exv10w15





Exhibit 10.15




EXECUTION COPY




WORKERS’ COMPENSATION CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

No. 2010300



EFFECTIVE JANUARY 1, 2010



between



PEERLESS INSURANCE COMPANY

Keene, New Hampshire



and



The reinsurers subscribing to the respective

Interests and Liabilities Agreements attached to

and forming part of this Contract



	 	 	 	 	 

	Effective: January 1, 2010

	 	2010 Agency Markets Workers’

	 

	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

	 	2010300






 









 






WORKERS’ COMPENSATION CATASTROHE EXCESS OF LOSS REINSURANCE

CONTRACT No. 2010300




	 	 	 	 	 	 	 	 	 
	Clause	 	Article No.	 	 	Page	 
	ACCESS TO RECORDS (LM-00100-2009.09.29-A) (AM)
	 	 	16	 	 	 	11	 
	ARBITRATION (LM-00200-2009.10.26-A)
	 	 	19	 	 	 	14	 
	ASSIGNMENT, NOVATION or TRANSFER (LM-00300-2008.05.13-A)
	 	 	4	 	 	 	2	 
	BUSINESS COVERED
	 	 	1	 	 	 	1	 
	COMMENCEMENT AND EXPIRATION
	 	 	2	 	 	 	1	 
	COMMUTATION (LM-02602-2009.11.20-W)
	 	 	13	 	 	 	8	 
	CONFIDENTIALITY (LM-00400-2009.11.03-A)
	 	 	26	 	 	 	22	 
	CURRENCY (LM-00500-2009.09.29-WCCat)
	 	 	15	 	 	 	11	 
	DEFINITIONS
	 	 	5	 	 	 	2	 
	DEFINITION OF LOSS OCCURRENCE
	 	 	10	 	 	 	6	 
	DIVIDENDS AND TAXES (LM-00600-2009.03.10-A)
	 	 	21	 	 	 	18	 
	ENTIRE AGREEMENT (LM-00701-2008.08.15-A)
	 	 	29	 	 	 	24	 
	ERRORS OR OMISSIONS (LM-00800-2005.06.02-A)
	 	 	17	 	 	 	13	 
	EXCLUSIONS
	 	 	6	 	 	 	2	 
	EXTRA CONTRACTUAL OBLIGATIONS (LM-00900-2009.09.29-A) (AM)
	 	 	11	 	 	 	7	 
	FEDERAL EXCISE TAX (LM-01000-2008.08.15-A)
	 	 	22	 	 	 	18	 
	FEDERAL TERRORISM EXCESS RECOVERY (LM-01100-2008.08.06-A)
	 	 	30	 	 	 	24	 
	GOVERNING LAW (LM-01200-2008.09.18-A)
	 	 	27	 	 	 	24	 
	INSOLVENCY (LM-01300-2009.09.03-A-WC)
	 	 	18	 	 	 	13	 
	INTEREST PENALTY (LM-01400-2005.08.24-A) (AM)
	 	 	20	 	 	 	17	 
	LOSS ADJUSTMENT AND SETTLEMENT (LM-01500-2009.09.29-A) (AM)
	 	 	9	 	 	 	6	 
	LOSS IN EXCESS OF POLICY LIMITS (LM-01600-2009.09.29-A) (AM)
	 	 	12	 	 	 	8	 
	OFFSET (LM-01701-2005.06.02-A)
	 	 	23	 	 	 	18	 
	REINSURER CLAIMS OBLIGATIONS (LM-03100-2008.07.21-A) (AM)
	 	 	32	 	 	 	31	 
	SALVAGE AND SUBROGATION (LM-01800-2008.08.15-A) (AM)
	 	 	14	 	 	 	10	 
	SELF INSURED OBLIGATIONS
	 	 	7	 	 	 	4	 
	SERVICE OF SUIT (LM-01900-2009.09.29-A)
	 	 	24	 	 	 	19	 
	SEVERABILITY (LM-02000-2005.06.02-A)
	 	 	28	 	 	 	24	 
	SPECIAL CONDITIONS (LM-02103-2009.12.09-W) (AM)
	 	 	31	 	 	 	25	 
	TERRITORY (LM-02201-2005.06.02-A)
	 	 	3	 	 	 	2	 
	ULTIMATE NET LOSS (LM-02400-2009.09.30-A) (AM)
	 	 	8	 	 	 	5	 
	UNAUTHORIZED REINSURANCE (LM-02500-2009.12.09-A) (AM)
	 	 	25	 	 	 	20	 
	WORKERS’ COMPENSATION SECURITY DEPOSIT (LM-3700-2009.09.17-W)
	 	 	33	 	 	 	31	 





ATTACHMENTS:



EXHIBIT A — FIRST EXCESS OF LOSS — $100,000,000 x $100,000,000



EXHIBIT B — SECOND EXCESS OF LOSS — $100,000,000 x $200,000,000



WAR AND TERRORISM EXCLUSION ENDORSEMENT (NBCR) (LM-03200-2008.08.06-W)




	 	 	 	 	 

	Effective: January 1, 2010

	 	2010 Agency Markets Workers’

	 

	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

	 	2010300






 









 






WORKERS’ COMPENSATION CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT No. 2010300

(hereinafter referred to as the “Contract”)




The reinsurers subscribing to the respective

Interests and Liabilities Agreements attached to

and forming part of this Contract

(hereinafter referred to as the “Subscribing Reinsurer”)



does hereby indemnify, as herein provided and specified, the



PEERLESS INSURANCE COMPANY

Keene, New Hampshire

(hereinafter referred to as the “Company”).



ARTICLE 1 — BUSINESS COVERED



The Subscribing Reinsurer hereby agrees to indemnify the Company for all sums paid or payable for
losses occurring during the term of this Contract under in force, new and renewed Workers’
Compensation Policies, as defined herein, to the extent and on the terms and conditions and subject
to the exceptions, exclusions and limitations hereinafter set forth and as provided in Exhibits A
and B which are attached hereto and made part of this Contract. For purposes of identification,
Exhibits A and B are entitled as follows:





	 	EXHIBIT “A” —	 	FIRST WORKERS’ COMPENSATION CATASTROPHE

EXCESS OF LOSS REINSURANCE — ALL PERILS

($100,000,000 excess $100,000,000)
	 
	 	EXHIBIT “B” —	 	SECOND WORKERS’ COMPENSATION CATASTROPHE

EXCESS OF LOSS REINSURANCE — ALL PERILS

($100,000,000 excess $200,000,000)





ARTICLE 2 — COMMENCEMENT AND EXPIRATION





	A.	 	This Contract shall be effective 12:01 a.m., Local Standard Time, January 1, 2010 and shall
remain in full force and effect until 12:01 a.m., Local Standard Time, January 1, 2011, in
respect of Loss Occurrences taking place during said period, unless terminated earlier as
provided herein. Local Standard Time refers to the location of the risk.
	 
	B.	 	The Subscribing Reinsurer shall have no liability for losses arising out of occurrences
commencing after the effective time and date of expiration.
	 
	C.	 	If this Contract expires while a Loss Occurrence covered hereunder is in progress, the
Subscribing Reinsurer shall indemnify the Company as if the entire Loss Occurrence had
occurred during the term of this Contract.





	 	 	 	 	 	 	 

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ARTICLE 3 — TERRITORY (LM-02201-2005.06.02-A)



This Contract is worldwide in scope and shall cover risks wherever located.




ARTICLE 4 — ASSIGNMENT, NOVATION, OR TRANSFER (LM-00300-2008.05.13-A)



This Contract shall be binding upon and inure to the benefit of the Company and the
Subscribing Reinsurer and their respective successors and assigns provided, however, that this
Contract may not be assigned, novated or transferred, including any attempted transfer of rights
and/or obligations under any U.S. or foreign statute, legislation or jurisprudence, by either the
Company or the Subscribing Reinsurer , or as the result of the action(s) of a parent company or an
affiliated entity of either, without the prior written consent of the other. In the event of any
assignment, novation or transfer, the assignor, novator or transferor shall remain liable under
this Contract, and further guarantees the performance of all obligations of any assignee, novatee
or transferee under this Contract. Notwithstanding the foregoing, the Company may assign this
Contract to an insurance entity controlling, controlled by or under common control with the
Company, without the Subscribing Reinsurer’s written consent.




ARTICLE 5 — DEFINITIONS





	A.	 	The term “Affiliate” or “Affiliates”, as used in this Contract, means an entity that
directly, or indirectly through one or more intermediaries, controls, is controlled by or
is under common control with the Company.
	 
	B.	 	The term “Policy” or “Policies,” as used in this Contract, means any
written or oral binder, policy, cover note, or contract of insurance
or reinsurance and/or any endorsement to any of the foregoing, issued,
accepted, or held covered provisionally or otherwise, by or on behalf
of the Company or a Legal Entity (hereinafter each referred to as a
“Legal Entity” and, collectively, the “Legal Entities”), and
reinsured, directly or indirectly, by the Company and identified as
belonging to the Agency Markets strategic business unit of the Liberty
Mutual Group.
	 
	C	 	The term “Workers’ Compensation Policies,” as used in this Contract,
means Workers’ Compensation Policies, including all Policies providing
coverage for benefits or other amounts payable under any workers
compensation law or any similar law; Employer’s Liability coverage
under any Policy; Foreign Voluntary Workers’ Compensation coverage
under any Policy, Foreign Workers’ Compensation coverage under any
Policy; and Excess Workers’ Compensation and Employer’s Liability
coverage under any Policy.





ARTICLE 6 — EXCLUSIONS





	A.	 	This Contract does not apply to and specifically excludes the following:





	 	 	 	 	 	 	 

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Section 1





	 	a.	 	Occupational Disease unless arising from a sudden and accidental event of not
more than forty-eight (48) hours in duration.
	 
	 	b.	 	Cumulative Trauma.
	 
	 	c.	 	Nuclear Accident.
	 
	 	d.	 	All liability of the Company or a Legal Entity 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, however
denominated, established or governed, which provides for any assessment of or payment
or assumption by the Company or a Legal Entity of part or all of any claim, debt,
charge, fee or other obligation of any 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.
	 
	 	e.	 	Reinsurance Assumed except for any Workers’ Compensation business assumed by
the Company or a Legal Entity through inter-company reinsurance agreements between the
members of the Agency Markets strategic business unit, business classified as
reinsurance written by the Company or a Legal Entity for and on behalf of a direct
insured, or business assumed from OneBeacon Insurance Group.
	 
	 	f.	 	War and Terrorism as per the attached War and Terrorism Exclusions Endorsement
(NBCR).




Section 2





	 	a.	 	Offshore Oil Rigs.
	 
	 	b.	 	Jones Act.
	 
	 	c.	 	Professional Sports Teams.
	 
	 	d.	 	Airline Crews, except USAIG business written on behalf of the Company.
	 
	 	e.	 	Any of the following occupations, employments or risks (except when not
disclosed to the Company or a Legal Entity), when incidental to a non-excluded risk
(the Company to be the sole judge of what is incidental) or when insured through
voluntary or statutory pools or assigned risk plans):






	 	1)	 	The navigation and operation of vessels on the high seas in
foreign commerce;
	 
	 	2)	 	Underground coal mining;
	 
	 	3)	 	Fireworks manufacturing;
	 
	 	4)	 	Manufacturing of fuses used with explosive risks and fireworks;
	 
	 	5)	 	Explosive risks, as per the following:







	 	 	 	 	 	 	 

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	 	(i)	 	Manufacture of any explosive substance intended
for use as an explosive;






	 	(ii)	 	Manufacture of any product, other than Fireworks
and Fuses, in which any such explosive substance is an ingredient;
	 
	 	(iii)	 	The loading of any such explosive substance into
containers for use as explosive objects, propellant charges or
detonating devices, and the incidental storage thereof;
	 
	 	(iv)	 	Handling, transportation or storage of any such
explosive substance intended solely for war purposes.






	B.	 	If any risks reinsured hereunder, but falling within the scope of the exclusions in Section 2
are assigned to the Company or a Legal Entity under any assigned risk plan, the coverage
afforded by this Contract shall apply to such risks, but only for the Policy limits prescribed
by said plan, and subject to the limits of this Contract.
	 
	C.	 	The above exclusions within Section 2 shall not apply when they are merely incidental to the
main operations of the insured, provided such main operations are covered by the Company or a
Legal Entity and are not themselves excluded from the scope of this Contract. The Company
shall be the sole judge of what is “incidental”.
	 
	D.	 	Should the Company or a Legal Entity, by reason of an inadvertent act, error, or omission, be
bound to afford coverage excluded hereunder within Section 2 the Subscribing Reinsurer shall
waive the exclusion(s). The duration of said waiver shall not extend beyond the time that
notice of such coverage has been received by the responsible underwriting authority of the
Company or a Legal Entity plus the minimum time period required thereafter for the Company or
a Legal Entity, as applicable, to terminate such coverage.
	 
	E.	 	The Company may submit to the Subscribing Reinsurer for special acceptance hereunder,
business not covered by this Contract. If said business is accepted by the Subscribing
Reinsurer, it shall be subject to the terms of this Contract, except as such terms are
modified by such acceptance. Any special acceptance business covered under the reinsurance
agreement being replaced by this Contract shall be automatically covered hereunder. Further,
should the Subscribing Reinsurer become a party to this Contract subsequent to the acceptance
of any business not normally covered hereunder, they shall automatically accept same as being
a part of this Contract.





ARTICLE 7 — SELF-INSURED OBLIGATIONS





	A.	 	A Policy issued by the Company or a Legal Entity wherein the Company or a Legal Entity, as
applicable, is named as the insured either alone or jointly with another party shall, subject
to the other terms and conditions of this Contract, be deemed to be a Policy coming within the
scope of this Contract, notwithstanding that no legal liability may arise in respect thereof
by reason of the fact that the Company or a Legal Entity is the insured or one of the
insureds.






	 	 	 	 	 	 	 

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	B.	 	Any such Policy shall have been issued prior to loss on the same form and at the same premium
as if the insured and the Company or a Legal Entity were dealing at arm’s length and claims,
if any, under such Policy shall be settled strictly in accordance with the Policy conditions.





ARTICLE 8 — ULTIMATE NET LOSS (LM-02400-2009.09.30-A) (AM)





	A.	 	“Ultimate Net Loss” as used in this Contract shall mean: (1) all amounts paid or due
and payable by the Company or a Legal Entity in the investigation, appraisal, adjustment,
settlement, litigation, defense or appeal, or payment of claims or judgments arising from
each and every loss, and/or loss occurrence for which the Company or a Legal Entity is or
may be found liable under the Policies, less salvages and subrogation recoveries and
amounts recovered or recoverable under pooling agreements or other reinsurances, whether
collectible or not. “Ultimate Net Loss” includes, but is not limited to, the following
paid or due and payable amounts: loss adjustment expenses, defense costs, court costs,
supersedeas and appeal bond costs, Post or Prejudgment Interest or Delayed Damages,
Attorneys Fees and Expenses, Claim-Specific Declaratory Judgment Expenses, a pro rata
share of salaries and expenses of the Company’s or its Affiliates’ field employees
according to the time occupied in adjusting, defending, and settling such loss, and
expenses of all of the Company’s or its Affiliates’ officers and employees incurred in
connection with the loss; (except that salaries of officers and employees engaged in
general management of the Company or its Affiliates and any office expense of the Company
or its Affiliates shall not be included), and all other costs of investigation or
litigation for which the Company or a Legal Entity is or may be found liable under the
Policies, (2) Extra Contractual Obligations (as defined in the Extra Contractual
Obligations Article), and (3) Loss in excess of original Policy limits (as described in
the Loss in Excess of Original Policy Limits Article).






	B.	 	Nothing herein shall be construed to mean that losses under this Contract are not
recoverable until the Ultimate Net Loss has been ascertained.






	C.	 	“Claim-Specific Declaratory Judgment Expenses” shall mean the fees and expenses incurred
in actions brought to determine whether the Company or a Legal Entity has a defense and/or
indemnification obligation for individual claims presented against Policies covered under this Contract. Any Claim-Specific
Declaratory Judgment Expense shall be deemed to have been fully incurred on the same
date as the insured’s original loss or loss occurrence (if any) giving rise to the
action, unless otherwise provided for within this Contract.






	D.	 	“Attorneys’ Fees and Expenses” as used above, shall mean all fees and expenses of
attorneys, including but not limited to the fees and expenses of the Company’s or its
Affiliates’ in-house attorneys providing legal advice on coverage questions and/or
defending the Company or a Legal Entity in coverage litigation, and fees and expenses of
staff counsel in the defense of







	 	 	 	 	 	 	 

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policyholder claims. Such Attorneys’ Fees and Expenses
for in-house attorneys and staff counsel shall be calculated at the rate for such
attorneys plus the expenses incurred by such attorneys, but excluding
office expenses of
the Company and its Affiliates and salaries and expenses of their other employees.






	E.	 	“Post or Prejudgment Interest or Delayed Damages” shall mean interest or damages added to a
settlement, verdict, award, or judgment based on the period of time prior to or after the
settlement, verdict, award, or judgment whether or not expressly identified as such.





ARTICLE 9 — LOSS ADJUSTMENT AND SETTLEMENT (LM-01500-2009.09.29-A) (AM)





	A.	 	The Company shall give notice, as soon as practicable, to the Subscribing Reinsurer of any
claim that it has reason to believe could involve this Contract. The Company shall keep the
Subscribing Reinsurer informed of significant developments likely to affect the cost of any
claim or claims hereunder.






	B.	 	The Company or a Legal Entity may commence, continue, defend, settle, or withdraw from
actions, suits, or prosecutions and, generally, do all such things relating to any claim or
loss in which the Subscribing Reinsurer is interested as, in the Company’s or a Legal Entity’s
judgment, may be beneficial or expedient to the Company and the Subscribing Reinsurer. The
Company and the Legal Entities shall be the sole judges as to what claims are covered under
the Policies. All of the Ultimate Net Loss and/or Loss Occurrences, as well as all loss
settlements made and judgments paid by the Company or a Legal Entity, provided they are within
the terms of this Contract either under the strict conditions of the Policies or by way of
compromise, shall be unconditionally binding upon the Subscribing Reinsurer, who agrees to pay
all amounts for which they are liable immediately upon reasonable evidence of the amount due
being furnished to the Subscribing Reinsurer by the Company. The true intent of this Contract
is that the Subscribing Reinsurer shall, in every case to which this Contract applies, follow
the settlements and the fortunes of the Company and the Legal Entities.





ARTICLE 10 — DEFINITION OF LOSS OCCURRENCE





	A.	 	The term “Loss Occurrence”, as used in this Contract, shall mean any one accident or
occurrence or series of accidents or occurrences arising out of one event. All losses that
are attributable directly or indirectly to one cause or one series of similar causes shall be
deemed to constitute one event.






	B.	 	As regards an act of Terrorism, multiple incidents which occur within one hundred sixty-eight
(168) hour period and appear to be carried out in concert or to have a related purpose or
common leadership shall be considered one “Loss Occurrence”.







	 	 	 	 	 	 	 

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	C.	 	An act of terrorism means any activity that (1) involves a violent act or the unlawful use of
force or an unlawful act dangerous to human life, tangible or
intangible property or
infrastructure, or threat thereof; and (2) appears to be intended to (i) intimidate or coerce
a civilian population, or any segment thereof, or (ii) disrupt any segment of the economy of a
government de jure or de facto, state, or country; or (iii) overthrow, influence, or affect
the conduct or policy of any government de jure or de facto by intimidation or coercion; or
(iv) affect the conduct of a government de jure or de facto by mass destruction,
assassination, kidnapping or hostage-taking.






	D.	 	However, with respect to Natural Disasters the term “Loss Occurrence” shall mean any one or
more occurrences, disasters or casualties arising out of or caused by the perils described
below (a natural Act of God) during any continuous period of one hundred sixty-eight (168)
hours.






	 	1.	 	As regards the perils of tornado, cyclone, windstorm, hurricane and/or hail,
including ensuing storm surge or collapse, “Loss Occurrence” shall mean all losses
occasioned by tornadoes, cyclones, windstorm, hurricanes or hailstorms, including
ensuing storm surge or collapse, occurring during any continuous period of one hundred
sixty-eight (168) hours, and arising from the same atmospheric disturbance;
	 
	 	2.	 	As regards the peril of earthquake, “Loss Occurrence” shall mean all losses
occasioned by earthquakes, including ensuing fire, flood or tidal wave occurring during
any continuous period of one hundred sixty-eight (168) hours;
	 
	 	3.	 	As regards the following perils, “Loss Occurrence” shall mean all losses
occasioned by the following perils during any continuous period of one hundred
sixty-eight (168) hours:






	 	a)	 	Volcanic eruption;
	 
	 	b)	 	Flood, tides, tidal waves;
	 
	 	c)	 	Landslide/mudslide;
	 
	 	d)	 	Meteors.





ARTICLE 11 — EXTRA CONTRACTUAL OBLIGATIONS (LM-00900-2009.09.29-A) (AM)








	A.	 	This Contract shall protect the Company within the limits hereof for 100% of Extra
Contractual Obligations. “Extra Contractual Obligations” are defined as any actual or
potential liabilities not covered under any other provision of this Contract, arising from or
relating to any alleged or actual act, error or omission, whether intentional or otherwise, or
from any alleged or actual negligence, tortious conduct, reckless conduct, violations of
statutes or regulations governing the conduct of insurance companies and/or claims adjusters,
or bad faith in connection with: (i) the handling of any claim under the Policies, such
liabilities arising because of, but not limited to, the following: failure by the Company, a
Legal Entity or by a third party claims administrator to settle within the Policy limit,






	 	 	 	 	 	 	 

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	 	 	 or by
reason of alleged or actual negligence, fraud or bad faith of the Company, a Legal Entity or
by a third party claims administrator in rejecting an offer of
settlement, or in defending or prosecuting litigation, including appeals, arbitration, or any alternative dispute resolution
or settlement discussions involving any claim; or (ii) the providing of or failure to provide
any loss control or loss prevention services in connection with any Policy hereunder.






	B.	 	The date on which any Extra Contractual Obligation is incurred shall be deemed, in all
circumstances, to be the date of the original occurrence, Loss Occurrence, accident,
casualty, disaster, or loss, as determined by the Company.
	 
	C.	 	However, this Article shall not apply where the loss has been incurred due to the
fraud of a member of the Board of Directors or a corporate officer of the Company or a
Legal Entity acting individually or collectively or in collusion with any individual or
corporation or any other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.





ARTICLE 12 — LOSS IN EXCESS OF ORIGINAL POLICY LIMITS (LM-01600-2009.09.29-A) (AM)





	A.	 	This Contract shall protect the Company within the limits hereof, for 100% of any Loss in
excess of the original Policy limit where Loss in excess of the limit has been incurred
because of a failure by the Company, or a Legal Entity or by a third-party claims
administrator to settle within the Policy limit or by reason of alleged or actual negligence,
fraud, or bad faith in rejecting an offer of settlement or in defending or prosecuting
litigation, including appeals, arbitration, or any alternative dispute resolution or
settlement discussions involving any claim.
	 
	B.	 	However, the above paragraph shall not apply where the loss has been incurred due to the
fraud of a member of the Board of Directors or a corporate officer of the Company or a Legal
Entity acting individually or collectively or in collusion with any individual or corporation
or any other organization or party involved in the presentation, defense or settlement of any
claim covered hereunder.
	 
	C.	 	With regard to excess of Policy limits, the word “Loss” shall mean any amounts for
which the Company or a Legal Entity would have been contractually liable to pay had it not
been for the limit of the original Policy. The date on which any Loss in excess of the original Policy limit is incurred by the Company or a Legal Entity shall be
deemed, in all circumstances, to be the date of the original occurrence, accident, casualty,
disaster, loss occurrence or Loss, as determined by the Company.





ARTICLE 13 — COMMUTATION (LM-02602-2009.11.20-W)





	A.	 	Eighty-four (84) months after the expiration of this Contract, the Company and any
Subscribing Reinsurer may mutually agree to commute any and/or all claims, both reported and
unreported and not finally settled which are likely to result in a claim under this Contract.
Such commutation shall proceed as follows:






	 	 	 	 	 	 	 

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	 	1.	 	The Company shall prepare and send a statement of commutation value to the
Subscribing Reinsurer in respect of such claim(s).
	 
	 	2.	 	The Company and the Subscribing Reinsurer shall attempt to reach settlement
by mutual agreement as to the commutation value.
	 
	 	3.	 	The commutation value shall be calculated in accordance with the following
assumptions and methodologies:






	 	a.	 	Mortality assumptions shall be calculated from the latest
available United States (U.S.) Census Table as follows:






	 	•	 	Survivor Benefits — Total Female or Male, whichever applies
	 
	 	•	 	Disability Benefits — Total Population






	 	 	 	The mortality assumptions should reflect: (a) the mortality improvement
since the publication of the most recent U.S. Census Table, and (b) the
life impairment of the injured worker as determined by the Company.
	 
	 	b.	 	Remarriage expectations shall be in accordance with the
assumptions used by the National Council on Compensation Insurance in its
statistical tables, adjusted for the gender of the survivor.
	 
	 	c.	 	For all future medical costs, projected cash payments shall
be based upon the Company’s projected estimate of long-term medical care
and rehabilitation requirements, using the average annual Medical Consumer
Price Index (CPI) escalation rate of the past twenty (20) years using the
most recent published tables, going back twenty (20) years.
	 
	 	d.	 	For all future indemnity costs, projected cash payments
shall be calculated based upon the average historical actual Cost-Of-Living
Adjustment (COLA) over however many years of information are available, but
no more than twenty (20) years; up through the most recent published data
that is available from the State or Federal governing body over Workers
Compensation, whichever may apply.
	 
	 	e.	 	The annual interest discount percentage shall be calculated
as the average yield to maturity of all United States Treasury Bonds
maturing during the calendar quarter that is fifteen (15) years after the
calendar quarter in which the commutation value is calculated.
	 
	 	f.	 	The commutation value shall be the total amount of all
payments made by the Company for which the Subscribing Reinsurer has not
paid its share, plus the discounted present value of all projected future
payments as determined by the above calculations.






	 	 	 	 	 	 	 

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	 	g.	 	The commutation value with respect to each injured worker
or fatality shall then be capped at $10,000,000.
	 
	 	h.	 	The resulting calculations for each claim shall then be
summed together. The Company’s retention shall then be subtracted from
this amount and the Subscribing Reinsurer shall pay its share of such
total.






	B.	 	In the event the Company and the Subscribing Reinsurer are unable to reach agreement on the
commutation value, then the Company and the Subscribing Reinsurer shall, within four (4) weeks
from the written request of either party, mutually appoint an independent actuary or, in the
event that they fail to agree on the selection of an independent actuary within four (4)
weeks, each party shall name three independent actuaries of which the other party shall
decline two, and the final selection shall be made by drawing lots. All independent actuary
candidates shall be disinterested in the outcome of the commutation and shall be Fellows of
the Society of Actuaries/Fellows of the Casualty Actuarial Society. The appointed independent
actuary shall investigate, determine, and value the claim(s) using the assumptions and
methodologies set forth above. The independent actuary’s determination of the commutation
value shall be final and binding. Payment of the commutation value shall be due immediately
upon receipt of the independent actuary’s decision. Payment of the commutation value by the
Subscribing Reinsurer to the Company or any other third party mutually agreed upon by the
Subscribing Reinsurer and the Company shall constitute a complete release of the Subscribing
Reinsurer from liability for each such claim.
	 
	C.	 	The cost of the independent actuary shall be split evenly between the Company and the
Subscribing Reinsurer. The commutation process described in this Article shall not be subject
to any other dispute resolution process, including but not limited to the Arbitration Article
of this Contract.
	 
	D.	 	This Article does not preclude termination or commutation of this Contract as provided in
the Special Conditions Article.





ARTICLE 14 — SALVAGE AND SUBROGATION (LM-01800-2008.08.15-A) (AM)





	A.	 	The Subscribing Reinsurer shall be credited with its share of salvage and/or subrogation in
respect of claims and settlements under this Contract, less its share of recovery expense.
Unless the Company agrees to waive such rights in the settlement of a disputed claim, or the
Company and Subscribing Reinsurer agree to the contrary, the Company and the Legal Entities
shall enforce the right to salvage and/or subrogation and shall prosecute all claims arising
out of such right. Should the Company or the Legal Entities refuse or neglect to enforce this
right, the Subscribing Reinsurer is hereby empowered and authorized to institute appropriate
action in the name of the Company or the Legal Entities, as applicable.






	 	 	 	 	 	 	 

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	B.	 	Amounts recovered from salvage and/or subrogation and the expense of any salvage and/or
subrogation proceedings brought by the Company or the Subscribing Reinsurer to enforce such
rights shall be apportioned between the Company and the Subscribing Reinsurer in the ratio of
their respective interests in the total salvage and/or subrogation recovery, and shall be in
addition to the limits hereon. In the event there is a failure to obtain a salvage and/or
subrogation recovery, the expense of the proceedings shall be apportioned between the Company
and the Subscribing Reinsurer in the ratio of their respective interests in the total loss.






	C.	 	All salvage and/or subrogation recoveries obtained by either party, subsequent to payments
made by the Subscribing Reinsurer under this Contract, shall be applied as if obtained prior
to said payments and all necessary adjustments shall be made between the Company and the
Subscribing Reinsurer as soon as practicable after said salvage and/or subrogation recovery is
obtained.
	 
	D.	 	The Company or a Legal Entity shall have the right, before the happening of the loss, to
waive its right of subrogation as to that loss.





ARTICLE 15 — CURRENCY (LM-00500-2009.09.29-WCCat)



Whenever a reference to a monetary currency appears in this Contract, it shall be construed to
mean United States Dollars ($). All amounts paid or received by the Company in any other currency
shall be converted into United States Dollars at the rate of exchange on the date at which it is
entered on the books of the Company.




ARTICLE 16 — ACCESS TO RECORDS (LM-00100-2009.09.29-A) (AM)





	A.	 	Except as otherwise provided in this Article, the Subscribing Reinsurer, or its duly
authorized representative, may upon reasonable prior written notice to the Company, at the
Subscribing Reinsurer’s own expense, examine at the offices of the Company or its Affiliates,
during normal office hours, the Policy, accounting, underwriting, or claim records and files,
or any such additional relevant records and files, as they exist in the Company’s or its
Affiliates’ possession or reasonable control, relating to business ceded under this Contract.
The Subscribing Reinsurer’s notice shall reasonably describe the nature of the inspection that it wishes to
conduct, the persons conducting the inspection and, upon notice of available files from the
Company, the files that it wishes to review. Subject to the limitations expressed in this
Article, this right of inspection shall survive termination or expiration of this Contract
and shall continue as long as either party has any rights or obligations under this
Contract.






	B.	 	The Company reserves the right to deny the Subscribing Reinsurer access to records or files
concerning any particular claim(s) if the Subscribing Reinsurer has not disputed liability for
payment of such claim(s), and payment of such claim(s) is(are) more than ninety (90) days
overdue according to the Company’s records. The Company shall, however, prior to an
arbitration demand that may be instituted 






	 	 	 	 	 	 	 

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	 	 	by either party, continue to respond to reasonable
specific requests for information and questions raised by the Subscribing Reinsurer concerning
such claims; and nothing in this Article shall restrict the right or ability of the
Subscribing Reinsurer to seek discovery of relevant information in a proceeding pursuant to
the Arbitration Article of this Contract.






	C.	 	As a condition precedent to access to records under this Article, the Subscribing Reinsurer,
its personnel, and any authorized third party representative of the Subscribing Reinsurer
shall agree to the provisions of the Confidentiality Article of this Contract.
	 
	D.	 	The Company reserves the right to withhold any documents from the Subscribing Reinsurer: (1)
concerning Trade Secrets of the Company or its Affiliates, (2) subject to the terms of a third
party non-disclosure agreement with the Company or its Affiliates requiring third party
consent to disclosure, (3) subject to the Work-Product Privilege or Attorney-Client Privilege,
or (4) concerning individual private information that, as a matter of law, cannot be disclosed
by the Company or its Affiliates (hereinafter referred to in the Contract as “Privileged
Documents”). The Company shall reasonably try to exempt the Subscribing Reinsurer from any
third party non-disclosure agreement or obtain consent from the third party to disclose to the
Subscribing Reinsurer.
	 
	E.	 	Notwithstanding the foregoing, the Company shall permit and not object to the Subscribing
Reinsurer’s access to Privileged Documents falling within D.(3) above, in connection with the
underlying claim reinsured hereunder following final settlement or final adjudication of the
case or cases involving such claim, with prejudice against all claimants, and all parties to
such adjudications; provided that the Company, may defer release of such Privileged Documents
if there are subrogation, contribution, or other third party actions with respect to that
claim or case, which may jeopardize the Company’s or its Affiliates’ defense by release of
such Privileged Documents. In the event that the Company shall seek to defer release of such
Privileged Documents or to withhold documents concerning Trade Secrets, it will in
consultation with the Subscribing Reinsurer take other steps as reasonably necessary to
provide the Subscribing Reinsurer with the information it reasonably requires to indemnify the
Company without causing a loss of such privileges or protections. The Subscribing Reinsurer, however, shall not have access to
Privileged Documents relating to any dispute between the Company and the Subscribing
Reinsurer.
	 
	F.	 	For purposes of this Article, “Trade Secrets” shall have the meaning provided in Section 1839
of the United States Economic Espionage Act of 1996. “Attorney—Client Privilege” shall mean
communications of a confidential nature between: (1) the Company or its Affiliates, or anyone
retained by or in the control of the Company or its Affiliates, or their in-house or outside
legal counsel, or anyone in the control of such legal counsel, and (2) any in-house or outside
legal counsel which relate to legal advice being sought by the Company or its Affiliates
and/or which contains legal advice being provided to the Company or its Affiliates.
“Work-Product Privilege” shall mean communications, written materials, and 






	 	 	 	 	 	 	 

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	 	 	tangible things
prepared by or for in-house or outside counsel, or prepared by or for the Company or its
Affiliates, in anticipation of or in connection with litigation, arbitration, or other dispute
resolution proceedings.





ARTICLE
17 — ERRORS AND OMISSIONS (LM-00800-2005.06.02-A)



Any inadvertent delay, omission, or error in complying with the terms and conditions of this
Contract shall not be held to relieve either party hereto from any liability, which would attach to
it hereunder if such delay, omission, or error had not been made, provided such delay, omission, or
error is rectified upon discovery.




ARTICLE 18 — INSOLVENCY (LM-01300-2009.09.03-A-WC)



If more than one reinsured company is referenced within the definition of “Company” in this
Contract, this Article shall apply severally to each such company. Further, this Article and the
laws of the domiciliary state shall apply in the event of the insolvency of any company intended to
be covered hereunder. In the event of a conflict between any provision of this Article and the
laws of the domiciliary state of any company intended to be covered hereunder, that domiciliary
state’s laws shall prevail.





	A.	 	In the event of the insolvency of the Company, reinsurance under this Contract shall be
payable with reasonable provision for verification, on the basis of claims allowed against the
insolvent Company by any court of competent jurisdiction or by any liquidator, receiver,
conservator, or statutory successor of the Company having authority to allow such claims,
without diminution because of such insolvency or because such liquidator, receiver,
conservator, or statutory successor has failed to pay all or a portion of any claims. Such
payments by the Subscribing Reinsurer shall be made directly to the Company or its liquidator,
receiver, conservator, or statutory successor, except to the extent Section 4118(a) of the New
York Insurance Law applies, or except (1) where the Contract specifically provides another
payee of such reinsurance in the event of the insolvency of the Company, or (2) where the
Subscribing Reinsurer with the consent of the direct insured or insureds has assumed such
Policy obligations of the Company as direct obligations of the Subscribing Reinsurer to the payees under such
Policies and in substitution for the obligations of the Company to such payees.
	 
	B.	 	It is agreed, however, that the liquidator, receiver, conservator, or statutory successor of
the insolvent Company shall give written notice to the Subscribing 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 that during the
pendency of such claim the Subscribing 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 Subscribing Reinsurer 





	 	 	 	 	 	 	 

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	 	 	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 Subscribing Reinsurer.






	C.	 	Where two or more Subscribing Reinsurers are involved in the same claim and a majority in
interest elects 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
insolvent Company.





ARTICLE 19 — ARBITRATION (LM-00200-2009.10.26-A)





	A.	 	Disputes to be Arbitrated. With the exception of any dispute resolution procedures
that are otherwise contained in this Contract, any and all disputes between the Company and
any Subscribing Reinsurer or Subscribing Reinsurers (“Party” individually or “Parties”
collectively) arising out of, relating to, or concerning this Contract, whether sounding in
contract or tort and whether arising during or after this Contract’s formation, or after its
termination, including disputes as to whether the Contract was validly formed or is voidable,
shall be submitted to the decision of an arbitration panel (“Panel”). The Panel shall consist
of an umpire and two party-appointed arbitrators unless a Party meets the requirements of
paragraph C. of this Article and demands arbitration pursuant thereto, in which case the Panel
would consist of an umpire only.






	B.	 	Procedures. Except as provided herein, any arbitration shall be based upon the
Procedures for the Resolution of U.S. Insurance and Reinsurance Disputes, Regular Panel
Version, dated April 2004 (the “Procedures”), developed by the Insurance and Reinsurance
Dispute Resolution Task Force, subject to the following modifications:






	 	1.	 	Qualifications of the arbitrators and umpires shall be in accordance with
section 6.2 of the Procedures, except that other professionals who have worked for at
least ten (10) years for an insurer or reinsurer shall also be qualified to serve as an
arbitrator or umpire.
	 
	 	2.	 	The Parties hereby designate the umpire list maintained by ARIAS (U.S.) as the
list to be used in the event that section 6.7(a) of the Procedures is invoked. If
ARIAS ceases to maintain a list, each Party shall exchange eight names of qualified
umpire candidates and shall follow section 6.7 of the Procedures for the selection of
the umpire.
	 
	 	3.	 	Unless otherwise mutually agreed, the members of the Panel shall be impartial
and disinterested. The members of the Panel may not be: (1) in the control of any
Party or its parent, affiliate, or agent, (2) a former director or officer of any Party
or its parent, affiliate, or agent, or (3) a likely witness in the arbitration. The
requirement of impartiality means that all members of the Panel shall have the same
obligation to approach the Panel’s duties and decisions with fairness and without
consideration for the fact that Panel members may have been appointed by one of the
Parties. The






	 	 	 	 	 	 	 

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	 	 	 	requirement of impartiality does not mean that any arbitrator can have no
previous knowledge of or experience with respect to issues involved in the dispute or
disputes.






	 	4.	 	The first sentence of section 10.4 of the Procedures shall be replaced by the
following sentence: “The Panel shall require that each Party submit concise written
statements of position, including summaries of the facts and evidence a Party intends
to present, discussion of the applicable law and the basis for the requested Award or
denial of relief sought.”
	 
	 	5.	 	Section 11.1 of the Procedures shall be replaced by the following provision:
“The Parties may propound discovery seeking disclosure of such information and/or
documents relevant to the dispute or necessary for the proper resolution of the
dispute.”
	 
	 	6.	 	Position statements may be amended at any reasonable time, but not later than
the close of discovery, without a showing to the Panel that the amending Party could
not reasonably have raised the new claim or issue at an earlier time.
	 
	 	7.	 	The Panel shall hold an evidentiary hearing, if one is necessary, within one
year of the arbitration demand, unless the Parties otherwise agree. Should a Party
seek a reasonable extension to this time frame for good cause shown, the other Party’s
agreement shall not be unreasonably withheld.
	 
	 	8.	 	To the extent permitted by the law, the Panel shall have the authority to issue
subpoenas and other orders to enforce its decisions.
	 
	 	9.	 	The Panel may award reasonable attorneys’ fees and arbitration costs to the
prevailing Party, as determined by the Panel.
	 
	 	10.	 	Section 14.3 of the Procedures shall be replaced by the following provision:
“The Panel shall make a decision and issue an award with regard to the terms expressed
in this Contract, and the custom and practice of the property and casualty insurance
and reinsurance business. The Panel shall not be obligated to follow the strict rules
of law and evidence.”






	C.	 	Alternative Streamlined Procedures. Notwithstanding the foregoing provisions of this
Article, the Alternative Streamlined Procedures set forth in section 16 of the Procedures, as
modified by paragraphs B.3, B.4, and B.8 through B.10 of this Article, shall apply in the
event that, in a consolidated proceeding or otherwise, the Party initiating arbitration is
seeking payment of a total amount that is no greater than one million dollars ($1,000,000), or
the currency equivalent thereof. Sections 16.1, 16.2, 16.3 and the second sentence of section
16.4 of the Alternative Streamlined Procedures shall not apply. The Parties agree to comply
with section 6.7 of the Procedures to appoint a single umpire, and hereby designate the umpire
list maintained by ARIAS (U.S.) as the list to be used in section 6.7(a).






	D.	 	Hearing Location. The hearing shall be held in Boston, Massachusetts, unless the
Parties mutually agree to a different location.





	 	 	 	 	 	 	 

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	E.	 	Confirmation. Either Party may apply to a court of competent jurisdiction for an
order confirming any award of the Panel; a judgment of that court shall thereupon be entered
on any award. If the application for confirmation is contested and a judgment is issued
confirming the award, then the Party against whom confirmation is sought shall pay the
attorneys’ fees incurred by the Party who applied for the confirmation and all court costs of
any such proceeding.






	F.	 	Equitable Relief from a Court of Law. Nothing herein shall be construed to prevent
any participating Party from applying to a court of competent jurisdiction to issue a
restraining order or other equitable relief to maintain the “status quo” of the Parties
participating in the arbitration pending the decision and award by the Panel.
	 
	G.	 	Consolidated Proceedings.






	 	1.	 	Same contract, single Subscribing Reinsurer. Both the Company and any single
Subscribing Reinsurer on this Contract have the right to combine any and all disputes
between them that concern this Contract (including any renewal of this Contract or any
contract for which this Contract is a renewal) into a single arbitration proceeding
before a single Panel, except that the standard for determining whether a Party may add
a new issue, claim, or dispute to an arbitration proceeding shall be the standard for
amending a position statement, as set forth in paragraph B.6 of this Article.
	 
	 	2.	 	Multiple contracts, single Subscribing Reinsurer.






	 	a.	 	Either the Company or any single Subscribing Reinsurer has the
right to combine any and all disputes between the Company and such single
Subscribing Reinsurer into one arbitration proceeding before a single Panel
where such disputes involve this Contract and any additional contracts between
the two Parties.
	 
	 	b.	 	Notwithstanding the foregoing, subject in each instance to the
mutual agreement of the Parties, new issues, claims, or disputes may be added
to such existing arbitration proceeding.






	 	3.	 	Same contract, multiple Subscribing Reinsurers. At the Company’s option, if
more than one Subscribing Reinsurer is involved in arbitration relating to this
Contract, where there are common questions of law or fact and a possibility of
conflicting awards or inconsistent results, all such Subscribing Reinsurers shall
constitute and act as one Party for purposes of this Article and communications shall
be made by the Company to each of the Subscribing Reinsurers constituting the one
Party; provided, however, that the Subscribing Reinsurers shall have the right to
assert several, rather than joint defenses or claims, and to be represented by separate
counsel. This provision shall not change the liability of each of the Subscribing
Reinsurers under the terms of this Contract from several to joint.






	H.	 	Choice of Law. The law set forth in the Governing Law Article shall apply to this
Arbitration Article.





	 	 	 	 	 	 	 

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	I.	 	Survival of Article. This Article shall survive the termination or expiration of
this Contract.





ARTICLE 20 — INTEREST PENALTY (LM-01400-2005.08.24-A)





	A.	 	The interest amounts provided for in this Article shall apply to the Subscribing Reinsurer
or to the Company in the following circumstances:






	 	1.	 	If a loss payment owed by the Subscribing Reinsurer to the Company is not
received within 45 calendar days following the date of presentation to the Subscribing
Reinsurer of information necessary to approve payment of the claim, and/or;
	 
	 	2.	 	If any premium payment owed by the Company to the Subscribing Reinsurer is not
received within 45 calendar days following the date on which payment is due, and/or;
	 
	 	3.	 	If any premium adjustment, agreed by either party to the other, is not
received within 150 calendar days following the expiry or anniversary of this
Contract, and/or;
	 
	 	4.	 	If any return of premiums, commissions, profit sharing, or any amounts not
provided in subparagraphs 1, 2, and 3 above, are not received in accordance with the
date specified in this Contract or if no date is specified, within 90 calendar days
following the date the debtor party received the billing.






	B.	 	Failure by the Subscribing Reinsurer or Company to comply with their respective payment
obligations within the time periods as herein provided shall, as of that date, be subject to
an interest payment computed by multiplying the amount due by a variable rate consisting of the U.S. Prime Rate as published in the Eastern Edition of
The Wall Street Journal on the first day of the calendar month in which the amount
became past due, plus 2%. The variable rate shall be adjusted monthly thereafter to equal
the U.S. Prime Rate as published in the Eastern Edition of The Wall Street Journal
on the first day of each successive month during which the amount due remains unpaid, plus
2%. The product shall then be multiplied by 1/365 for each day after the due date that the
amount due and the interest amount remain unpaid. Any interest that occurs pursuant to
this Article shall be calculated by the party to which it is owed.
	 
	C.	 	The validity of any claim or payment may be contested under the provisions of this Contract.
If the debtor party prevails in an arbitration or any other proceeding with respect to the
amounts in dispute, there shall be no interest penalty due. If the creditor party wholly or
partially prevails on any of the amounts in dispute, the interest penalty shall be awarded as
outlined above. Such interest penalty shall be calculated from the date the monies were due
and owing to the date of resolution of the arbitration or proceeding, and shall be payable as
of the date of resolution of the arbitration or proceeding.






	 	 	 	 	 	 	 

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	D.	 	If a Subscribing Reinsurer advances the entire or partial payment of any claim it is
contesting, and wholly or partially prevails in the contest, the Company shall promptly
return the applicable amount of such payment. The arbitrator(s) hearing such dispute shall
determine if interest shall be added to the amount returned by the Company.
	 
	E.	 	Any interest owing pursuant to this Article may be waived by the party to which it is owed.
Further, any interest calculated pursuant to this Article that is $100 or less shall be
waived. Any waiver of any interest pursuant to this paragraph, however, shall not affect the
waiving party’s right to claim and/or pursue interest for any other failure by the other
party to make payment when due under this Article.





ARTICLE 21 — DIVIDENDS AND TAXES (LM-00600-2009.03.10-A)



In consideration of the terms of this Contract, the Company shall not claim any deduction in
respect of any amount paid as dividends or as reinsurance premium when making tax returns, other
than income or profits tax returns to any state of the United States or to the District of
Columbia.




ARTICLE 22 — FEDERAL EXCISE TAX (LM-01000-2008.08.15-A)





	A.	 	This Article is applicable to any Subscribing Reinsurer who is domiciled outside of the
United States of America, except for any Subscribing Reinsurer exempt from Federal Excise Tax.
A Subscribing Reinsurer that claims exempt status from Federal Excise Tax shall provide to
the Company, upon its request, proof that the exempt status adequately satisfies the demands
of the U.S. Internal Revenue Service, Department of the Treasury, or its successor and/or other applicable U.S.
government authority.
	 
	B.	 	Each Subscribing Reinsurer shall allow the applicable percentage of the premium payable
hereon (as imposed under Section 4371 of the Internal Revenue Code) for the purpose of paying
Federal Excise Tax to the extent such premium is subject to such tax.
	 
	C.	 	In the event of any return of premium, the Subscribing Reinsurer shall deduct the aforesaid
percentage from the return premium payable hereon and the Company or its agent shall recover
such tax from the United States Government.





ARTICLE 23 — OFFSET (LM-01701-2005.06.02-A)



Each Party to this Contract together with their successors or assigns shall have and may
exercise, at any time, the right to offset any balance(s) due the other (or, if more than one, any
other) under this Contract. Such offset may include balances due under this Contract regardless of
whether such balances arise from premiums, losses, or otherwise, provided however, that in the
event of insolvency of a party hereto, offsets shall only be




	 	 	 	 	 	 	 

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allowed in accordance with the
provisions of the applicable law, statute, or regulation governing such offset.




ARTICLE 24 — SERVICE OF SUIT (LM-01900-2009.09.29-A)



(This Article applies to any unauthorized Subscribing Reinsurer and to any Subscribing
Reinsurer who is domiciled outside the United States of America.)





	A.	 	This Article will not be read to conflict with or override the obligations of the parties to
arbitrate their disputes as provided for in the Arbitration Article. This Article is intended
as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an
alternative to the Arbitration Article for resolving disputes arising out of this Contract.
	 
	B.	 	In the event of the failure of the Subscribing Reinsurer to pay any amount claimed to be due
hereunder, the Subscribing Reinsurer, at the request of the Company, will 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 the Subscribing
Reinsurer’s right 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. The Subscribing Reinsurer, once the appropriate Court is selected, whether such court
is the one originally chosen by the Company and accepted by the Subscribing Reinsurer or is
determined by removal, transfer, or otherwise, as provided for above, will comply with all
requirements necessary to give said Court jurisdiction and, in any suit instituted against it upon this Contract, will abide by the final decision of such
Court or of any Appellate Court in the event of an appeal.
	 
	C.	 	Service of process in such suit may be made upon: Mendes & Mount, LLP, 750 Seventh Avenue,
New York, NY 10019-6829.
	 
	D.	 	The above-named are authorized and directed to accept service of process on behalf of the
Subscribing Reinsurer in any such suit. Further, pursuant to any statute of any state,
territory, or district of the United States that makes provision therefore, the Subscribing
Reinsurer hereby designates the Superintendent, Commissioner, or Director of Insurance, or
other officer specified for that purpose in the statute, or their successor(s) in office, as
their true and lawful attorney upon whom may be served any lawful process in any action, suit,
or proceedings instituted by or on behalf of the Company or any beneficiary hereunder arising
out of this Contract, and hereby designate the above-named as the person to whom the said
officer is authorized to mail such process or a true copy thereof.





	 	 	 	 	 	 	 

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ARTICLE 25 — UNAUTHORIZED REINSURANCE (LM-02500-2009.12.09-A)



(Applies only to a Subscribing Reinsurer who at the inception of this Contract or at any time
thereafter does not qualify for full credit with any insurance regulatory authority having
jurisdiction over the Company’s reserves.)





	A.	 	As regards Policies or bonds coming within the scope of this Contract, the Company agrees
that when it shall file with the insurance regulatory authority or set up on its books
reserves for unearned premium and losses covered hereunder which it shall be required by law
to set up, it will forward to the Subscribing Reinsurer a statement showing the proportion of
such reserves which is applicable to the Subscribing Reinsurer. The Subscribing Reinsurer
hereby agrees to fund such reserves in respect of unearned premium, known outstanding losses
that have been reported to the Subscribing Reinsurer and allocated loss adjustment expense
relating thereto, losses and allocated loss adjustment expense paid by the Company or the
Legal Entities but not recovered from the Subscribing Reinsurer, plus reserves for losses
incurred but not reported as determined by the Company, as shown in the statement prepared by
the Company (hereinafter referred to as “Subscribing Reinsurer’s Obligations”) by Letters of
Credit, unless the Company and the Subscribing Reinsurer agree to another method of funding,
or another method of funding (other than Letters of Credit) is mandated by applicable law,
statute, or regulation.
	 
	B.	 	For a Subscribing Reinsurer who, either at the inception of this Contract or at any time
thereafter, is unauthorized in any province or jurisdiction of Canada, and as respects risks
within Canada for the purposes of the Insurance Companies Act (Canada), such funding shall be equal to 115% of the Subscribing Reinsurer’s Obligations or
such other amount as may be required by the Office of the Superintendent of Financial
Institutions Canada.
	 
	C.	 	When funding by Letters of Credit, the Subscribing Reinsurer agrees to apply for and secure
timely delivery to the Company of clean, irrevocable, and unconditional Letters of Credit
issued by a bank that is a qualified U.S. financial institution acceptable to the Company, and
containing provisions acceptable to the insurance regulatory authorities having jurisdiction
over the Company’s reserves, in an amount equal to the Subscribing Reinsurer’s proportion of
said reserves. At the Company’s request, the Subscribing Reinsurer will agree to provide a
separate Letter of Credit for each Legal Entity. Such Letters of Credit shall be issued for a
period of not less than one year, and shall be automatically extended for one year from the
date of expiration or any future expiration date unless, sixty (60) days prior to any
expiration date, the issuing bank shall notify the Company or a Legal Entity, as applicable,
by certified mail that the issuing bank elects not to consider the Letters of Credit extended
for any additional period.
	 
	D.	 	The Subscribing Reinsurer and the Company agree that the Letters of Credit provided by the
Subscribing Reinsurer pursuant to the provisions of this Contract may be drawn upon at any
time, notwithstanding any other provision of this Contract, and be utilized by the Company or
a Legal Entity or any successors 






	 	 	 	 	 	 	 

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	 	 	thereto, by operation of law, of the Company or a Legal
Entity, including without limitation, any liquidator, rehabilitator, receiver, or conservator
of the Company, without diminution because of the insolvency of the Company or a Legal Entity
or the Subscribing Reinsurer for one or more of the following purposes:






	 	1.	 	To reimburse the Company or a Legal Entity for the Subscribing Reinsurer’s
share of premiums returned to the owners of Policies reinsured under this Contract
because of cancellations of the Policies;
	 
	 	2.	 	To reimburse the Company or a Legal Entity for the Subscribing Reinsurer’s
share of surrenders and benefits or losses paid by the Company or a Legal Entity under
provisions of the Policies reinsured under this Contract;
	 
	 	3.	 	To fund an account with the Company or a Legal Entity in an amount, at least,
equal to the deduction for reinsurance ceded from the Company’s or a Legal Entity’s
liabilities for Policies ceded under this Contract. The account shall include, but not
be limited to, amounts for Policy reserves, claims and losses incurred (including
losses incurred but not reported), loss adjustment expenses, and unearned premium
reserves;
	 
	 	4.	 	To pay existing liabilities between the Company and the Subscribing Reinsurer
upon commutation of this Contract; and
	 
	 	5.	 	To pay any other amounts the Company claims are due under this Contract.
	 
	 	6.	 	If the Company has concluded that the issuing bank’s financial condition is
such that the value of the security represented by the Letter of Credit may be in
jeopardy, the Company or a Legal Entity, as applicable, may require that a replacement
Letter of Credit be issued by a bank acceptable to the Company, by providing the
Subscribing Reinsurer with written notice requesting such replacement Letter of Credit.
If the Subscribing Reinsurer fails to provide acceptable replacement security within
ten (10) business days following receipt of the Company’s notice, the Company or a
Legal Entity may draw upon the existing Letter of Credit in amounts equal to the
Subscribing Reinsurer’s Obligations.






	E.	 	At annual intervals, or at the Company’s option, on a quarterly basis, the Company shall
prepare a specific statement of the Subscribing Reinsurer’s Obligations, for the sole purpose
of amending the Letters of Credit, in the following manner:






	 	1.	 	If the statement shows that the Subscribing Reinsurer’s Obligations exceed the
balance of credit as of the statement date, the Subscribing Reinsurer shall, within
thirty (30) days after receipt of notice of such excess, secure delivery to the Company
of an amendment to the Letters of Credit increasing the amount of credit by the amount
of such difference.
	 
	 	2.	 	If, however, the statement shows that the Subscribing Reinsurer’s Obligations
are less than the balance of credit as of the statement date, the Company shall, within
thirty (30) days after receipt of written request from the 






	 	 	 	 	 	 	 

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	 	 	 	Subscribing Reinsurer,
release such excess credit by agreeing to secure an amendment to the Letters of Credit
reducing the amount of credit available by the amount of such excess credit.






	F.	 	The Subscribing 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.
	 
	G.	 	Any and all disputes between the Company and any Subscribing Reinsurer or Reinsurers
(“Party”, individually, or “Parties”, collectively) arising out of, relating to, or concerning
this Article shall be resolved pursuant to the ARIAS-U.S. Newer Arbitrator Program. Unless
the Parties otherwise agree, the ARIAS-U.S. Newer Arbitrator Program expedited proceeding with
a single Newer Arbitrator shall be used to resolve any such disputes.





ARTICLE 26 — CONFIDENTIALITY (LM-00400-2009.11.03-A)





	A.	 	Confidential Information. The submission materials, and any Policy, financial,
underwriting, accounting, and claims information, data statements, representations, and other
materials provided by the Company or its Affiliates and received by the Subscribing Reinsurer
in the course of an audit, inspection, or otherwise in connection with this Contract,
represent confidential or proprietary information (“Confidential Information”). This
Confidential Information is intended for the sole use of the Subscribing Reinsurer (and its affiliates, retrocessionaires,
accountants, attorneys, auditors, actuaries or catastrophe modelers or as otherwise required
by law) as may be necessary in analyzing and/or accepting a participation in and/or
executing its responsibilities under or related to this Contract. To the extent that the
Subscribing Reinsurer intends to provide Confidential Information to any third parties
(other than its employees and affiliates), prior to such disclosure, the Subscribing
Reinsurer must require that such third parties agree, in writing, to be bound by this
Confidentiality Article or by a separate written confidentiality agreement, containing terms
no less stringent than those set forth in this Article. The Subscribing Reinsurer
acknowledges and agrees that with respect to any review of Confidential Information by the
Subscribing Reinsurer, and/or discussion of Confidential Information, the Company and its
Affiliates do not waive and do not intend to waive any available privilege or protection.
The review of Confidential Information by the Subscribing Reinsurer and/or discussion of
Confidential Information with the Company or its Affiliates shall not destroy, waive, or
otherwise impair the proprietary and/or protected status of any Confidential Information or
any information revealed in such discussion with the personnel of the Company or its
Affiliates, whether reviewed by and/or discussed with the Subscribing Reinsurer
intentionally or inadvertently, nor does the review of the Confidential Information and/or
discussion of Confidential Information with the Company or its Affiliates constitute an
estoppel or waiver of the Company’s or its Affiliates’ rights to assert the attorney-client
or work-product privileges, or any other applicable privilege or 






	 	 	 	 	 	 	 

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	 	 	protection over certain
documents contained in the Company’s or its Affiliates’ files and/or certain information.





	B.	 	The Company and the Subscribing Reinsurer agree that no confidentiality obligations will
apply to Confidential Information to the extent such Confidential Information: (1) is or
becomes available to the public, other than as a result of impermissible disclosure by the
Subscribing Reinsurer, (2) was or became available lawfully to the Subscribing Reinsurer from
a source, other than the Company, its Affiliates or their personnel, that is not subject to a
confidentiality obligation, (3) was developed independently by the Subscribing Reinsurer prior
to disclosure by the Company, its Affiliates, or their personnel, as demonstrated by the
Subscribing Reinsurer’s records, or (4) is required to be disclosed by law, regulation, court,
or regulatory agency action, subject to the Third-Party Demand paragraph of this Article.
	 
	C.	 	The Subscribing Reinsurer agrees to preserve all confidentiality and privilege pertaining to
all Confidential Information provided by the Company and all knowledge and information gained
through its review of Confidential Information or discussions with the personnel of the
Company or its Affiliates. The Subscribing Reinsurer further agrees not to disclose any such
Confidential Information to any other person or entity, except as such disclosure may be
necessary to its affiliates, retrocessionaires, accountants, attorneys, auditors, actuaries or
catastrophe modelers or as otherwise required by law. The Subscribing Reinsurer may store
Confidential Information about this Contract in its group-wide IT systems and is entitled to make the Confidential Information available to
all companies and units of the Subscribing Reinsurer for administration, risk management and
accounting purposes. The Subscribing Reinsurer agrees that no Confidential Information is
to be copied and/or removed from the Company’s or its Affiliates’ premises without the
express permission of the Company.
	 
	D.	 	Non-Public Personally Identifiable Information. Additionally, any disclosure of
Non-Public Personally Identifiable Information shall comply with all state and federal
statutes and regulations governing the disclosure of Non-Public Personally Identifiable
Information. “Non-Public Personally Identifiable Information” shall be defined as this term
or a similar term is defined in any applicable state, provincial, territory, or federal law.
Disclosing or using this information for any purpose not authorized by applicable law is
expressly forbidden without the prior consent of the Company.
	 
	E.	 	Third-Party Demand. Should the Subscribing Reinsurer receive a third-party demand
pursuant to subpoena, summons, or court or governmental order, to disclose Confidential
Information (including Non-Public Personally Identifiable Information) that has been provided
by the Company or its Affiliates, the Subscribing Reinsurer shall make commercially reasonable
efforts to notify the Company promptly upon receipt of the demand and prior to disclosure of
the Confidential Information and provide the Company a reasonable opportunity to object to the
disclosure. If the Company timely objects to the release of the 






	 	 	 	 	 	 	 

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		 	Confidential Information, the
Subscribing Reinsurer will comply with the reasonable requests of the Company in connection
with the Company’s efforts to resist release of the Confidential Information. The Company
shall bear the cost of resisting the release of the Confidential Information.





	 
	F.	 	Survival. The Parties agree that the obligations contained in this Article shall
survive the expiration or termination of this Contract.





ARTICLE 27 — GOVERNING LAW (LM-01200-2008.09.18-A)



The validity and interpretation of this Contract shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without regard to conflicts of law
principles.




ARTICLE 28 — SEVERABILITY (LM-02000-2005.06.02-A)



If any provision of this Contract shall be rendered illegal or unenforceable by the laws,
regulations, or public policy of any state, such provision shall be considered void in such state,
but this shall not affect the validity or enforceability of any other provision of this Contract or
the enforceability of such provision in any other jurisdiction.




ARTICLE 29 — ENTIRE AGREEMENT (LM-00701-2008.08.15-A)



This Contract shall constitute the entire agreement between the Company and the Subscribing
Reinsurer with respect to the subject matter of this Contract and shall supersede all prior
understandings, negotiations and discussions, whether oral or written, by or between the Company
and the Subscribing Reinsurer relating to the subject matter hereof. There are no general or
specific warranties, representations or other agreements by or among the Company and the
Subscribing Reinsurer in connection with entering into this Contract except as specifically set
forth in this Contract. Notwithstanding the foregoing, this Contract may be amended or modified
only by a writing signed by both the Company and the Subscribing Reinsurer.




ARTICLE 30 — FEDERAL TERRORISM EXCESS RECOVERY (LM-01100-2008.08.06-A)





	A.	 	Any loss reimbursement the Company receives from the United States Government under the
Terrorism Risk Insurance Act of 2002 as amended by the Terrorism Risk Insurance Extension Act
of 2005 and as further amended by the Terrorism Risk Insurance Program Reauthorization Act of
2007 (“TRIA”) as a result of Loss Occurrences commencing during the term of this Contract
shall apply as follows:
	 
	B.	 	Except as provided below, any loss reimbursement under TRIA shall inure solely to the benefit
of the Company and shall be entirely disregarded in applying all of the provisions of this
Contract.






	 	 	 	 	 	 	 

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	C.	 	If one or more Loss Occurrences commencing during the term of this Contract result(s) in
reinsurance recoveries to the Company under this Contract and reimbursement under TRIA, and
such amounts, together with any other reinsurance recoveries to the Company for said loss
occurrence(s), exceed the total amount of “Insured Losses” to the Company, any amount in
excess thereof shall be held by the Company. The Company shall then reimburse the Subscribing
Reinsurer a portion of such excess recovery in an amount equal to the proportion that the
Subscribing Reinsurer’s payment under this Contract bears to the total treaty reinsurance
recoveries to the Company for Insured Losses for said Loss Occurrence(s). Provided, however,
that in no event shall such reimbursement exceed the amount paid by the Subscribing Reinsurer
to the Company under this Contract.






	D.	 	For purposes hereof, if a loss reimbursement received by the Company under TRIA is based on
the Company’s Insured Losses in more than one Loss Occurrence and neither the Secretary of the
Treasury nor his delegatee specifies the amount of loss allocable to each respective Loss
Occurrence, the reimbursement shall be pro-rated in the proportion that the Company’s Insured
Losses in each Loss Occurrence bears to the Company’s total Insured Losses resulting from all
Loss Occurrences to which the reimbursement applies.
	 
	E.	 	For purposes of this Article, “Insured Loss (es)” shall have the same meaning as set forth in Section 102(5) of TRIA.





ARTICLE 31 — SPECIAL CONDITIONS (LM-02103-2009.12.09-W) (AM)





	A.	 	This Article applies only in the event that:






	 	1.	 	A State Insurance Department or other legal authority orders the Subscribing
Reinsurer to cease writing business or has imposed upon it any other restrictions on or
conditions relating to the Subscribing Reinsurer’s license or conduct of business in
any jurisdiction; or
	 
	 	2.	 	The Subscribing Reinsurer has become insolvent or has been placed into
liquidation or receivership (whether voluntary or involuntary), or there have been
instituted against it proceedings for the appointment of a receiver, liquidator,
rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever
name, to take possession of its assets or control of its operations; or
	 
	 	3.	 	The Subscribing Reinsurer’s policyholders’ surplus or equity has been reduced
by 25% or more from the amount on the effective date of this Contract, or has been
reduced by 25% or more in any period of twelve (12) months or less after the effective
date of this Contract. For the purposes of this paragraph 3, a change in
policyholders’ surplus or equity will be deemed to occur on the date the Subscribing
Reinsurer releases its quarterly financial results; or






	 	 	 	 	 	 	 

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	 	4.	 	As respects a Subscribing Reinsurer domiciled outside the United States other
than a Lloyd’s syndicate, such Subscribing Reinsurer’s Shareholder Funds, Net Worth or
Capital & Surplus has been reduced by 25% or more from the amount on the effective date
of this Contract, or has been reduced by 25% or more in any period of twelve (12)
months or less after the effective date of this Contract; or






	 	5.	 	As respects a Subscribing Reinsurer who is a Lloyd’s syndicate, such
Subscribing Reinsurer’s Stamp Capacity or Funds at Lloyd’s has been reduced by 25% or
more from the amount on the effective date of this Contract or has been reduced by 25%
or more in any period of twelve (12) months or less after the effective date of this
Contract; or
	 
	 	6.	 	There has been a change in control with respect to the Subscribing Reinsurer.
For the purposes of this Contract, a “change in control” with respect to the
Subscribing Reinsurer shall mean that a Person has entered into an agreement or
understanding to purchase, sell or otherwise obtain (whether by stock or asset
purchase, bulk reinsurance, merger, consolidation or otherwise, in one or a series of
transactions), or has so purchased, sold or otherwise transferred or obtained, a
controlling interest in the Subscribing Reinsurer. Without limiting the foregoing, a
Person shall be deemed to have a controlling interest in the Subscribing Reinsurer if such Person owns, controls or holds an ownership interest in the Subscribing
Reinsurer of at least 20%. For the purposes of this paragraph, a “Person” means an
individual, corporation, limited liability company, partnership, association, trust,
unincorporated entity or governmental entity; or
	 
	 	7.	 	The Subscribing Reinsurer’s A.M. Best’s financial strength rating has been
assigned or downgraded below A- or Standard and Poor’s financial strength rating has
been assigned or downgraded below A-; or
	 
	 	8.	 	As respects a Subscribing Reinsurer who is subject to an Authorized Control
Level Risk-Based Capital Requirement, such Subscribing Reinsurer fails to maintain its
surplus at a level of at least 200% of the Subscribing Reinsurer’s Authorized Control
Level Risk-Based Capital; or
	 
	 	9.	 	The Subscribing Reinsurer announces intentions to cease assumed reinsurance
underwriting operations; or
	 
	 	10.	 	The Subscribing Reinsurer voluntarily ceases assumed reinsurance underwriting
operations; or
	 
	 	11.	 	The Subscribing Reinsurer has reinsured its entire liability under this
Contract; or
	 
	 	12.	 	The Subscribing Reinsurer, directly or through the actions of a parent company
or an affiliated entity, has or has attempted to assign, novate or transfer the
Subscribing Reinsurer’s rights and/or obligations under this Contract, including any
attempted transfer of rights and/or obligations under any U.S. or foreign statute,
legislation or jurisprudence, without the Company’s prior written consent; or






	 	 	 	 	 	 	 

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	 	13.	 	The Subscribing Reinsurer, directly or through the actions of a parent company
or an affiliated entity, has invoked any U.S. or foreign statute, legislation or
jurisprudence which purports to enable the Subscribing Reinsurer to require the Company
to settle its claims liabilities, including but not limited to any estimated or
undetermined claims liabilities under this Contract, on an accelerated basis. This
does not include any attempt to enforce a settlement of claims liabilities under a
commutation process to which the parties have agreed; or






	 	14.	 	There is 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 Subscribing 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.






	B.	 	If one or more of the circumstances in paragraphs A.1 through A.14 occur (a “Trigger Event”),
the Subscribing Reinsurer shall provide the Company with written notice within five (5)
business days from the happening of a Trigger Event. Following the earlier of (1) the
Company’s receipt of notice of a Trigger Event from the Subscribing Reinsurer and (2) the occurrence of a Trigger Event, the Company may
terminate this Contract, upon thirty (30) days written notice to the Subscribing Reinsurer,
except in connection with a Trigger Event described in paragraph A.1, A.2 or A.14, in which
case the Company may terminate immediately.






	C.	 	Irrespective of the Subscribing Reinsurer’s failure to provide the Company with timely
written notice of the happening of a Trigger Event, upon occurrence of a Trigger Event, the
Company may terminate this Contract at any time, upon thirty (30) days written notice to the
Subscribing Reinsurer, except in connection with a Trigger Event described in paragraph A.1,
A.2 or A.14, in which case the Company may terminate immediately. No failure or delay by the
Company in exercising its option under this paragraph will operate as a waiver thereof.






	D.	 	Termination under this Article can be made after the date of expiration of this Contract.






	E.	 	If this Contract is terminated under this Article, this Contract shall remain in full force
and effect as respects the Company’s and the Subscribing Reinsurer’s respective rights and
obligations, prior to the effective date and time of termination. The coverage afforded by
this Contract shall cease as of the date and time of termination and the Subscribing Reinsurer
shall return the unearned premium, if any, within fifteen (15) days of the termination date,
and the minimum premium, if any, shall be prorated. If coverage hereunder terminates while a
claim covered by this Contract is in progress, the Subscribing Reinsurer shall be liable,
subject to all conditions hereof, for its proportion of the entire claim, provided the event
giving rise to the claim started before such termination.







	 	 	 	 	 	 	 

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	F.	1.	 	 If the Company elects to terminate this Contract under this Article, the Company may also
elect to commute this Contract. Such election to commute shall be made either within the
written thirty (30) day notice to the Subscribing Reinsurer of the Company’s intention to
terminate this Contract, or by written notice thereafter. If the Company elects to commute,
the Subscribing Reinsurer has the option to provide security for its Obligations (as defined
herein), as an alternative to commutation. The Subscribing Reinsurer shall notify the Company
of its decision to provide security for its Obligations under this Contract within fifteen
(15) business days of the receipt of written notice of the Company’s election to commute. If
the Subscribing Reinsurer elects to provide security for its Obligations, the Company shall
provide the Subscribing Reinsurer with a written statement of the Subscribing Reinsurer’s
share of all paid recoverables, case reserves, loss adjustment expenses, incurred but not
reported losses, reserves for unearned premium, and ceding commissions due under this Contract
prior to the effective date and time of termination (collectively “Obligations”). Within
fifteen (15) days of the Subscribing Reinsurer’s receipt of such statement, the Subscribing
Reinsurer shall collateralize all unfunded Obligations by securing clean, irrevocable, and
unconditional Letters of Credit, payable exclusively to the Company (or at the Company’s request,
payable to any affiliates of the Company covered under this Contract) and issued by
a bank acceptable to the Company. At the Company’s request, the Subscribing
Reinsurer shall agree to provide a separate Letter of Credit for each Legal Entity.






	 	2.	 	Any Letters of Credit secured by the Subscribing Reinsurer shall be issued for
a period of not less than one year, and shall be automatically extended for one year
from their dates of expiration or any future expiration dates, unless sixty (60) days
prior to any expiration date the issuing bank shall notify the Company or a Legal
Entity, as applicable, by certified mail that the issuing bank elects not to extend any
Letter of Credit for any additional period.
	 
	 	3.	 	The Subscribing Reinsurer and the Company agree that the Letters of Credit
provided by the Subscribing Reinsurer, pursuant to the provisions of this Article,
may be drawn upon at any time, notwithstanding any other provision of this Contract,
and be utilized by the Company a Legal Entity or any successor, by operation of law,
of the Company or a Legal Entity, including without limitation, any liquidator,
rehabilitator, receiver, or conservator of the Company or a Legal Entity, without
diminution because of the insolvency of the Company or a Legal Entity, or the
Subscribing Reinsurer for one or more of the following purposes:






	 	a.	 	To pay or reimburse the Company or a Legal Entity for:






	 	i.	 	The Subscribing Reinsurer’s share under this
Contract of premiums returned, but not yet recovered from the
Subscribing Reinsurer, to the owners of Policies reinsured under this
Contract due to cancellations of such Policies; and






	 	 	 	 	 	 	 

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	 	ii.	 	The Subscribing Reinsurer’s share, under this
Contract, of surrenders and benefits or liabilities paid by the
Company or a Legal Entity, but not yet recovered from the Subscribing
Reinsurer, under the terms and provisions of the Policies reinsured
under this Contract; and
	 
	 	iii.	 	Any other amounts necessary to secure the
credit or reduction from liability for reinsurance taken by the
Company or a Legal Entity.






	 	b.	 	Where the Letters of Credit will expire without renewal or be
reduced or replaced by Letters of Credit for a reduced amount and where the
Subscribing Reinsurer’s Obligations under this Contract remain unliquidated
and undischarged ten (10) days prior to the expiration of the Letter of
Credit, to withdraw amounts equal to the Subscribing Reinsurer’s Obligations,
to the extent that the liabilities have not yet been funded by the
Subscribing Reinsurer and exceed the amount of any reduced or replacement
Letters of Credit.






	 	c.	 	If the Company has concluded that the issuing bank’s
financial condition is such that the value of the security represented by the
Letter of Credit may be in jeopardy, the Company or a Legal Entity, as
applicable, may require that a replacement Letter of Credit be issued by a
bank acceptable to the Company, by providing the Subscribing Reinsurer with
written notice requesting such replacement Letter of Credit. If the
Subscribing Reinsurer fails to provide acceptable replacement security within
ten (10) business days following receipt of the Company’s notice, the Company
or a Legal Entity may draw upon the existing Letter of Credit in amounts
equal to the Subscribing Reinsurer’s Obligations.






	 	d.	 	If the Company or a Legal Entity draws on the Letter of
Credit to obtain a cash advance, under paragraphs F.3.b or F.3.c, the Company
or the Legal Entity, as applicable, will hold the amount of the cash advance
so obtained in trust in the name of the Company in any qualified United
States financial institution as defined by the Insurance Law of the Company’s
or Legal Entity’s domiciliary state, solely to secure the Obligations and for
the use and purposes enumerated above. The Company or the Legal Entity, as
applicable, will return any balance to the Subscribing Reinsurer upon the
complete and final liquidation and discharge of all of the Subscribing
Reinsurer’s Obligations to the Company under this Contract or in the event
the Subscribing Reinsurer provides alternative or replacement security
consistent with the terms hereof and acceptable to the Company.






	G.	 	If the Company elects to commute this Contract and the Subscribing Reinsurer does not fund
its Obligations under this Contract, then:







	 	 	 	 	 	 	 

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	 	1.	 	The Company shall submit a statement of valuation showing the Subscribing
Reinsurer’s liability for loss(es), whether reported or unreported, comprising the
sum total of the present value of the ceded: (a) case reserves and allocated loss
adjustment expense, (b) projected ultimate losses, (c) any unearned premium reserve,
and (d) undiscounted outstanding paid claims (hereinafter the “Commutation Losses”),
on 






	 	 	 	Policies covered by this Contract as of the effective date and time of
termination. If the Subscribing Reinsurer agrees with the statement of valuation,
the Subscribing Reinsurer shall pay the amount requested within ten (10) days of
receipt of the statement of valuation.






	 	2.	 	In determining the commutation value, the Company and the Subscribing
Reinsurer shall utilize the assumptions and methodologies set forth in the
Commutation Article of this Contract. In the event the Company and the Subscribing
Reinsurer cannot agree on the statement of valuation of the Subscribing Reinsurer’s
liability under such Policies, either party may request in writing that the
differences be settled by a panel of three actuaries. Each party shall appoint an
actuary to assess such liability within fifteen (15) days after receipt of the written request for commutation.
Upon such appointment, the two actuaries shall appoint a third actuary. If the
two actuaries fail to agree on the third actuary within thirty (30) days of their
appointment, each of them shall nominate three individuals, of whom the other
shall decline two, and the final decision shall be made by drawing lots.
	 
	 	3.	 	The actuaries shall then investigate and Capitalize such Commutation Loss(es)
within thirty (30) days. As used herein, “Capitalize” shall mean to determine the
present value of Commutation Losses, without regard to the Subscribing Reinsurer’s
ability to pay such losses. In making this determination, the actuaries shall
utilize the assumptions and methodologies set forth in the Commutation Article of
this Contract. The panel shall meet in Boston, Massachusetts, unless the Company and
the Subscribing Reinsurer agree otherwise.
	 
	 	4.	 	All actuaries shall be disinterested in the outcome of the commutation and
shall be Fellows of the Society of Actuaries/Fellows of the Casualty Actuarial
Society. Except as stated below, the expense of the actuaries and of the commutation
shall be equally divided between the parties of the commutation.
	 
	 	5.	 	The decision in writing of the actuaries, when filed with the parties hereto,
shall be final and binding, except that if the Company does not agree with the
Capitalized value of the Commutation Loss(es), the Company shall have no obligation
to commute. In the event the Company does not agree with the Capitalized value of
the Commutation Loss(es) and does not move forward with commutation, the Company will
pay the expense of the actuaries including reasonable expense of the actuary
appointed by the Subscribing Reinsurer.






	 	 	 	 	 	 	 

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	 	6.	 	If the Contract is commuted, payment by the Subscribing Reinsurer to the
Company or any other third party mutually agreed upon by the Subscribing Reinsurer
and the Company shall constitute a complete and final release of the Subscribing
Reinsurer in respect to its liability under this Contract.
	 
	 	7.	 	The commutation process described in this Article shall not be subject to any
other dispute resolution process, including but not limited to the Arbitration Article
of this Contract.





ARTICLE 32 — REINSURER CLAIMS OBLIGATIONS (LM-03100-2008.07.21-A) (AM)



It is understood and agreed that the Subscribing Reinsurer will fulfill its obligations under
the Loss Adjustment and Settlement Article, until all claims have been reported and settled.
Without first obtaining the Company’s written consent, the Subscribing Reinsurer will not, either
directly or as the result of an action of a parent company or an affiliated entity, invoke any U.S.
or foreign statute, legislation, or jurisprudence that purports to enable the Subscribing Reinsurer
to require the Company or a Legal Entity to settle their claims liabilities, including but not limited to any estimated or undetermined claims
liabilities, under this Contract on an accelerated basis. If the Subscribing Reinsurer has
provided collateral relating to this Contract and the Subscribing Reinsurer attempts to require the
Company or a Legal Entity to settle their claims liabilities on an accelerated basis, the Company
shall have the right to utilize or to draw upon Letters of Credit or other collateral, under the
terms of this Contract, or as otherwise agreed between the Subscribing Reinsurer and the Company.
This Article does not prevent the Company and the Subscribing Reinsurer from settling any claims
liabilities using a commutation process that is agreeable to both parties. This Article shall in
no way affect the rights and obligations of the Company and the Subscribing Reinsurer under the
Insolvency Article.




ARTICLE 33 — WORKERS COMPENSATION SECURITY DEPOSIT (LM-03700-2009.09.17-W)



(This Article applies only with respect to Subscribing Reinsurers admitted to transact Workers
Compensation reinsurance business in the State of California or desiring to reinsure the
injury, disablement, or death portions of Policies of Workers Compensation insurance, in the
State of California, under the class of disability insurance.)





	A.	 	Subject to the Subscribing Reinsurer’s right to determine the validity of California Workers
Compensation claims and obligations (and contest the payment thereof) under and subject to the
other provisions of this Contract, in the event of a delinquency proceeding, receivership or
insolvency of the Company, the Commissioner of Insurance for the State of California
(“Commissioner”) shall have the right to draw upon the funds the Subscribing Reinsurer shall
have deposited as security pursuant to California Insurance Code section 11691 and that are
necessary for the Commissioner to pay those reinsured claims and obligations, or to ensure
their payment by the California Insurance Guarantee Association, deemed by the Commissioner
due under this Contract, upon failure of the 






	 	 	 	 	 	 	 

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	 	 	the Subscribing Reinsurer for any reason to make
payments under this Contract, all in accordance with section 11691 and section 11693 of the
California Insurance Code (“Security Deposit”).
	 
	B.	 	The Commissioner shall provide the Subscribing Reinsurer a minimum of thirty (30) days prior
notice of its intent to draw upon the Security Deposit of the Reinsurer to pay
claims and obligations owed to claimants under the Policies covered hereunder. Prior to
drawing upon the Subscribing Reinsurer’s Security Deposit, the Commissioner shall provide the
Subscribing Reinsurer with an explanation of the procedures the Subscribing Reinsurer may use
to explain why the use of the Subscribing Reinsurer’s Security Deposit may not be appropriate
under this Contract.






	C.	 	This Article shall be read in conjunction with the provisions of the Insolvency Article.






	D.	 	The Company shall keep the Subscribing Reinsurer reasonably apprised of the amount of loss
and loss adjustment expense reserves ceded under this Contract arising from injuries (including death) to California employees of risks insured for Workers
Compensation business covered under this Contract.






	 	 	 	 	 	 	 

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EXHIBIT A




FIRST WORKERS’ COMPENSATION

CATASTROPHE EXCESS OF LOSS REINSURANCE

$100,000,000 excess $100,000,000 (ALL PERILS)



SECTION 1- LIMIT AND RETENTION





	A.	 	Under this Exhibit the Subscribing Reinsurer shall be liable for the Ultimate Net Loss in
excess of $100,000,000 each Loss Occurrence (regardless of the number of Policies under which
such loss is payable or the number of different interests insured) subject to a limit of
$100,000,000 each Loss Occurrence. The maximum contribution to the Ultimate Net Loss shall be
limited to a maximum per life recovery of $10,000,000 (discounted to net present value in
accordance with the provisions of the Commutation Article).






	B.	 	Notwithstanding the Subscribing Reinsurer’s liability on each Loss Occurrence, the
Subscribing Reinsurer’s liability shall further be limited to $200,000,000 for all such loss
occurrences recoverable during the term of this Contract.





SECTION 2 — PREMIUM, REPORTS AND REMITTANCE





	A.	 	The term “gross net written premium” shall mean gross written premiums less return premiums
for cancellations and reductions in rates and less premium paid for reinsurance inuring to the
Subscribing Reinsurer’s benefit, if any.






	B.	 	The Company shall pay a Quarterly Deposit Premium equal to 1/4 of 100% of the Annual Deposit
Premium, to be remitted on January 1, April 1, July 1 and October 1, 2010, according to the
table below. The Company shall submit a finalized statement to the Subscribing Reinsurer,
summarizing the actual gross net written premium, as defined herein, for the term of this
Contract. The difference between the Annual Deposit Premium and the actual premium due will
be settled to/from the Company within ninety (90) days following the termination or expiration
of this Contract, however, in no event shall the final premium due be less than the Annual
Minimum Premium as set forth in the table below, nor shall a settlement be made if the final
premium due is greater or less than 1.0% of the Annual Deposit Premium, or plus or
minus $30,770.








	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Annual Deposit	 	Quarterly Deposit	 	Annual Minimum	 	Gross Net
	Layer	 	Premium	 	Premium	 	Premium	 	Premium Rate
	First
	 	$	3,077,000	 	 	$	769,250	 	 	$	2,769,300	 	 	 	.340	%






SECTION 3 — REINSTATEMENT





	A.	 	If all or any portion of the coverage limit under this Exhibit is reduced by a Loss
Occurrence, the amount that coverage limit is reduced is automatically reinstated from the
time of the Loss Occurrence. The Company shall pay to the Subscribing Reinsurer reinstatement
premium calculated at one hundred percent (100%) of the 







	 	 	 	 	 	 	 

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	 	 	deposit premium under this Exhibit,
multiplied by the percentage of the original $100,000,000 limits being reinstated.
	 
	B.	 	Regardless of the number of reinstatements under this Exhibit, the Subscribing Reinsurer’s
liability shall not exceed $200,000,000 in the aggregate for all Loss Occurrences during the
term of this Contract.
	 
	C.	 	In the event of a paid loss hereunder, there shall be simultaneous settlement of
reinstatement premium by the Company. In the event a reinstatement premium is paid prior to
the calculation of the annual premium in accordance with the first paragraph of SECTION 2 of
this Exhibit, the reinstatement premium shall be provisionally calculated upon the deposit
premium and adjusted subsequently when the premium adjustment is made.






	 	 	 	 	 	 	 

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EXHIBIT B




SECOND WORKERS’ COMPENSATION

CATASTROPHE EXCESS OF LOSS REINSURANCE

$100,000,000 excess $200,000,000 (ALL PERILS)



SECTION 1 — LIMIT AND RETENTION





	A.	 	Under this Exhibit the Subscribing Reinsurer shall be liable for the Ultimate Net Loss in
excess of $200,000,000 each Loss Occurrence (regardless of the number of policies under which
such loss is payable or the number of different interests insured) subject to a limit of
$100,000,000 each Loss Occurrence. The maximum contribution to the Ultimate Net Loss shall be
limited to a maximum per life recovery of $10,000,000 (discounted to net present value in
accordance with the provisions of the Commutation Article).
	 
	B.	 	Notwithstanding Subscribing Reinsurer’s liability on each Loss Occurrence, Subscribing
Reinsurer’s liability shall further be limited to $200,000,000 for all such loss occurrences
recoverable during the term of this Contract.





SECTION 2 — PREMIUM, REPORTS AND REMITTANCE





	A.	 	The term “gross net written premium” shall mean gross written premiums less return premiums
for cancellations and reductions in rates and less premium paid for reinsurance inuring to the
Subscribing Reinsurer’s benefit, if any.
	 
	B.	 	The Company shall pay a Quarterly Deposit Premium equal to 1/4 of 100% of the Annual Deposit
Premium, to be remitted on January 1, April 1, July 1 and October 1, 2010, according to the
table below. The Company shall submit a finalized statement to the Subscribing Reinsurer,
summarizing the actual gross net written premium, as defined herein, for the term of this
Contract. The difference between the Annual Deposit Premium and the actual premium due will
be settled to/from the Company within ninety (90) days following the termination or expiration
of this Contract, however, in no event shall the final premium due be less than the Annual
Minimum Premium as set forth in the table below, nor shall a settlement be made if the final
premium due is greater or less than 1.0% of the Annual Deposit Premium, or plus or
minus $18,460.







	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Annual Deposit	 	Quarterly Deposit	 	Annual Minimum	 	Gross Net
	Layer	 	Premium	 	Premium	 	Premium	 	Premium Rate
	First
	 	$	1,846,000	 	 	$	461,500	 	 	$	1,661,400	 	 	 	.204	%






SECTION 3 — REINSTATEMENT





	A.	 	If all or any portion of the coverage limit under this Exhibit is reduced by a Loss
Occurrence, the amount that coverage limit is reduced is automatically reinstated






	 	 	 	 	 	 	 

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	 	 	from the
time of the Loss Occurrence. The Company shall pay to the Subscribing Reinsurer reinstatement
premium calculated at one hundred percent (100%) of the deposit premium under this Exhibit,
multiplied by the percentage of the original $100,000,000 limits being reinstated.






	B.	 	Regardless of the number of reinstatements under this Exhibit, the Subscribing Reinsurer’s
liability shall not exceed $200,000,000 in the aggregate for all Loss Occurrences during the
term of this Contract.
	 
	C.	 	In the event of a paid loss hereunder, there shall be simultaneous settlement of
reinstatement premium by the Company. In the event a reinstatement premium is paid prior to
the calculation of the annual premium in accordance with the first paragraph of SECTION 2 of
this Exhibit, the reinstatement premium shall be provisionally calculated upon the deposit
premium and adjusted subsequently when the premium adjustment is made.







	 	 	 	 	 	 	 

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WAR AND TERRORISM EXCLUSION ENDORSEMENT (NBCR) (LM-03200-2008.08.06-W)



Notwithstanding any provision to the contrary within this reinsurance or any endorsement
thereto it is agreed that this reinsurance excludes all actual or alleged losses, liabilities,
damage, injuries, defense costs, costs or expense(s) directly or indirectly arising out of,
contributed by, caused by, resulting from, or in connection with any action taken in controlling,
preventing, suppressing, retaliating against, or responding to any of the following regardless of
any other cause or event contributing concurrently or in any other sequence to the loss:





	(1)	 	War, invasion, acts of foreign enemies, hostilities or warlike operations (whether war be
declared or not), civil war, mutiny, revolution, rebellion, insurrection, uprising, military
or usurped power, confiscation by order of any public authority or government de jure or de
facto, martial law; or
	 
	(2)	 	A “Certified Act of Terrorism” under the terms of the Terrorism Risk Insurance Act of 2002,
as amended by the Terrorism Risk Insurance Extension Act of 2005 and the Terrorism Risk
Insurance Program Reauthorization Act of 2007 hereafter (“TRIA”) but only if one or more of
the following are attributable to such Certified Act of Terrorism:






	 	a.	 	It involves the use, release or escape of nuclear materials, or
directly or indirectly results in nuclear reaction or radiation or radioactive
contamination; or
	 
	 	b.	 	It is carried out by means of the dispersal or application of
pathogenic or poisonous biological or chemical materials; or
	 
	 	c.	 	Pathogenic or poisonous biological or chemical materials are
released, and it appears that one purpose of the Certified Act of Terrorism was
to release such materials.




“Certified Act of Terrorism” shall have the meaning currently set forth in Section 102(1)(A) of
TRIA or as hereafter amended.








	 	 	 	 	 	 	 

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INTERESTS AND LIABILITIES AGREEMENT




(hereinafter referred to as the “Agreement”)



to the



WORKERS’ COMPENSATION CATASTROPHE EXCESS OF LOSS REINSURANCE

CONTRACT No. 2010300

(hereinafter referred to as the “Contract”)



between



PEERLESS INSURANCE COMPANY

(hereinafter referred to as the “Company”)



and



LIBERTY MUTUAL INSURANCE COMPANY

(hereinafter referred to as the “Subscribing Reinsurer”)


It is hereby agreed by and between the Company on the one part and the Subscribing Reinsurer on the
other part that the Subscribing Reinsurer’s share in the interests and liabilities of the
reinsurers as set forth in the attached Workers’ Compensation Catastrophe Excess of Loss
Reinsurance Contract No. 2010300, effective 12:01 a.m., Local Standard Time, January 1, 2010, to
which this Agreement is attached shall be for:





	 	 	 	Exhibit A — First Excess of Loss      —  	55.00%
	 
	 	 	 	Exhibit B — Second Excess of Loss  —    	55.00%




The share of the Subscribing Reinsurer in the interests and liabilities of all reinsurers
participating in said Contract shall be separate and apart from the shares of such other reinsurers
to the said Contract. The interests and liabilities of the Subscribing Reinsurer shall not be
joint with those of the other reinsurers and in no event shall the Subscribing Reinsurer
participate in the interests and liabilities of the any other reinsurers participating in said
Contract.




	 	 	 	 	 

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	 	 	 	January 1, 2010






 









 





IN WITNESS WHEREOF, the parties hereto have caused this Agreement and the attached Workers’
Compensation Catastrophe Excess of Loss Reinsurance Contract to be executed in duplicate by their
respective duly authorized officers;



In Keene, New Hampshire, this 26th day of April, 2010, for and on
behalf of:




	 	 	 	 	 

	ATTEST:

	 	PEERLESS INSURANCE COMPANY
	 	 
	 
	 	 	 	 
	/s/ Daniel P. Baker

	 	/s/ Nancy C. Callender	 	 
	 

	 	 	 	 
	Signature

	 	Signature	 	 
	 
	 	 	 	 
	Daniel P. Baker

	 	Nancy C. Callender	 	 
	 

	 	 	 	 
	Name

	 	Name	 	 
	 
	 	 	 	 
	AM VP-Mgr. Financial Services

	 	AM AVP- MGr. Reinsurance Mgmt.	 	 
	 

	 	 	 	 
	Title

	 	Title	 	 





And in Boston, Massachusetts, this 3rd day of May, 2010, for and on
behalf of:




	 	 	 	 	 

	ATTEST:

	 	LIBERTY MUTUAL INSURANCE COMPANY
	 	 
	 
	 	 	 	 
	/s/ Lauren H. Covert

	 	/s/ Elaine Caprio Brady	 	 
	 

	 	 	 	 
	Signature

	 	Signature	 	 
	 
	 	 	 	 
	Lauren H. Covert

	 	Elaine Caprio Brady	 	 
	 

	 	 	 	 
	Name

	 	Name	 	 
	 
	 	 	 	 
	Director of Ceded Reinsurance

	 	VP & Manager of Ceded Reinsurance	 	 
	 

	 	 	 	 
	Title

	 	Title	 	 






	 	 	 	 	 

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	 	 	 	Agreement attaching to the
	 

	 	 	 	Reinsurance Contract No. 2010300 —
	 

	 	 	 	January 1, 2010