Retro Treaty:

(a) Equus Re performed “disciplined, controlled underwriting”
(Ex. B at LMCC 02179);

(b) Equus Re’s “Strategic and Operational Tenets” included
(i) “Underwriting Focus and Integrity’; (ii) “Controls”;
(iii) “Multidisciplined Teams”; (iv) a “Lead Mentality &
Behavior”; (v) “Selectivity — Cherry Picking” (Ex. B at LMCC
02182);

(c) The “Portfolio Focus” was on “Profitability.” (Ex. B at LMCC
02183)

51. In describing its underwriting approach to one type of business, casualty business,
the Equus Re Presentation (Ex. B at LMCC 02198) states that Equus Re’s focus was directed to:
(a) “Underwriting integrity”;
(b) “(Return on equity] objectives”;

(c) reinsuring cedents that had, among other things, “Underwriting
technical expertise”;

52. Similarly, the Equus Re Presentation represented that Equus Re’s Integrated
Programs were “Underwritten by an experienced Line of Business or Class Underwriting

Specialist” (Ex. B at LMCC 02200) and that its Alternative Risk Division maintained a

-16-


response, Equus Re offered to take a 10% line and reinsure the account. (Ex. I at ALEA
00020237.)

88. Equus Re’s underwriting notes for the Euclidian Syndicate (Ex. J) account reveal
that it concluded that the offered rate was “thin” on this new property account, and that it “would
not renew next year unless the price changed.” (Ex. J at ALEA 00023622.) Notwithstanding its
apparent dissatisfaction with the rate offered for this risk, Equus Re agreed to accept it,
“presum[ing] that we hope to get other opportunities from the Syndicate.”

89. | The Caliber One (Ex. K) account represents yet another instance of Equus Re’s
agreement to accept business that was below its underwriting standards in exchange for future
considerations. Equus Re’s underwriter’s notes provide in pertinent part:

“As the file states clearly in several places, we did not intend to offer a line on this
cover... . Our main reason was that the book was basically catastrophe exposed
underpriced National Accounts business. This fact has not changed.” (Ex. K at
ALEA 00071231.)

“We declined this cover several times to the broker due to our dissatisfaction with
the current pricing of primary large account business and the high level of

exposure to EQ and wind that is inherent to these accounts.” (Ex. K at ALEA
00071232.)

Aon, the broker for the account, appealed to Equus Re to reconsider its opinion. Equus Re
continued to believe that the account was not attractive, but decided to write it as an
“accommodation” to Aon’s Boston office, a “major supporter of Equus’ property department”
and with which Equus Re saw “a strong future ... relationship.” (Id.)

90. No one on the PXRE Pre-Binding Audit team discovered any of the documents
attached as Ex. F through K. (Ex. O, Mayer Aff. 165, Ex. P, Yenke Aff. ]21.) Nor did anyone
at PXRE discover any other document similarly indicating that Equus Re was compromising its

stated underwriting standards for the apparent purpose of accepting certain risks as “loss leaders”

-26-


Response to 17

Admits that the Thor contract appears on a list which is part of a June 30, 1999
Reserve Review of the Protected Portfolio.

18. | PXRE expressed interest in proceeding and conducted a due diligence review of the
Protected Portfolio at the offices of Alea between February 10 and 15, 2000. Complaint
37 (Tab A); Answer (Tab B); Third Party Answer 53 (Tab C). A copy of PXRE’s
report of that review, which was produced by PXRE in this litigation, is annexed to this
statement at Tab J.

Response to 18

Admits Paragraph 18.

19. Prior to the on-site visit, PXRE requested and received from Alea a bordereau listing the
clients, limits, and premiums of the contracts in the Protected Portfolio so that PXRE
could choose the files to review while on site. Affidavit of Cary R. Stone, Ex. 1 (annexed
at Tab K).

Response to 19
Denies Paragraph 19 and refers the Court to the February 8, 2000 e-mail from
Daniel Anelante of Alea to Larry Frank of Pegasus, a copy of which is attached to Exhibit K to
Lumbermens’ Rule 56.1 Statement.
20. The PXRE employees who participated in the due diligence of the Protected Portfolio
hn Steve Bodnar, Joe Crespo, Jim Nisch, Chris Wachter, and Bob Yenke. (See Tab

Response to 20

Admits Paragraph 20, except further states that Jeffrey Mayer also participated in
the pre-binding contract review of the Protected Portfolio. (Ex. O, Mayer Aff. 17.)
21. — Every file that PXRE asked to review was in fact made available by Alea. All of Alea’s
files were available on site for review by PXRE. Affidavit of Lydia Kam {7-9
(annexed at Tab L).

Response to 21

Lacks knowledge or information sufficient to form a belief to admit or deny

Paragraph 21.



79. By early November 1998, the parties had discussed a proposal in which Equus Re
would agree to reinsure this money-losing account in exchange for a “side letter guarantee” from
Lexington promising to “make whole” Equus Re for the significant losses it expected to incur if
it reinsured this account. A November 16, 1998 letter from Carol Correia at Equus Re to Kevin
Kelly of Lexington indicates that the loss potential on the Lexington/Thor account was deemed
by Equus Re to be so definite and significant as to require a side agreement guaranteeing a profit
on future business, and future profit potential only was unacceptable. Indeed, Lexington’s
Andrew Archambault, in his fax dated November 17, 1998 to Carol Correia, even set forth a
proposed “payback” which would “offset an anticipated loss” on the Thor program. (Ex. F at
ALEA 00065128.)

80. In December 1998, the parties reached an agreement. Equus Re agreed to provide

a 25% quota share of Lexington’s net retention of the Thor business, in exchange for a “side

agreement” from Lexington to cede to Equus Re, to be accepted at Equus Re’s discretion, all of

Lexington’s property and casualty business until Equus Re achieved _a 10% profit margin, at

which time the “side agreement” would be automatically commuted, thus locking in the 10%

profit to Equus Re. (Ex. F at ALEA 00064989-90.)

81. Although the side deal with Lexington was not struck until December 1998, the
parties agreed that the reinsurance transaction would be back-dated to July 1, 1998. (Id.)

82. These documents reveal that Equus Re accepted the Thor account knowing that it
would perform poorly and generate significant losses — blatantly and obviously inconsistent with
the aforementioned representations about Equus Re’s underwriting methodology. More
egregiously, however, Equus Re knew that Lexington expected to incur a loss, but wished to use

the device of a back-dated reinsurance agreement to mitigate the impact of this known loss.

-23-


99. It would not have been reasonable for PXRE to discover these materials in the
post-binding claim audits conducted after the Retro Treaty was executed in April 2000. (Ex. O,
Mayer J 76, Ex. P, Yenke { 18.)

100. _ In addition, the post-binding audits had a completely different purpose, scope and
focus than the Pre-Binding Audit discussed above. The Pre-Binding Audit involved a team of
individuals who conducted interviews and reviewed underwriting files (i.e., the documents
analyzing, evaluating and quantitatively assessing whether Equus Re would take on a risk). It
was in those underwriting files that the documents in Exhibits F-K were found. (Ex. O, Mayer
q77.)

101. The post-binding claim audits, however, were only staffed with one or two
individuals from PXRE and were focused on claim files (Le. claims being submitted by ceding
insurers pursuant to the reinsurance contracts in the Protected Portfolio). (Ex. O, Mayer 478.)

102, An August 7, 2000 e-mail from Carey Stone of Lumbermens to PXRE (Ex. L)
which allegedly makes reference to the side agreement between Equus Re and Lexington on the
Thor account. The August 2000 e-mail mischaracterizes the fundamental nature of the Thor Side
Deal: For example, it states that “in exchange for priorities to use Equus on two other programs
(which also turned out to be bad, but not as bad), Equus agreed to write a 25% share.” (Ex. L at
PXRE 006420.) However, the true nature of the Thor Side Deal, as set forth in Carol Correia’s
December 21, 1998 memo, was that Lumbermens was to continue being “paid back” through
cessions of future Lexington business until it reached a 10% profit margin on that business, at
which time the arrangement would be automatically commuted. (Ex. F)

103. Moreover, Ms. Stone’s e-mail further notes with respect to the Lexington/Thor

program that:

-29-


arrangement with them via you if you provided future
opportunities to do so.

(Ex. H at ALEA 00066346.) The letter continued by listing seven different “reasons for passing”
on this risk, including “[iJack of term changes after recent poor results” and “[{ijnsufficient
potential margins for reinsurers on a catastrophe exposed portfolio.” (Id.)

86. | However, even though this letter was signed by Larry Lochner of Equus Re, a
handwritten notation on the top of the letter indicates it was “never sent.” Instead, Equus Re sent

a different letter, also dated December 31, 1998, which stated:

Thank you for your recent additional information regarding HCC’s
actions on accounts with attritional losses. . . . Though, we would
have preferred additional changes, we are prepared to make a
commitment to HCC this year providing they are willing to do the
same with us. Specifically, we wish to have the opportunity to
review for a potential participation all of HCC’s reinsurance
programs as they come up regardless of placing broker or [line of
business] (Marine, Aviation, A&H Lendors Single Interest, etc.).
We have always respected HCC’s opportunistic business approach
and its management team and would seek to become one of its core
reinsurers in the future. If HCC is willing to provide us with such
a business showing, we are prepared to offer them a 5% line at
1/1/99.

(Ex. H at ALEA 00066345). Thus, it appears that Equus Re specifically adopted an underwriting
approach that was the very opposite of what it had represented to me. On the very same day that
at least certain Equus Re officials concluded that this risk should be rejected on its merits, Equus
Re decided to accept the risk in order to ingratiate itself with HCC and “become one of its core
reinsurers in the future.”

87. Equus Re initially declined the Hiscox Syndicate (Ex. 1) account because it
concluded “this was too low an attachment [point].” However, the co-broker, Guy Carpenter
asked Equus Re to reconsider its decision — not because of the characteristics of the account itself

— but “as part of [an] overall relationship with the Group (Syndicate and Insurance Co.).” In

-25-


65. In one telephone conversation that Jeffrey Mayer had with Larry Frank in or
around December 1999, Mr. Frank told Mr. Mayer that he “drew comfort” from the Tillinghast
Report that Equus Re in fact had abided by the underwriting principles and approaches outlined
in the Equus Re Presentation and described above. (Ex. O, Mayer Aff. { 41.)

66. One of the first meetings held during the February 2000 visit was with Lydia
Kam. In the Equus Re Presentation, Ms. Kam was identified as the President and Chief
Operating Officer of Equus Re. (Ex. B at LMCC 02207.) PXRE’s meeting with Ms. Kam lasted
approximately one hour, and during the meeting PXRE asked Ms. Kam a series of questions
about Equus Re’s underwriting approaches and methodologies. (Ex. O, Mayer Aff. { 42.)

67. Ms. Kam was asked why she and other Equus Re personnel left their former
employer, TIG Re. Ms. Kam responded with words to the effect that at Lumbermens, she and
the team would have a better environment in which to underwrite reinsurance risks based on
disciplined underwriting, rather than operate under the pressure of building premium volume by
accepting risks that did not meet rigorous underwriting standards, (Ex. O, Mayer Aff. { 43.)

68. During the interview, Ms. Kam emphasized the “experience” and “excellence” of
the Equus Re underwriting team. Ms. Kam specifically stated that Equus Re’s underwriting
approach was “team oriented,” and utilized a “full pricing” methodology. PXRE understood
Ms. Kam’s use of these terms to mean that Equus Re employed disciplined underwriting, priced
risks on their own merits, and did not enter into transactions that would generate known or
expected losses in return for side deals or side promises of future profitable business. (Ex. O,
Mayer Aff. ¥ 44.)

69. At no time during or after the interview did Ms. Kam ever state or suggest to

PXRE, or refer PXRE to documents that would have indicated that, Equus Re had in fact adopted

-20-



35, In July 2001, Ms. Stone sent Mr. Wachter a claims review report by Alea concerning the
Thor Contract, noting in her cover letter that “this contract was singled out by [Alea
actuary] Liz Sander, and is reserved to come in at a 500% [loss ratio]. (Incurred was
$3,213,720 as of 3/31/01).” PXRE produced a copy of this report from its files in this
litigation. (Tab V).

Response to 35
Admits that Ms. Stone sent a June 2001 report relating to Lexington/Thor, lacks
knowledge sufficient to form a belief to admit or deny whether it was sent in July 2001, and
further states that the report, attached as Exhibit V to Lumbermens’ Rule 56.1 Statement, must
be read as a whole.
36. PXRE participated in further joint review of the Protected Portfolio on February 28 and
a 1, 2002 and February 26 to 28, 2003. Affidavit of Cary R. Stone, {ff 6-7. (Tab
Response to 36
Admits Paragraph 36, except further states that the reviews to which Paragraph 36
refers were primarily claims file reviews, as contrasted with the February 2000 review, at which

the PXRE pre-contract review team reviewed underwriting files. (Ex. O, Mayer Aff. { 76-78.)

37. On March 28, 2003, PXRE’s Chief Financial Officer, John Modin, wrote to Cary Stone
requesting another visit to access to the books and records of the reinsured business kept
at Alea. Modin invoked Section X.B of the Retro Contract requesting access to “all
books, records, and documents of [Alea] reasonably relating to the Business Reinsured.”
In making this request, PXRE affirmed its “understanding that most of the information
necessary to achieve our objectives is located at [Alea] so this is where we will most
likely begin our procedures.” PXRE produced a copy of its request in this litigation.
(Tab W).

Response to 37

Admits that Mr. Modin requested an inspection of records as set forth in his
March 24, 2003 letter to Kemper Insurance Companies, a copy of which is attached as Exhibit W
to Lumbermens’ Rule 56.1 Statement, denies that Mr. Modin’s request constituted an affirmation

or understanding of the location of materials relevant to such an inspection, and refers the Court

-ll-


. As of December 31, 2001, estimated premium exceeded $200 million and
PXRE accepted another premium payment from Lumbermens, together
with interest, in a total amount of just under $1 million. (Tab P).

Response to 25

Admits that over time, due to fluctuations in the level of estimated subject
premium, adjustments were made to the amount of premium received by PXRE.

26. At no time prior to filing the Complaint in this litigation did PXRE tender this premium
back to Lumbermens.

Response to 26
Admits Paragraph 26, except further states that at or around the time the

Complaint was filed, PXRE initiated the creation of a trust to deposit the premium, subsequent to

which Lumbermens itself proposed that PXRE set aside the premium into a segregated account

to fund claim payments during the pendency of this litigation, which has since been effectuated
by agreement of the parties.

27. The only alleged “side agreement” in this case is the alleged Lexington Agreement,
which relates to a 1998 contract known as the “Thor Contract” in which Lumbermens (by
its Equus Re division) agreed to reinsure Lexington Insurance Company, an unaffiliated
third party, with respect to certain professional liability insurance Lexington had written.

PXRE Rule 30(b)(6) Deposition (“PXRE Dep.”) at 64:21-65:15 (Tab Q).

Response to 27

Denies Paragraph 27 (Ex. O, Mayer Aff. { 58-64.)
28. PXRE claimed during its Rule 30(b)(6) deposition in this case that it first learned of this
alleged “side agreement” when it reviewed the underwriting file for the Thor Contract in

June 2003. PXRE Dep. at 15:21-16:18, 20:24-21:8, 29:5-13, 35:7-12, 36:13-18, 72:4-22
(Tab Q).

Response to 28
Admits that PXRE first learned of the Thor Side Agreement during a file review

at Alea in June 2003.

-8-


22. On February 22, 2000, following its due diligence of the Protected Portfolio at Alea’s
offices, PXRE offered to reinsure Lumbermens for the first 25 loss ratio points in excess
of the 75% attachment point of the Stop Loss, cover, subject to an overall cap of
$50,000,000. The premium PXRE requested for taking the risk was 10.375% of
underlying subject premium. In round numbers, and based on $200 million of underlying
subject premium, PXRE was agreeing to take $50 million of risk for $20.75 million of
premium. A copy of PXRE’s February 22, 2000 offer, which was produced by PXRE in
this litigation, is annexed at Tab M.

Response to 22

Admits that Paragraph 22 is, in general terms, an accurate description of PXRE’s
offer to reinsure Lumbermens in connection with the Retro Treaty transaction.
23, On April 10, 2000, Lumbermens entered into the Retro Contract with PXRE. (Tab B).

Response to 23
Admits that on April 10, 2000, PXRE executed the Aggregate Excess of Loss

Retrocessional Reinsurance Agreement.

24. At the time the Retro Contract incepted, underlying subject premium was estimated to be
$193 million. Accordingly, Lumbermens paid premium to PXRE of $20,023,750. (Tab

N).
Response to 24
Admits that at or around the time of the inception of the Aggregate Excess of
Loss Retrocessional Reinsurance Agreement between Lumbermens and PXRE incepted, PXRE

received premium of $20,023,750.

25. Over time, due to fluctuations in the level of estimated subject premium, Lumbermens
made several adjustments to the premium paid to PXRE.

ry As of December 31, 2000, estimated subject premium had dropped, so
PXRE returned to Lumbermens premium associated with the difference,
together with interest, in a total amount of $1.16 million. (Tab N).

. As of June 30, 2001, estimated premium had increased, so PXRE accepted
from Lumbermens additional premium, together with interest, in a total
amount of $1.07 million. A portion of this amount was paid as late as
March 2002, due to subsequent adjustments in the calculation. (Tab O).

7-



an underwriting approach and business practice that was inconsistent with the Equus Re
Presentation, the Tillinghast Report and her own statements. (Ex. O, Mayer Aff. ¥ 45.)

70. ‘Neither Ms. Kam nor any other of Equus Re’s personnel or agents ever even
hinted that Equus Re compromised its underwriting of the Protected Portfolio for purposes of
securing profits for itself on future business that would in no way inure to PXRE’s benefit. (Ex.
O, Mayer Aff. 46; Ex. P, Yenke Aff. ¥ 20.)

71. During the February 2000 Pre-Binding Audit, certain members of the PXRE team
spoke with other Equus Re officials including Elizabeth Sander (the Equus Re Vice President
and Pricing Manager) and Daniel Anclante (the Equus Re Senior Vice President and Director of
Underwriting Operations). Ms. Sander and Mr. Anelante had made statements to them regarding
Equus Re’s underwriting approach and methodology that were consistent with the written and
verbal statements discussed above. (Ex. P, Yenke Aff. 4 20.)

72. Ms. Sander stated that Equus Re did not reinsure any contract in the Protected
Portfolio for which it had not anticipated at least a 7% return on surplus allocated to that
particular contract. (Ex. P, Yenke Aff. q 19.)

73. The Solicitation Letter, the Equus Re Presentation, the Tillinghast Report, and the
verbal statements made by Mr. Frank, Ms. Kam, Ms. Sander and Mr. Anelante described above,
separately and taken together, constituted representations to PXRE that Equus Re:

(a) carefully selected (“cherry picked”) the lines of business and types of

reinsurance contracts that it would consider writing, based on the potential for those lines or
contracts to generate a profit;

(b) _ reinsured risks after concluding, based on a disciplined underwriting
review (undertaken by actuaries and other members of an “integrated team”) that the particular
risk, on its own merits, would generate a profit; and

(c) that this approach and methodology constituted the “Strategic and
Operational Tenets” of Equus Re (Ex. B at LMCC 02182; emphasis added).

-21-


Admits that Paragraph 31 contains an excerpt from an August 7, 2000 e-mail from
Cary Stone to Jeffrey Mayer and Christopher Wachter, and further states that the contents of the
e-mail must be read as a whole. (Mayer Aff. 79-88; Ex. L.)

32. PXRE conceded, through its Fed. R. Civ. P. 30(b)(6) witness, that the August 2000 report
it received from Lumbermens describes a “side agreement” as PXRE defines that term.
PXRE Dep. at 30:14-31:4; 32:7-32:21 (Tab Q); PXRE First Set of Document Requests,
Request No. 19 (Tab T).

Response to 32
Denies Paragraph 32. (Mayer Aff. { 79-88.)

33. In October 2000, Ms. Stone sent Messrs. Wachter and Mayer an Alea report concerning
the Thor Contract with a cover e-mail that stated:

You may remember that Equus/Alea had some concerns about the
(lousy) results on this pro rata contract, and had asked a bunch of
questions before paying. Attached is a further update on the status.
It appears they are paying under a reservation of rights, but are
scheduling an underwriting and claim audit in London the week for
15-19 January next year. By the time of our visit in February there
should be enough information for us to see what’s what.

Affidavit of Cary R. Stone, Ex. 2 (Tab K).

Response to 33

Admits Paragraph 33.

34. In January 2001, Ms. Stone sent PXRE another e-mail including a list of the issues she
felt should be addressed during the upcoming visit to Alea, specifically suggesting that
they obtain an update on the Thor Contract “that has had such poor results.” PXRE
produced a copy of this e-mail from its files in this litigation. (Tab U).

Response to 34
Admits that in January 2001, Ms. Stone apparently sent an e-mail to Jeffrey

Mayer and Christopher Wachter, containing the quoted language above, and further states that
the e-mail, attached as Exhibit U to Lumbermens’ Rule 56.1 Statement, must be read as a whole.

(Ex. O, Mayer Aff. {| 79-88; Ex. N.)

-10-


in the hope of a future payoff from brokers or ceding insurers. (Ex. O, Mayer Aff. 165, Ex. P,
Yenke Aff. J 21.)

91. The Lexington/Thor Side Agreement (Ex. F), standing alone, would have
dissuaded PXRE from recommending to PXRE management that PXRE enter into the Retro
Treaty transaction. (Ex. O, Mayer Aff. 66.) By accepting a known loss generating contract,
apparently for the purpose of assisting a ceding company to shift a loss from one accounting
period to another (through the guarantee of a future profit to Equus Re), Equus Re apparently
violated the norms and standards of the reinsurance industry. If PXRE had known of the
Lexington/Thor Side Agreement, it would have created a serious doubt about all of Equus Re’s
representations and statements — in particular, its “strategic and operational tenets,” its
“disciplined and controlled underwriting,” and its ethical and accounting controls. PXRE would
not have wanted to participate in a business that had engaged in such conduct, and the Retro
Treaty never would have been bound. (Ex. O, Mayer Aff. 66.)

92. The same holds true for the other transactions identified above. Together with the
Lexington/Thor Side Agreement, these exhibits reveal a pattern of conduct that was blatantly and
completely inconsistent with Equus Re’s statements and representations about its underwriting
approach and methodology described above. If PXRE had known that Equus Re had repeatedly
engaged in such “loss-leading”-based underwriting rather than the approach it had represented,
PXRE would not have bound the Retro Treaty. (Ex. O, Mayer Aff. | 67.)

93. | PXRE would not have wanted to enter into a transaction with a company that had
engaged in a pattern of conduct that was inconsistent with its statements and representations.
(Ex. O, Mayer Aff. 4 68.)

94, In any event, PXRE would have no interest in a book of business that was based

on loss-leading rather than “disciplined, controlled underwriting.” (Ex. O, Mayer Aff. {| 69.)

-27-



UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
PXRE REINSURANCE COMPANY }
Plaintiff, } Case No. 03 C 5155
vs. ) Judge Shadur
LUMBERMENS MUTUAL CASUALTY ) Magistrate Judge Bobrick
COMPANY }
Defendant, )
LUMBERMENS MUTUAL CASUALTY _)
COMPANY )
)
Third-Party Plaintiff, 7)
we
vs. a i) s
: ; co
ALBA NORTH AMERICA COMPANY Wy
)
Third-Party Defendant. )

PXRE’S RESPONSE TO DERENDANT’S LOCAL RULE 56.1
STATEMENT AND FURTHER STATEMENT OF FACTS IN
OPPOSITION TO DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

Pursuant to Local Rule 56.1, following is a concise response to each statement of
fact alleged in defendant Lumbermens’ motion for summary judgment and further statement of
material facts that require the denial of summary judgment, followed by a citation to the

evidence in support thereof.

PXRE’S RESPONSE TO DEFENDANT’S LOCAL RULE 56.1 STATEMENT

1. Plaintiff PXRE Reinsurance Company (“PXRE”) is a Connecticut domiciled insurance
company with its principal place of business in Edison, New Jersey. Complaint { 4 (Tab
A); Lumbermens’ Answer, Counterclaims and Third Party Complaint (“Answer” or

“Third Party Complaint”) {| 4 (Tab B).



42, The Solicitation Letter also attached an informational package (the “Equus Re
Presentation”) describing Equus Re’s history, the biographies of key personnel, the underwriting
approach used by Equus Re, and other representations that were material to and relied upon by
PXRE in its analysis of, and decision to agree to the Retro Treaty transaction. (Ex. O, Mayer Aff
411; Ex. B.)

43. | Members of the PXRE pre-contract review team personally interviewed Lydia
Kam during their visit in February 2000. During the interview, Ms. Kam made specific
statements and representations which reinforced the written statements contained in the
Solicitation Letter, Equus Re Presentation and Tillinghast Letter (the “Soliciation Package”)
about Equus Re’s underwriting approach and methodology. (Ex. O, Mayer Aff. { 18.)

44. PXRE relied upon the statements and representations provided in the Solicitation
Package, and as reinforced by the former Equus Re personnel, in agreeing to the Retro Treaty
transaction. Those statements and representations were false and misleading at the time they
were made. Jeffrey Mayer, the PXRE official heading the pre-contract interviews and document
review, would not have recommended to PXRE senior management and the PXRE underwriting
committee that PXRE enter into the transaction if he had known that these statements and
representations were false or were misleading. (Ex. O, Mayer Aff. 19.)

45. The representations in the Solicitation Materials and made verbally by
Lumbermens and its agents indicated to PXRE that Equus Re underwrote each contract in the
Protected Portfolio on its merits. PXRE, in turn, was able to construct its pricing model based on
this fundamental and critical representation. (Ex. O, Mayer Aff. 4 20.)

46. The purpose of PXRE’s on-site visit at Alea in February 2000 was to: (a) meet
and interview senior Alea (former Equus Re) personnel to discuss and learn more about Equus

Re’s approach and methodology in connection with reinsurance underwriting; (b) to review a

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to Mr. Modin’s March 28, 2003 letter, attached as Exhibit W to Lumbermens’ Rule 56.1

Statement.

38. Once again, on June 9 to 15, 2003, PXRE was given access to the books and records on
the Protected Portfolio. It is during this last audit that PXRE claimed, at its Rule 30(b)(6)
deposition in this case, that it first learned of the alleged Lexington Agreement. PXRE
Dep. at 72:4-22. (Tab Q).

Response to 38
Admits that PXRE conducted a review of the Protected Portfolio in June 2003,

during which time it first learned of the Lexington/Thor Side Deal.

39.  PXRE expressly invoked Section X.B of the Retro Contract yet again after it filed the
Complaint in this action in an e-mail from its counsel. (Tab X).

Response to 39
Denies PXRE “invoked” Section X.B of the Retro Treaty and refers the Court to

the e-mail attached as Exhibit X to Lumbermens’ Rule 56.1 Statement.

PXRE’S STATEMENT OF FACTS SUPPORTING DENIAL OF
SUMMARY JUDGMENT

40. By letter dated December 17, 1999 (the “Solicitation Letter”), Lumbermens,
through its broker and agent, Pegasus Advisors, solicited PXRE’s interest in the Retro Treaty
transaction. (Ex. O, Mayer Aff. {| 9.)

41. The Solicitation Letter discussed, among other things, an analysis performed by
the actuarial firm Tillinghast, which was retained by Lumbermens to evaluate the expected
performance of the Protected Portfolio. The report prepared by Tillinghast (the “Tillinghast
Report”), a copy of which was provided to PXRE in conjunction with the Solicitation Letter,
concluded that the Protected Portfolio would have a 75% loss ratio. (Ex. O, Mayer Aff. {| 10, Ex.

C)

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29. The principal document reflecting the alleged “side agreement” is a memo from Equus to
Lexington dated December 21, 1998, which appears in the Thor underwriting file in the
correspondence section. Affidavit of Daniel Anelante at § 4 (annexed at Tab R).

Response to 29

Denies the characterization of the December 21, 1998 memo from Equus Re to
Lexington as the “principal document” reflecting the Thor Side Agreement, lacks knowledge or
information sufficient to form a belief to admit or deny that the December 21, 1998 memo
appears in the Thor underwriting file, and further states that there are numerous documents, in
addition to the December 21, 1998 memo, that are relevant to Equus Re’s and Lexington’s
agreement to enter into the Thor Side Agreement. (See Ex. F)

30. On July 17 and 18, 2000, PXRE conducted an audit of the Protected Portfolio at Alea’s
offices jointly with personnel from Lumbermens. Attending from PXRE were Chris
Wachter, Jeffrey Mayer, and Jim Nisch. Affidavit of Cary R. Stone { 3 (Tab K).

Response to 30
Admits Paragraph 30, except further states that this review, in contrast to the Pre-

Binding Audit, was focused on claims handling and claims files, as opposed to underwriting.
(Mayer Aff. 78.)

31. On August 7, 2000, Cary Stone of Lumbermens e-mailed a report of the joint review to
Chris Wachter, a PXRE actuary, and Jeffrey Mayer, PXRE’s underwriter on the Retro
Contract. The four-page report included a half-page discussion of the Thor Contract and
the Lexington Agreement titled “Lexington/Thor,” The discussion began as follows:

This is a Professional Indemnity Q/S which was refused by the
Equus London underwriters, then presented to [its Connecticut
office in] Norwalk which also declined. Eventually, in exchange
for promises to use Equus on two other programs (which also
turned out to be bad, but not as bad), Equus agreed to write a 25%
share.

PXRE has admitted that it actually received the August 2000 report by producing a copy
of that report from its own files. (Tab S).

Response to 31

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Lexington’s guarantee of a 10% future profit appears to have had the effect of transferring into
the future losses which had been incurred by Lexington between July and December 1998.

83. The Wellington Syndicate 2020 (Ex. G) account provides another glaring
example of Equus Re’s undisclosed practice of positioning itself for future business opportunities
ahead of underwriting integrity, in clear contravention of its statements and representations to
PXRE. Equus Re’s underwriting notes reveal that it had already declined this account at least
once, but had been asked again to write it by the broker who “needs a favour” and “are stuck”
because “they have used all their favours placing the programme.” When it was re-approached.
to reinsure this account, Equus Re knew that: (a) the account was “well underrated considering
the [Hurricane] Marilyn and George Loss which has grown dramatically since this account was
quoted”; and (b) the lead reinsurer, St. Paul, “had the chance to requote” this account but
declined to do so. (Ex. G at ALEA 00009248).

84. The broker, apparently attempting to persuade Equus Re to accept this
unfavorable submission, suggested that “{Equus Re] not tell the Syndicate that [it] will not write
it but [rather] purchase a reinsurance leaving no exposure for [Equus Re’s] share.” Recognizing
that “[t]his is not the norm for doing business,” Equus Re nevertheless agreed to reinsure this
account in exchange for obtaining “an in road with the Syndicate” and a promise that
Lumbermens “can visit and go through [the Syndicate’s] business.” (1d.)

85. In soliciting Equus Re’s participation on the Houston Casualty Property Quota

Share (Ex. H) account, Houston Casualty (“HCC”) provided information to Equus Re on
accounts that had generated significant losses. (Ex. H at ALEA 00066348.) After reviewing this
information, Equus Re drafted a letter dated December 31, 1998 stating:

Regrettably, after reviewing all of the information ... we have

decided not to authorize on this premier cedent’s program this
year. We hope one day though to enter into a partnership

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comprehensive underwriting review would uncover any

[Equus] have not received their share of [the] premium, and have
written back asking a lot of questions. It appears AIG [Lexington]
may owe substantially more premium and/or Equus may not own
all this (sic) losses.

[W]e agreed that both Dan [Anelante] and I would query London
contacts to attempt to get more information on this program.
Meanwhile Equus is withholding all payments until questions are
answered.

(Ex. L at PXRE 006420.) °
104. This suggested to PXRE that Carey Stone was as mystified as PXRE as to the

reasons for the poor performance of the Thor account. If she had reviewed the underwriting file,
she would have seen and been able to report to us that Equus Re accepted a known loss-
generating deal, back-dated the contract, and was guaranteed a future reward on unrelated
business. (Ex. O, Mayer Aff. q 83.)

105. Furthermore, Cary Stone’s cover e-mail to PXRE, which encloses the report upon
which Lumbermens relies, states that “based on our conversation I am sending around the
attached draft of a report at Kemper, can finalize the [underwriting] piece when you get to it. Per

our conversation nothing alarming seen” (Ex. L at PXRE 006416; emphasis added).

106. Additional correspondence between Lumbermens and PXRE regarding the Thor
account is also relevant. For example, on April 21, 2000, Ms. Stone wrote to Mr. Wachter,
enclosing a claim report on Lexington/Thor she received from Alea, (Ex. M at PXRE 002331).
Ms. Stone noted that “the report finds some fault with the [claims] handling, but it appears is
now being controlled and corrected, and there is nothing J see here that would give us any right
to refuse coverage under our treaty. Tom Daly (of Alea] told me, and I agree that this appears to
be a poor business result, but covered.” In addition to the claims report, Ms. Stone enclosed a
letter to her from Tom Daly of Equus Re, who noted with respect to this contract:

there were no smoking guns found from a claims handling
perspective. In addition, I don’t believe the performance of a

~30-


Denies Paragraph 13 and refers the Court to the terms and conditions of the

Underwriting Management Agreement between Lumbermens and Alea, which is attached to the
Complaint as Exhibit 1C.

14. At the time of the sale of the Equus Re division in December 1999, Lumbermens’

business records, including the underwriting and claims files, relating to the Protected

Portfolio were transferred to Alea. Third-Party Complaint 951 (Tab B); Third-Party

Answer 951 (Tab C). This fact is only material to the pending motion insofar as it
concerns the Thor Contract, discussed below.

Response to 14
Lacks knowledge or information sufficient to form a belief to admit or deny.
15. Following the sale of Equus Re, Lumbermens engaged Pegasus Advisors, Inc., a
reinsurance intermediary to obtain retrocessional protection to reduce its risk on the Stop

Loss Cover. Complaint {33 (Tab A). The engagement of Pegasus is set forth herein as
helpful background, not as a material fact.

Response to 15

Admits the first sentence of Paragraph 15, and denies the second sentence.

16. On December 17, 1999, Pegasus sent a solicitation letter and background information to
PXRE. (Tab H; see also Complaint { 35 (Tab A)).

Response to 16

Admits that on December 17, 1999, Pegasus sent a solicitation letter and materials
to PXRE, except further states that the information sent by Pegasus to PXRE with the December
17, 1999 solicitation letter contained material statements and representations by Equus Re upon
which PXRE reasonably relied in agreeing to the Retro Treaty transaction. (Mayer Aff. (Ex. O)

411,25.)

17. The information sent by Pegasus to PXRE included a June 30, 1999 Reserve Review of
the Protected Portfolio, which included a list of the specialty casualty contracts in the
Protected Portfolio that specifically identified the Thor Contract (contract number
180232-0). (Tab I)

5.


“Disciplined underwriting approach” and focused on “High quality, preferred risks” (Ex. B at
LMCC 02201.)

53. In the Equus Re Presentation, there was a chart in which Equus Re held itself out
as an “Integrated Business Unit” combining expertise from all areas of reinsurance, including
actuarial, audit and underwriting review (Ex. O, Mayer Aff. 29, Ex. B at LMCC 02205). The
representation that Equus Re utilized actuaries and auditors as part of a multi-disciplined
underwriting team further confirmed to me that Equus Re was underwriting each risk on its
individual terms to determine with the most precision possible whether the risk would be
profitable on its own merits. There were also biographies of Equus Re’s officers indicating that
Equus Re had the actuarial, auditing and underwriting skills that it purported to have in the rest
of the presentation (Ex. O, Mayer Aff. { 29.)

54. The statements in the Equus Re Presentation described above indicated to PKRE
that the reinsurance transactions in the Protected Portfolio were underwritten based upon the
specific merits of each respective transaction. PXRE was led to believe based on the Equus Re
Presentation (reinforced by the verbal statements of Lydia Kam) that Equus Re (a) carefully
selected (“cherry picked”) the lines of business and types of reinsurance contracts that it would
consider writing, based on the potential for those lines or contracts to generate a profit; and (b)
would reinsure a risk only if a disciplined underwriting review, including the participation of
actuaries and other members of the “team” concluded that the particular risk, on its own merits,
would generate a profit. (Ex. O, Mayer Aff. { 30.)

55. In particular, the statements in the Equus Re Presentation indicated to PXRE that
Equus Re was not a reinsurer that did, or would, accept known loss-generating business or other
business that did not meet its underwriting standards because of ulterior motives or purposes

such as (a) side deals guaranteeing profits on future, unrelated business (that would not be

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(a) the total expected loss ratio estimate for the contracts reviewed
was 73.9%;

(b) the overall expected loss ratio estimate for the Protected
Portfolio was 75.0%;

(c) the range of expected loss ratio estimates was 64.4% to 83.4%;

(d) 14% of the losses were expected to be paid by the end of 2000,
81% by the end of 2005 and 96% by the end of 2010;

(e) Equus Re’s underwriting process was “very team-oriented, with
multiple underwriters and actuarial input on most accounts” and

that “the pricing assumptions were generally very well
documented.”

da.)
61. PXRE regarded the Tillinghast Report to be a very significant document in

connection with our evaluation of the proposed transaction. PXRE knew that the Tillinghast
Report would be an independent evaluation of the Protected Portfolio by actuarial experts, and
was not an advocacy piece or sales puffery. (Ex. O, Mayer Aff. 437.)

62. The fact that an independent firm of Tillinghast’s stature and reputation
concluded that the loss ratio would be 75% and that Equus Re’s underwriting process was team-
oriented, with actuarial input, gave PXRE comfort that Equus Re’s representations in the Equus
Re Presentation were accurate. (Ex. O, Mayer Aff. { 38.)

63. Tillinghast did not review the file containing the Lexington/Thor Side Agreement.
(Ex. C at PXRE 004333). PXRE does not know whether Tillinghast nevertheless was made
aware of these documents, nor does it know whether Tillinghast would have reached a different
conclusion regarding the loss ratio and Equus Re’s underwriting approach if it were aware of
those documents. (Ex. O, Mayer Aff. { 39.)

64. In or around early December 1999 Mr. Frank of Pegasus informed PXRE that the

Retro Treaty transaction would be presented to PXRE. (Ex. O, Mayer Aff. { 40.)

-19-


Admits Paragraph 6.

Venue is proper in this Court with respect to the Third-Party Complaint under 28 U.S.C.
§ 1391(a) and (c) because the Third-Party Defendant is a corporation subject to personal

jurisdiction in this district and because the Third-Party Defendant consented to venue in

this Court in the Underwriting Management Agreement entered into as of December 3,
1999, Third-Party Complaint { 45 (Tab B); Answer to Third-Party Complaint | 45 (Tab
C).

Response to 7

Lacks knowledge or information sufficient to form a belief to admit or deny.

This case concerns an “Aggregate Excess of Loss Retrocessional Reinsurance
Agreement” between Lumbermens and PXRE. This agreement is referred to herein and
in Lumbermens’ accompanying Memorandum of Law as the “Retro Contract.” A copy
of the Retro Contract, which was attached as Exhibit 1 to the Complaint is annexed to
this statement at Tab D.

Response to 8

Admits Paragraph 8 to the extent that this case involves the solicitation,

negotiation and placement, as well as the performance, of the Aggregate Excess of Loss

Retrocessional Reinsurance Agreement, and further rejects Lumbermens’ characterization of the

Aggregate Excess of Loss Retrocessional Reinsurance Agreement between Lumbermens and

PXRE as the “Retro Contract.”

9.

In 1998 and 1999, Lumbermens had an operating division called Equus Re, which wrote
assumed reinsurance business on Lumbermens paper. That is, Equus Re personnel, then
employees of Lumbermens, bound Lumbermens to reinsurance contracts in which some
third party was the ceding company and Lumbermens was the reinsurer. Complaint { 12
(Tab A); Answer § 12 (Tab B).

Response to 9

10.

Admits Paragraph 9.

During 1999, Lumbermens sought to divest itself of its Equus Re division, including the
business Equus Re had already written. Third-party defendant Alea North America
Company (“Alea”) agreed to buy the operation. The sale of Equus Re to Alea closed on
December 3, 1999, Complaint §{] 18-19 (Tab A); Answer {J 18-19 (Tab B).

Response to 10


95. Because the loss-leading-based underwriting approach adopted by Equus Re
involved a trade-off of losses today for a payoff in future years, a serious question would have
emerged about whether the Retro Treaty transaction was an effort to offload the money-losing
contracts entered into in order for the Equus Re personnel to build relationships with brokers and
ceding insurers, while these same individuals would be reaping the benefits of these relationships
when they continued their business at Alea. (Ex. O, Mayer Aff. { 70.)

96.  Lumbermens emphasized the Tillinghast Report as a “positive point” for PXRE to :
consider, when the facts suggest that Lumbermens knew that report was inaccurate. (Ex. O,
Mayer Aff. { 71.)

97. It simply would not have been reasonable, feasible, or consistent with standard
industry practice for PXRE to read each and every document in the Protected Portfolio, Because
of the practical and economic considerations involved in pre-binding audits and document
reviews, reinsurers as a general matter: (a) rely heavily upon the statements and representations
made by ceding companies in the placement of reinsurance transactions; and (b) rely upon the
ceding company to make affirmative disclosures of information which reasonable reinsurance
underwriters would find material to their evaluation of the risks. PXRE followed this approach
in connection with the Retro Treaty transaction. (Ex. O, Mayer Aff. (73, Ex. P, Yenke Aff.
417)

98. Thus, it would only have been by luck or happenstance — akin to finding a “needle
in a haystack” — for the PXRE team to have found amid the hundreds of thousands of pages in
the Protected Portfolio files the documents referenced above, which establish that Lumbermens’

representations were false and misleading. (Ex. O, Mayer Aff. 75.)

-28-


Response to 1
Admits Paragraph 1.

2. Defendant Lumbermens Mutual Casualty Company (“Lumbermens”) is an Illinois
domiciled mutual insurance company with its principal place of business in Long Grove,
Illinois. Complaint J 5 (Tab A); Answer {5 (Tab B).

Response to 2
Admits Paragraph 2.

3. Third-Party Defendant Alea North America Company (“Alea”) is a Connecticut
domiciled insurance and reinsurance underwriting manager and agent, with its principal
place of business in Wilton, Connecticut. Alea North America Company was formerly
named Rhine Re Finance Ltd. Third-Party Complaint {43 (Tab B); Alea’s Answer to
Third-Party Complaint {43 (Tab C).

Response to 3
Admits Paragraph 3.

4. This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.
§ 1332(a)(1) because the citizenship of the parties is diverse and the amount in
controversy is in excess of $75,000, exclusive of costs and interest. Complaint { 6 (Tab
A); Answer { 6 (Tab B).

Response to 4
Admits Paragraph 4.

5. This Court has subject matter jurisdiction over the third-party action because (a) the
claims asserted are ancillary to the claim of PXRE against Lumbermens, (b) the Court
has supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a), and (c) the citizenship of
the parties is diverse and the amount in controversy is in excess of $75,000, exclusive of
costs and interest, so that jurisdiction is granted by 28 U.S.C. § 1332(a)(1). Third-Party
Complaint { 44 (Tab B); Answer to Third-Party Complaint { 44 (Tab C).

Response to 5

Lacks knowledge or information sufficient to form a belief to admit or deny.
6. Venue is proper in this Court with respect to the Complaint under 28 U.S.C. § 1391(a)
because the Defendant resides in this District. Complaint {7 (Tab A); Answer {7 (Tab
B.

Response to 6


vow wy wiv vouuy insurer on every risk being reinsured, especially here,

sampling of the underwriting and claim files in the Protected Portfolio to confirm PXRE’s initial
pricing; and (c) validate PXRE’s understanding of the composition (by line of business) of the
Protected Portfolio. (Ex. O, Mayer Aff. J 22, 24.)

47. The February 2000 visit (hereafter referred to as the “Pre-Binding Audit”) was not
intended to be, nor was it understood by either PXRE or Lumbermens to be an examination by
PXRE of each and every document in each and every underwriting and claim file. Instead, the
approach taken by PXRE - consistent with the normal and customary approach in the
reinsurance industry for transactions of this type — was to review a sampling of files and
documents, while relying on verbal statements made by the Equus Re personnel, in evaluating
the transaction. This was also the approach adopted by Tillinghast in developing its conclusion
that the Protected Portfolio would have a 75% loss ratio. (Ex. O, Mayer Aff. { 23.)

48. PXRE adopted this approach to the Pre-Binding Audit for several reasons: (a)
Lumbermens did not afford PXRE the time or the opportunity to review each document in each
file. There were approximately 350 different reinsurance treaties in the Protected Portfolio. The
underwriting and claim files for these treaties were extremely voluminous, amounting to over
200,000 pages. Prior to going to Alea, PXRE was told by Mr. Frank that it would have three or
four days to complete our interviews and document review. It obviously would have been
physically impossible for PXRE’s team to examine each document in each file over that period
of time; (b) the time PXRE was given to review this volume of documents was consistent with
the point made above that merely reviewing a sampling, as the normal and customary approach,
was the approach both sides expected here; (c) even if Lumbermens had afforded PXRE more
time, it would have been economically infeasible for PXRE — or any reinsurer - to devote the
time, expense and resources that would have been involved in an examination of each and every

document in the Protected Portfolio files. Reinsurers are not expected or required to duplicate

-14-


included in the Protected Portfolio); or (b) in order to ingratiate itself with ceding insurers or
brokers. To the contrary, PXRE was led to believe, through these (and other representations
described below), that Equus Re applied meticulously its extensive actuarial and underwriting
expertise to evaluate each submitted risk on its own merits. (Ex. O, Mayer Aff. | 31.)

56. In addition to the Equus Re Presentation, Lumbermens’ agent Pegasus provided
PXRE with an independent actuarial analysis of the Protected Portfolio undertaken by
Tillinghast, a large and highly regarded actuarial consulting firm. (Ex. O, Mayer Aff. {{ 32.)

57. The Tillinghast Report was furnished to PXRE as an integral part of
Lumbermens’ solicitation efforts. The Solicitation Letter refers extensively to the Tillinghast
Report, and its findings are characterized by Pegasus as “important positive points to consider”
in evaluating the Retro Treaty. (Ex. A; Ex. O, Mayer Aff. 33.) Lumbermens’ agent Mr. Frank
stated to Jeffrey Mayer in a telephone conversation in or around December 1999 that the
Tillinghast Report gave him “comfort” that Equus Re in fact had abided by the principles and
approaches outlined in the Equus Re Presentation. (Ex. O, Mayer Aff. 7 33.)

58.  Inits report, Tillinghast analyzed the loss and loss adjustment expense liabilities
associated with, and the potential profitability and cash flows of, the Protected Portfolio as of
June 30, 1999. (Mayer Aff. { 34.)

59. The Tillinghast Report stated that its findings were based on a review of a sample
of contracts in the Protected Portfolio. According to the report, the sample selected by
Tillinghast covered “a broad range of the types of business underwritten to date by Equus” and,
in Tillinghast’s opinion, “provide[d] a reasonable estimate of the profitability” of the Protected
Portfolio. (Ex. C at PXRE 004322-24).

60. The Tillinghast Report concluded, among other things, that:

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