Exhibit
10.47


 


Excess
Workers’ Compensation

Reinsurance Contract

Effective: January 1, 2005


 


issued to


 


AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida


 





 





















 


Table of
Contents


 


	
   

  	
   

  	
  Page

  
	
  Article

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  I

  	
   

  	
  Classes of Business
  Reinsured

  	
  1

  
	
  II

  	
   

  	
  Commencement and Termination

  	
  1

  
	
  III

  	
   

  	
  Special Termination

  	
  2

  
	
  IV

  	
   

  	
  Territory (BRMA 51A)

  	
  3

  
	
  V

  	
   

  	
  Exclusions

  	
  3

  
	
  VI

  	
   

  	
  Retention and Limit

  	
  7

  
	
  VII

  	
   

  	
  Reinstatement

  	
  7

  
	
  VIII

  	
   

  	
  Definitions

  	
  8

  
	
  IX

  	
   

  	
  Other Reinsurance

  	
  11

  
	
  X

  	
   

  	
  Federal Terrorism Recovery

  	
  11

  
	
  XI

  	
   

  	
  Annuities at Company’s
  Option

  	
  12

  
	
  XII

  	
   

  	
  Reports to the Reinsurer

  	
  12

  
	
  XIII

  	
   

  	
  Special Commutation

  	
  13

  
	
  XIV

  	
   

  	
  Subrogation

  	
  14

  
	
  XV

  	
   

  	
  Premium

  	
  15

  
	
  XVI

  	
   

  	
  Commission

  	
  16

  
	
  XVII

  	
   

  	
  Late Payments

  	
  16

  
	
  XVIII

  	
   

  	
  Offset and Security

  	
  17

  
	
  XIX

  	
   

  	
  Access to Records (BRMA 1D)

  	
  18

  
	
  XX

  	
   

  	
  Liability of the Reinsurer

  	
  18

  
	
  XXI

  	
   

  	
  Net Retained Lines (BRMA
  32E)

  	
  18

  
	
  XXII

  	
   

  	
  Errors and Omissions (BRMA
  14F)

  	
  19

  
	
  XXIII

  	
   

  	
  Currency (BRMA 12A)

  	
  19

  
	
  XXIV

  	
   

  	
  Taxes (BRMA 50B)

  	
  19

  
	
  XXV

  	
   

  	
  Federal Excise Tax

  	
  19

  
	
  XXVI

  	
   

  	
  Reserves

  	
  19

  
	
  XXVII

  	
   

  	
  Insolvency

  	
  21

  
	
  XXVIII

  	
   

  	
  Arbitration

  	
  22

  
	
  XXIX

  	
   

  	
  Service of Suit (BRMA 49C)

  	
  23

  
	
  XXX

  	
   

  	
  Material Changes

  	
  23

  
	
  XXXI

  	
   

  	
  Agency Agreement

  	
  24

  
	
  XXXII

  	
   

  	
  Governing Law (BRMA 71B)

  	
  24

  
	
  XXXIII

  	
   

  	
  Intermediary (BRMA 23A)

  	
  24

  
	
   

  	
   

  	
  Schedule A

  	
   

  



 





















 


Excess
Workers’ Compensation

Reinsurance Contract

Effective: January 1, 2005


 


issued to


 


AmCOMP Preferred Insurance Company

North Palm Beach, Florida
AmCOMP Assurance Corporation
North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the
AmCOMP Group
North Palm Beach, Florida
(hereinafter
referred to collectively as the “Company”)


 


by


 


The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the “Reinsurer”)


 


Article I - Classes of Business
Reinsured


 


By
this Contract the Reinsurer agrees to reinsure the excess liability which may
accrue to the Company under its policies, contracts and binders of insurance or
reinsurance (hereinafter called “policies”) in force at the effective date
hereof or issued or renewed on or after that date, and classified by the
Company as Workers’ Compensation and Employers Liability business, subject to
the terms, conditions and limitations set forth herein and in Schedule A
attached to and forming part of this Contract.


 


Article II - Commencement and
Termination


 


A.           This Contract shall become effective at 12:01 a.m., Eastern
Standard Time, January 1, 2005, with respect to losses arising out of
occurrences commencing on or after that date, and shall continue in force
thereafter until terminated.


 


B.             Either party may terminate this Contract on
any December 31 by giving the other party not less than 90 days prior
notice by certified mail.


 


C.             Unless the Company elects to reassume the
unearned reinsurance premium in force on the effective date of termination, and
so notifies the Reinsurer prior to or as promptly as possible after the
effective date of termination, reinsurance hereunder on business in force on
the effective date of termination shall remain in full force and effect until
expiration, cancellation or next premium anniversary of such business,
whichever first occurs, but in no


 


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event beyond 12 months, plus odd time (not to exceed 18 months in all),
following the effective date of termination.


 


D.            Notwithstanding the provisions above, in the event that any policy subject to this
Contract is required by statute, regulation or by order of an insurance
department to be continued in force, the Reinsurer agrees to extend reinsurance
coverage hereunder following the termination of this Contract with respect to
such policy until the first date that the Company may lawfully non-renew,
cancel or terminate such policy, whether or not the Company actually does
non-renew, cancel or terminate such policy. However, under no circumstances
shall runoff coverage under this paragraph exceed 23 months.


 


E.              “Contract year” as used herein shall mean the
period from January 1, 2005 through December 31, 2005, and each
subsequent 12-month period (or portion thereof) thereafter that this Contract
continues in force. If this Contract is terminated, the final contract year
shall be the period from the beginning of the then current contract year
through the effective date of termination if this Contract is on a “cutoff”
basis or through the end of the “runoff” period if this Contract is terminated
on a “runoff” basis.


 


Article III - Special Termination


 


A.           Notwithstanding the provisions of paragraph B of Article II,
either party may terminate this Contract at any time by giving the other party
not less than 30 days prior written notice in the event any of the following
circumstances occur (if terminated by either party, said termination shall be
on a “runoff” basis unless the Company elects to have such termination on a “cutoff”
basis; however, termination shall be on a cutoff basis if the Reinsurer
terminates because the Company has failed to pay premium):


 


1.               The other party’s policyholders’ surplus at
the beginning of any contract year has been reduced by more than 25.0% of the
amount of surplus 12 months prior to that date; or


 


2.               The other party’s policyholders’ surplus at
any time during any contract year has been reduced by more than 25.0% of the
amount of surplus at the date of the other party’s most recent financial
statement filed with regulatory authorities and available to the public as of
the beginning of the contract year; or


 


3.               The other party has become merged with,
acquired by or controlled by any other company, corporation or individual(s)
not controlling said party’s operations previously; or


 


4.               The purchase or sale of 51.0% or more of the
Company or its portfolio; or


 


5.               The State Insurance Department or other legal
authority in the other party’s state of domicile has ordered the other party to
cease writing business; or


 


6.               The other party has become insolvent or has
been placed into liquidation or receivership (whether voluntary or involuntary)
or proceedings have been instituted against the other party for the appointment
of a receiver, liquidator, rehabilitator, conservator or trustee in bankruptcy,
or other agent known by whatever name, to take possession of its assets or
control of its operations; or


 


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7.               The other party has ceased writing new and
renewal property and casualty business; or


 


8.               The Reinsurer may terminate if the Company
has failed to pay reinsurance premiums in accordance with this Contract; or


 


9.               A material change has occurred in any two of
the Company’s three senior officers (i.e., the Chief Executive Officer, the
President, or the Chief Financial Officer).


 


B.             Notwithstanding the provisions of paragraph B
of Article II, the Company may terminate a Subscribing Reinsurer’s
percentage share in this Contract by giving not less than 30 days prior written
notice to the Subscribing Reinsurer in the event the Subscribing Reinsurer’s A.M.
Best’s rating has been assigned or downgraded below A- (includes any “Not Rated”
rating) and/or Standard & Poor’s rating has been assigned or
downgraded below BBB+.


 


Article IV - Territory (BRMA 51A)


 


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


 


Article V - Exclusions


 


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


 


1.               Reinsurance assumed by the Company
under obligatory reinsurance agreements, except:


 


a.               Agency reinsurance where the policies
involved are to be reunderwritten in accordance with the underwriting standards
of the Company and reissued as Company policies at the next anniversary or
expiration date;


 


b.              Intercompany reinsurance between any of the
reinsured companies under this Contract.


 


2.               Ex-gratia payments.


 


3.               Risks subject to a deductible
in excess of $25,000, or a self-insured retention excess of $25,000, unless
such deductible or self-insured retention is otherwise mandated by statute or
regulatory authority.


 


4.               Nuclear risks as defined in the “Nuclear
Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)” and loss or
liability defined in the “Nuclear Incident Exclusion Clause - Reinsurance - No. 4”
attached to and forming part of this Contract.


 


5.               Pollution liability coverages excluded under
the provisions of the “Pollution Exclusion Clause - General Liability -
Reinsurance (BRMA 39C)” attached to and forming part of this Contract.


 


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6.               Liability as a member, subscriber or
reinsurer of any Pool, Syndicate or Association, but this exclusion shall not
apply to Assigned Risk Plans or similar state-mandated plans.


 


7.               All liability of the Company arising by
contract, operation of law, or otherwise, from its participation or membership,
whether voluntary or involuntary, in any insolvency fund. “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 of part or all of
any claim, debt, charge, fee or other obligation of an insurer, or its
successors or assigns, which has been declared by any competent authority to be
insolvent, or which is otherwise deemed unable to meet any claim, debt, charge,
fee or other obligation in whole or in part.


 


8.               Loss or liability as excluded in the “War
Risk Exclusion Clause (Reinsurance)” attached to and forming part of this
Contract.


 


9.               Operation under the jurisdiction of the
United States Longshore and Harbor Workers’ Compensation Act or the Jones Act,
except for incidental exposures (i.e., 10.0% or less of the insured’s estimated
payroll when the account is quoted).


 


10.         Operations employing the process of nuclear fission or fusion or
handling of radioactive material, which operations include but are not limited
to:


 


a.               The use of nuclear reactors such as
atomic piles, particle accelerators or generators; or


 


b.              The use, handling or
transportation of radioactive materials, or the use, handling or transportation
of any weapon of war or explosive device employing nuclear fission or fusion.


 


However, subparagraphs a and b above shall not apply to:


 


i.                  The exclusive use of particle accelerators
incidental to ordinary industrial or education research pursuits, or


 


ii.               The exclusive use, handling or transportation
of radioisotopes for medical or industrial use, or to radium or radium
compounds.


 


11.         Operation of docks or wharves as related to port authorities.


 


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


 


13.         Risks involving known exposure to the following substances:


 


a.                Dioxin;


 


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b.              Polychlorinated biphenols;


 


c.               Asbestos.


 


14.         All railway operations except sidetrack agreements.


 


15.         Amusement parks, carnivals or circuses. This exclusion shall not apply
to miniature golf courses or driving range operations.


 


16.         Subaquaeous operations.


 


17.         Underground mining; however, this exclusion shall not be
construed to apply to open pit-quarrying or “surface mining” operations.


 


18.         Blasting operations, except for incidental exposures (i.e., 10.0% or
less of the insured’s estimated payroll when the account is quoted).


 


19.         Demolition of buildings or structures in excess of five stories.


 


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


 


21.         Erection or repair of scaffolds if 10.0% or more of the insured’s
annual remuneration is attributed to NCCI Class Code 9529.


 


22.         Construction of tunnels or dams.


 


23.         Fireworks, fuses, or any explosive substance (as defined below) as
follows:


 


a.               Manufacturers or importers of such items;


 


b.              Loading of such items into
containers for use as explosive objects, propellant charges or detonation
devices and the storage thereof (except as previously provided for, on an
incidental basis, in exclusion 18);


 


c.               Manufacturers or importers of any product in which such items are an ingredient;


 


d.              Handling, storage, transportation or use of
such items (except as previously provided for, on an incidental basis, in
exclusion 18).


 


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


 


24.         Onshore and offshore gas and oil drilling operations.


 


25.         Operations where principal business includes the use of any owned or
unowned aircraft, or any device or machine intended for and/or aiding in the
achievement of atmospheric flight, projection or orbit, for flight, and/or the
ownership or operation of any airport. This exclusion shall not apply where
exposure is incidental


 


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(i.e., constitutes 10.0% or less of the insured’s payroll) to the principal
business operations and the aircraft contains eight seats or fewer.


 


26.         Municipal law enforcement organizations and municipal fire fighting
organizations, whether professional or voluntary.


 


27.         Logging or forestry operations.


 


28.         Professional employment organizations (PEO’s).


 


29.         Professional sports teams.


 


30.         Operations where the principal business of the risk is manufacturing,
production, distribution, refining or storage of natural or artificial fuel,
gas, butane, propane, liquefied petroleum gases or gasoline. This exclusion
shall not apply to any risk whose principal business operations are any of the
following:


 


a.               Retail gasoline service station, either full
or self service, or retail gasoline marina;


 


b.              Convenience store with gasoline sales with
its petroleum gas and/or storage tanks located below ground.


 


31.         Acts of terrorism, as defined in paragraph G of Article VIII, that
involve the following or preparation of the following:


 


a.               The use, release or escape of nuclear
materials, or that directly or indirectly result in nuclear reaction or
radiation or radioactive contamination; or


 


b.              That are carried out by means of the
dispersal or application of pathogenic or poisonous biological or chemical
materials and it appears that one purpose of the act of terrorism was to
release such materials.


 


B.             In the event the Company is inadvertently
bound on any risk which is excluded under subparagraph 9 or subparagraphs 14
through 30 of paragraph A above, the reinsurance provided under this Contract
shall apply on such risk until discovery by the Company of the existence of
such risk and for 30 days thereafter, or for a period of time specific to the
applicable state cancellation requirements, not to exceed 120 days. This
limitation shall not apply as respects Arizona. Coverage shall cease after such
time or at policy anniversary as respects Arizona policies, unless the Company
has received from the Reinsurer written notice of its approval of such risk
within 30 days.


 


C.             Notwithstanding the foregoing, any
reinsurance falling within the scope of one or more of the exclusions set forth
above that is specially accepted by the Reinsurer from the Company shall be
covered under this Contract and subject to all of the terms and conditions
hereof, except as such terms are modified by the special acceptance. In the
event a reinsurer becomes a party to this Contract subsequent to one or more
special acceptances hereunder, the new reinsurer shall automatically accept
such special acceptance(s) as being covered hereunder.


 


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Article VI - Retention and Limit


 


A.           As respects all losses subject hereto except losses arising out of an
occurrence of an act of terrorism, as respects each excess layer of reinsurance
coverage provided by this Contract, the Company shall retain and be liable for
the first amount of ultimate net loss (whether involving any one or any
combination of the classes of business covered hereunder, regardless of the
number of policies under which such loss is payable or the number of different
interests insured), shown as “Company’s Retention” for that excess layer in Schedule A
attached hereto, arising out of each occurrence. The Reinsurer shall then be
liable, as respects each excess layer, for the amount by which such ultimate
net loss exceeds the Company’s retention, but the liability of the Reinsurer
shall not exceed the amount, shown as “Reinsurer’s Per Occurrence Limit” for
that excess layer in Schedule A attached hereto, as respects any one occurrence.


 


B.             As respects losses arising out of an
occurrence of an act of terrorism, as respects each excess layer of reinsurance
coverage provided hereunder, the Company shall retain and be liable for the
first amount of ultimate net loss, shown as “Company’s Retention” for that
excess layer in Schedule A attached hereto, arising out of each
occurrence. The Reinsurer shall then be liable, as respects each excess layer,
for the amount by which such ultimate net loss exceeds the Company’s retention,
but the liability of the Reinsurer shall not exceed the amount shown as “Reinsurers
Terrorism Per Occurrence Limit” for that excess layer in Schedule A
attached hereto as respects any one occurrence of an act of terrorism, nor
shall it exceed the amount shown as “Reinsurer’s Contract Year Terrorism Limit”
for that excess layer in Schedule A attached hereto as respects loss or
losses arising out of all occurrences of acts of terrorism during any one
contract year.


 


C.             The Company deems that the maximum Employers
Liability policy limit subject hereto shall not exceed $1,000,000 for policies
issued in Texas and Illinois, or $2,000,000 for all other policies. Policy
limits in excess of the permissible amounts may be submitted by special
acceptance to the Reinsurer for coverage hereunder, subject to the provisions
of paragraph C of Article V.


 


Article VII - Reinstatement


 


A.           In the event all or any portion of the reinsurance under any excess
layer of reinsurance coverage provided by paragraph A of Article VI of
this Contract is exhausted by loss, the amount so exhausted shall be reinstated
immediately from the time the occurrence commences hereon.


 


1.               As respects each amount so reinstated under
the first excess layer, the Company shall pay no additional premium.


 


2.               As respects each amount so reinstated under
the second excess layer, the Company agrees to pay additional premium equal to
the product of the following:


 


a.               The percentage of the occurrence limit for
the second excess layer reinstated (based on the loss paid by the Reinsurer
under that excess layer); times


 


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b.              The earned reinsurance premium for the second
excess layer for the contract year (exclusive of reinstatement premium),


 


B.             Whenever the Company requests payment by the
Reinsurer of any loss under the second excess layer that triggers additional
reinstatement premium to be paid hereunder, the Company shall submit a
statement to the Reinsurer of reinstatement premium due the Reinsurer for that
excess layer. If the earned reinsurance premium for the second excess layer for
the contract year has not been finally determined as of the date of any such
statement, the calculation of reinstatement premium due for that excess layer
shall be based on the annual deposit premium for that excess layer and shall be
readjusted when the earned reinsurance premium for that excess layer for the
contract year has been finally determined. Any reinstatement premium shown to
be due the Reinsurer for the second excess layer as reflected by any such
statement (less prior payments, if any, for that excess layer) shall be payable
by the Company concurrently with payment by the Reinsurer of the requested loss
for that excess layer. Any return reinstatement premium shown to be due the Company
shall be remitted by the Reinsurer as promptly as possible after receipt and
verification of the Company’s statement.


 


C.             Notwithstanding anything stated herein, the
liability of the Reinsurer under the second excess layer of reinsurance
coverage provided by paragraph A of Article VI of this Contract shall not
exceed $5,000,000 as respects loss or losses arising out of any one occurrence,
nor shall it exceed $10,000,000 in all during any one contract year, further
subject to the “Reinsurer’s Contract Year Terrorism Limit.”


 


Article VIII - Definitions


 


A.           “Ultimate net loss” as used herein is defined as the sum or sums
(including loss in excess of policy limits, extra contractual obligations and
any loss adjustment expense, as hereinafter defined) paid or payable by the
Company in settlement of claims and in satisfaction of judgments rendered on
account of such claims, after deduction of all recoveries from subrogation, all
recoveries, and all claims on inuring insurance or reinsurance, whether
collectible or not. Nothing herein shall be construed to mean that losses under
this Contract are not recoverable until the Company’s ultimate net loss has
been ascertained.


 


B.             “Loss in excess of policy limits” and “extra
contractual obligations” as used herein shall be defined as follows:


 


1.               “Loss in excess of policy limits” shall mean
90.0% of any amount paid or payable by the Company in excess of its policy
limits, but otherwise within the terms of its policy, such loss in excess of
the Company’s policy limits having been incurred because of, but not limited
to, failure by the Company to settle within the policy limits or by reason of
the Company’s alleged or actual negligence or bad faith in rejecting an offer
of settlement or in the preparation of the defense or in the trial of an action
against its insured or reinsured or in the preparation or prosecution of an
appeal consequent upon such an action.


 


2.               “Extra contractual obligations” shall mean
90.0% of any punitive, exemplary, compensatory or consequential damages paid or
payable by the Company, not covered by any other provision of this Contract and
which arise from the handling of


 


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any claim on business subject to this Contract, such liabilities
arising because of, but not limited to, failure by the Company to settle within
the policy limits or by reason of the Company’s alleged or actual negligence or
bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of an action against its insured or reinsured or in the
preparation or prosecution of an appeal consequent upon such an action. An
extra contractual obligation shall be deemed, in all circumstances, to have
occurred on the same date as the loss covered or alleged to be covered under
the policy.


 


Notwithstanding anything stated herein, this Contract shall not apply
to any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act by
any officer or director of the Company acting individually or collectively or
in collusion with any individual or corporation or any other organization or
party involved in the presentation, defense or settlement of any claim covered
hereunder.


 


If any provision of this paragraph B 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.


 


C.             “Occurrence” as used herein is defined as an
accident or occurrence or a series of accidents or occurrences arising out of
or caused by one event, whether involving one or more of the Company’s
policies, except that:


 


1.               As respects Workers’
Compensation policies, each occupational or industrial disease or cumulative
injury case contracted by an employee of an insured shall be deemed to have
been caused by a separate occurrence commencing on:


 


a.               The date of disability for which
compensation is payable if the case is compensable under the Workers’
Compensation Law;


 


b.              The date disability due to the disease actually began if the
case is not compensable under the Workers’ Compensation Law; or


 


c.               The date of cessation of employment if claim is made after
employment has ceased.


 


2.               Notwithstanding the provisions of
subparagraph 1 above, as respects losses resulting from occupational disease
and cumulative trauma suffered by employees of an insured for which the
employer is liable as a result of a sudden and accidental event not exceeding
72 hours in duration, all such losses shall be considered one occurrence and
may be combined with losses not classified as occupational disease or
cumulative trauma which arise out of the same event and the combination of such
losses shall be considered as one occurrence within the meaning hereof.


 


3.               Notwithstanding the foregoing, the following
shall apply to occurrences involving natural disasters:


 


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a.               An occurrence shall be limited to damage,
injury or loss arising out of a natural disaster during any continuous 168 hour
period.


 


b.              The Company may choose the date and time when
such 168 hour period commences and if the occurrence is of greater duration
than 168 hours, the Company may divide such occurrence into two or more
occurrences, provided no two periods overlap and provided no period commences
earlier than the date and time of the first loss to the Company in such
occurrence.


 


c.               “Natural disaster” shall mean loss caused by
the perils of tornado, cyclone, windstorm, hurricane and hail arising from the
same atmospheric disturbance; earthquake, including ensuing fire, landslide,
mudslide, flood, tidal wave; volcanic eruptions; flood; tides; tidal wave;
landslide/mudslide; and meteors.


 


D.            “Occupational or industrial disease” shall
mean any abnormal condition that fulfills all of the following conditions:


 


1.               It is not traceable to a
definite compensable accident occurring during the employee’s present or past
employment; and


 


2.               It has been caused by exposure to a disease
producing agent or agents present in the workers’ occupational environment; and


 


3.               It has resulted in a disability or death.


 


E.              “Cumulative injury” is any injury that
fulfills all of the following conditions:


 


1.               It is not traceable to a definite compensable
accident occurring during the employee’s present or past employment; and


 


2.               It has occurred from, and has been aggravated
by, a repetitive employment-related activity; and


 


3.               It has resulted in a disability or death.


 


F.              “Loss adjustment expense” as used herein
shall mean expenses assignable to the investigation, appraisal, adjustment,
settlement, litigation, defense and/or appeal of specific claims, regardless of
how such expenses are classified for statutory reporting purposes. Loss
adjustment expense shall include, but not be limited to, interest on judgments,
expenses of outside adjusters and claim-specific declaratory judgment expenses
or other legal expenses and costs incurred in connection with coverage
questions and legal actions connected thereto, but shall not include office
expenses or salaries of the Company’s regular employees other than medical
management personnel whose cost the Company will bill to specific cases on a
time and expense basis.


 


G.             “Act of terrorism” as used herein shall
include all loss, cost or expense, including fire following, related directly
or indirectly from either:


 


1.               Any act of any person or persons either
acting on behalf of or in connection with any organization or group with
activities directed towards overthrowing, intimidating,


 


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coercing or influencing of any government de jure or de  facto or of its populous or its economic,
political or social systems, by force, violence, weapons of mass destruction,
the destruction, disruption or subversion of communication and information
system infrastructures and/or its content thereof, or sabotage, and/or threat
therefrom; or


 


2.               An act of terrorism that is certified by the
Secretary of Treasury, in concurrence with the Secretary of State and the
Attorney General of the United States.


 


Terrorism losses also include all actual or alleged losses,
liabilities, damages, injuries, defense costs, and costs or expenses 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 such acts.


 


Notwithstanding the above, in the event a loss occurs on business
subject hereunder which arises out of an act of workplace violence and is not
consistent with the provisions of subparagraphs 1 and 2 above, such loss shall be
covered hereunder, subject to the provisions of Article V and all other
provisions of this Contract and not considered an act of terrorism. Further,
any occurrence which is not or can not be determined, classified or certified
as per subparagraphs 1 and 2 above shall be covered hereunder and not
considered an act of terrorism.


 


H.            “Declaratory judgment expenses” as used
herein shall mean all expenses incurred by the Company in connection with
declaratory judgment actions brought to determine the Company’s defense and/or
indemnification obligations that are assignable to specific policies and claims
subject to this Contract. Declaratory judgment expenses shall be deemed to have
been incurred by the Company on the date of the original loss (if any) giving rise
to the declaratory judgment action. In the event there is no loss other than
declaratory judgment expenses with respect to any claim hereunder, such
expenses shall be deemed loss for purposes of this Contract.


 


Article IX - Other Reinsurance


 


A.           The Company shall be permitted to carry facultative reinsurance,
recoveries under which shall inure to the benefit of this Contract.


 


B.             The Company shall be permitted to carry
underlying quota share reinsurance and underlying excess reinsurance,
recoveries under which shall inure solely to the benefit of the Company and be
entirely disregarded in applying all of the provisions of this Contract.


 


Article X - Federal Terrorism Recovery


 


A.           Any loss reimbursement the Company receives from the United States
Government under the Terrorism Risk Insurance Act of 2002 (the “Terrorism Act”)
as a result of occurrences commencing during each contract year shall inure to
the benefit of this Contract in the proportion that the Company’s insured
losses (as defined in the Terrorism Act) in that occurrence under policies
reinsured under this Contract bear to the Company’s total insured losses in
that occurrence.


 


11





















 


B.             If a loss reimbursement received by the
Company under the Terrorism Act is based on the Company’s insured losses in
more than one occurrence and the United States Government does not designate
the amount allocable to each occurrence, the reimbursement shall be prorated in
the proportion that the Company’s insured losses in each occurrence bear to the
Company’s total insured losses arising out of all occurrences to which the
recovery applies.


 


Article XI - Annuities at Company’s
Option


 


A.           Whenever the Company is required, or elects, to purchase an annuity or
to negotiate a structured settlement in excess of the retention of this
Contract, either in satisfaction of a judgment or in an out-of-court settlement
or otherwise, the cost of the annuity or the structured settlement, as the case
may be, shall be deemed part of the Company’s ultimate net loss, provided such
annuity or structured settlement terms grant the Company full and final release
as respects the indemnity portion of the settlement. Additionally, it is the
Company’s intent to place all annuities or structured settlements with a
carrier whose A.M. Best’s rating is “A” or better.


 


B.             The terms “annuity” or “structured settlement”
shall be understood to mean any insurance policy, lump sum payment, agreement
or device of whatever nature resulting in the payment of a lump sum by the
Company in settlement of any or all future liabilities which may attach to it
as a result of an occurrence.


 


C.             In the event the Company purchases an annuity
which inures in whole or in part to the benefit of the Reinsurer, it is
understood that the liability of the Reinsurer is not released thereby. In the
event the Company is required to provide benefits not provided by the annuity
for whatever reason, the Reinsurer shall pay its proportional share of any
loss.


 


Article XII - Reports to the Reinsurer


 


A.           Whenever a claim or settlement by the Company hereunder is for an
amount greater than $1,000,000 and/or whenever a claim appears likely to result
in a claim under this Contract, the Company shall notify the Reinsurer.
Further, the Company shall notify the Reinsurer whenever a claim involves a
fatality, amputation, spinal cord damage, brain damage, blindness or extensive
burns, regardless of liability, including all subsequent developments. The
Reinsurer shall have the right to participate, at its own expense, in the
defense of any claim or suit or proceeding involving this reinsurance. The
Company shall also provide any additional information that from time to time
may be reasonably required by the Reinsurer to ascertain liability under this
Contract.


 


B.             All claim settlements made by the Company,
provided such settlements are within the terms of this Contract, shall be
binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for
which it is liable upon receipt of reasonable evidence of the amount paid by
the Company.


 


12





















 


Article XIII - Special Commutation


 


A.           In the event a Subscribing Reinsurer meets one or more of the following
conditions, the Company may require a commutation of that portion of any excess
loss hereunder represented by any outstanding claim or claims, including any
related loss adjustment expense.


 


1.               The Subscribing Reinsurer’s A.M. Best’s
rating has been assigned or downgraded below A- (including any “Not Rated”
rating) and/or Standard & Poor’s rating has been assigned or
downgraded below BBB+ (including any “Not Rated” rating); or


 


2.               The Subscribing Reinsurer has ceased assuming
new and renewal property and casualty treaty reinsurance business.


 


“Outstanding claim or claims” shall be defined as known or unknown
claims, including any billed yet unpaid claims. However, unless otherwise
mutually agreed, this paragraph A shall not apply unless the outstanding claim
or claims is for an amount not less than $5,000.


 


B.             If the Company elects to require commutation
as provided in paragraph A above, the Company shall submit a Statement of
Valuation of the outstanding claim or claims as of the last day of the month
immediately preceding the month in which the Company elects to require
commutation, as determined by the Company. Such Statement of Valuation shall
include the elements considered reasonable to establish the excess loss and
shall set forth or attach the information relied upon by the Company and the
methodology employed to calculate the excess loss. The Subscribing Reinsurer
shall then pay the amount requested within 30 calendar days of receipt of such
Statement of Valuation, unless the Subscribing Reinsurer needs additional
information from the Company to assess the Company’s Statement of Valuation or
contests such amount.


 


C.             If the Subscribing Reinsurer needs additional
information from the Company to assess the Company’s Statement of Valuation or
contests the amount requested, the Subscribing Reinsurer shall so notify the
Company within 15 calendar days of receipt of the Company’s Statement of
Valuation. The Company shall supply any reasonably requested information to the
Subscribing Reinsurer within 15 calendar days of receipt of the notification.
Within 30 calendar days of the date of the notification or of the receipt of
the information, whichever is later, the Subscribing Reinsurer shall provide
the Company with its Statement of Valuation of the outstanding claim or claims
as of the last day of the month immediately preceding the month in which the
Company elects to require commutation, as determined by the Subscribing
Reinsurer. Such Statement of Valuation shall include the elements considered
reasonable to establish the excess loss and shall set forth or attach the
information relied upon by the Subscribing Reinsurer and the methodology
employed to calculate the excess loss.


 


D.            If agreement, as outlined in paragraphs A, B
and C, cannot be reached, either party can abandon the commutation effort, or
the Company and the Subscribing Reinsurer may seek to settle any difference by
mutually appointing an independent actuary.


 


E.              If the parties cannot agree on an acceptable
independent actuary within 15 calendar days of the date of the Subscribing
Reinsurer’s Statement of Valuation, then each party shall appoint an actuary as
party arbitrators for the limited and sole purpose of selecting an


 


13





















 


independent actuary. If the actuaries cannot agree on an acceptable independent
actuary within 15 calendar days of the date of the Subscribing Reinsurer’s
Statement of Valuation, the Company shall supply the Subscribing Reinsurer with
a list of at least three proposed independent actuaries, and the Subscribing
Reinsurer shall select the independent actuary from that list.


 


F.              Upon selection of the independent actuary,
both parties shall present their respective written submissions to the
independent actuary. The independent actuary may, at his or her discretion,
request additional information. The independent actuary shall issue his or her
decision within 45 calendar days after the written submissions have been filed
and any additional information has been provided.


 


G.             The decision of the independent actuary shall
be final and binding. The expense of the independent actuary shall be equally
divided between the two parties. For the purposes of this Article, unless
mutually agreed otherwise, an “independent actuary” shall be an actuary who
satisfies each of the following criteria:


 


1.               Is regularly engaged in the valuation of
claims resulting from lines of business subject to this Contract; and


 


2.               Is either a Fellow of the Casualty Actuarial
Society or of the American Academy of Actuaries; and


 


3.               Is disinterested and impartial regarding this
commutation.


 


H.            Notwithstanding paragraphs A, B and C above,
in the event that the Subscribing Reinsurer no longer meets any of the
conditions specified in subparagraph 1 or 2 in paragraph A above, this
commutation may continue on a mutually agreed basis.


 


I.                 Payment by the Subscribing Reinsurer of the
amount requested in accordance with paragraph B, C or F above, shall release
the Subscribing Reinsurer from all further liability for outstanding claim or
claims, known or unknown, under this Contract and shall release the Company
from all further liability for payments of salvage or subrogation amounts,
known or unknown, to the Subscribing Reinsurer under this Contract.


 


J.                In the event of any conflict between this Article and
any other article of this Contract, the terms of this Article shall
control.


 


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


 


Article XIV - Subrogation


 


The
Reinsurer shall be credited with recoveries from subrogation (i.e.,
reimbursement obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and sums paid to
attorneys as retainer, of obtaining such reimbursement or making such recovery)
on account of claims and settlements involving reinsurance hereunder.
Recoveries therefrom shall always be used to reimburse the excess carriers in
the reverse order of their priority according to their participation before
being used in any way to reimburse the Company for its primary loss. The
Company hereby agrees to


 


14





















 


enforce
its rights to subrogation relating to any loss, a part of which loss was
sustained by the Reinsurer, and to prosecute all claims arising out of such
rights.


 


Article XV - Premium


 


A.           As promptly as possible after the effective date of this Contract, the
Company shall remit the Reinsurer’s share of the unearned premium (less
commission thereon) for each excess layer of reinsurance coverage provided by
this Contract applicable to subject business in force on the effective date of
this Contract.


 


B.             As premium for each excess layer of
reinsurance coverage provided by this Contract, the Company shall pay the
Reinsurer the greater of the following for each contract year:


 


1.               The amount (or pro rata portion thereof if
this Contract is terminated prior to the end of any 12-month contract year in
accordance with the provisions of Article III), shown as “Annual Gross
Minimum Premium” for that excess layer in Schedule A attached hereto; or


 


2.               The percentage, shown as “Gross Premium Rate”
for that excess layer in Schedule A attached hereto, of the Company’s net
written premium for the contract year.


 


C.             The Company shall pay the Reinsurer an annual
deposit premium for each excess layer of the amount, shown as “Annual Gross
Deposit Premium” for that excess layer in Schedule A attached hereto, in
four equal installments of the amount, shown as “Quarterly Gross Deposit
Premium” for that excess layer in Schedule A attached hereto, on January 1,
April 1, July 1 and October 1 of each contract year. However, no
deposit premium installments shall be due after the effective date of
termination.


 


D.            Within 60 days following the end of each
contract year and within 60 days following the 12-month period thereafter, the
Company shall provide a report to the Reinsurer setting forth the premium due
hereunder for each excess layer for the contract year, computed in accordance
with paragraph A, and any additional premium due the Reinsurer for each such
excess layer shall be remitted by the Company with its report. If the premium
so computed for any excess layer is less than the previously paid, but more
than the minimum premium, for that excess layer, the balance shall be returned
by the Reinsurer to the Company within 30 days of the report.


 


E.              “Net written premium” as used herein is
defined as the Company’s gross written premium for the classes of business
subject to this Contract, adjusted for experience modification, discounts,
credits, surcharges, expense constants and deductible credits, plus or minus
the Reinsurer’s pro rata share of any premium arising from audit adjustments,
minus cancellation and return premium, minus premiums paid for facultative
reinsurance which inures to the benefit of this Contract.


 


15





















 


Article XVI - Commission


 


A.           The Reinsurer shall allow the Company a 35.0% commission on all
premiums ceded to the Reinsurer hereunder. The Company shall allow the
Reinsurer return commission on return deposit premiums at the same rate.


 


B.             It is expressly agreed that the ceding commission allowed the Company includes provision for
all dividends, commissions, taxes, assessments, and all other expenses of
whatever nature, except loss adjustment expense.


 


Article XVII - Late Payments


 


A.           The provisions of this Article shall not be implemented unless
specifically invoked, in writing, by one of the parties to this Contract.


 


B.             In the event any premium, loss or other
payment due either party is not received by the intermediary named in Article XXXIII
(hereinafter referred to as the “Intermediary”) by the payment due
date, the party to whom payment is due may, by notifying the Intermediary in
writing, require the debtor party to pay, and the debtor party agrees to pay,
an interest penalty on the amount past due calculated for each such payment on
the last business day of each month as follows:


 


1.               The number of full days which have expired since the due date or the last
monthly calculation, whichever the lesser, times


 


2.               1/365ths of the six-month United States
Treasury Bill rate as quoted in The Wall
Street Journal on the first business day of the month for which the
calculation is made; times


 


3.               The amount past due,
including accrued interest.


 


It is agreed that interest shall accumulate until payment of the
original amount due plus interest penalties have been received by the
Intermediary.


 


C.             The establishment of the due
date shall, for purposes of this Article, be determined as follows:


 


1.               As respects the payment of routine deposits
and premiums due the Reinsurer, the due date shall be as provided for in the
applicable section of this Contract. In the event a due date is not
specifically stated for a given payment, it shall be deemed due 30 days after
the date of transmittal by the Intermediary of the initial billing for each
such payment.


 


2.               Any claim or loss payment due the Company
hereunder shall be deemed due 30 business days after the proof of loss and
demand for payment is transmitted to the Reinsurer. If such loss or claim
payment is not received within the 30 days, interest will accrue on the payment
or amount overdue in accordance with paragraph B above, from the date the proof
of loss and demand for payment was transmitted to the Reinsurer.


 


16





















 


3.               As respects any payment, adjustment or return
due either party not otherwise provided for in subparagraphs 1 and 2 above, the
due date shall be as provided for in the applicable section of this Contract.
In the event a due date is not specifically stated for a given payment, it
shall be deemed due 30 business days following transmittal of written
notification that the provisions of this Article have been invoked.


 


For purposes of interest
calculations only, amounts due hereunder shall be deemed paid upon receipt by
the Intermediary.


 


D.            Nothing herein shall be construed as limiting
or prohibiting a Subscribing Reinsurer from contesting the validity of any
claim, or from participating in the defense of any claim or suit, or
prohibiting either party from contesting the validity of any payment or from
initiating any arbitration or other proceeding in accordance with the
provisions of this Contract. If the debtor party prevails in an arbitration or
other proceeding, then any interest penalties due hereunder on the amount in
dispute shall be null and void. If the debtor party loses in such proceeding,
then the interest penalty on the amount determined to be due hereunder shall be
calculated in accordance with the provisions set forth above unless otherwise
determined by such proceedings. If a debtor party advances payment of any
amount it is contesting, and proves to be correct in its contestation, either
in whole or in part, the other party shall reimburse the debtor party for any
such excess payment made plus interest on the excess amount calculated in
accordance with this Article.


 


E.              Interest penalties arising out of the
application of this Article that are $50,000 or less from any party shall
be waived unless there is a pattern of late payments consisting of three or
more items over the course of any 12-month period.


 


Article XVIII - Offset and Security


 


A.           Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of premiums or losses or otherwise, due
from such party to another party under this Contract or any other reinsurance
contract heretofore or hereafter entered into between them, against any
amounts, whether on account of premiums or losses or otherwise due from the
latter party to the former party. The party asserting the right of offset may
exercise this right, whether as assuming or ceding insurer or in both roles in
the relevant agreement or agreements.


 


B.             Each party hereby assigns and pledges to the
other party (or to each other party, if more than one) all of its rights under
this Contract to receive premium or loss payments at any time from such other
party (“collateral”), to secure its premium or loss obligations to such other
party at any time under this Contract and any other reinsurance agreement
heretofore or hereafter entered into by and between them (“secured obligations”).
If at any time a party is in default under any secured obligation or shall be
subject to any liquidation, rehabilitation, reorganization or conservation
proceeding, each other party shall be entitled in its discretion, to apply, or
to withhold for the purpose of applying in due course, any collateral assigned
and pledged to it by the former party and otherwise to realize upon such
collateral as security for such secured obligations.


 


C.             The security interest described herein, and
the term “collateral,” shall apply to all payments and other proceeds in
respect of the rights assigned and pledged. A party’s security


 


17





















 


interest in collateral shall be deemed evidenced only by the
counterpart of this Contract delivered to such party.


 


D.            Each right under this Article is a
separate and independent right, exercisable, without notice or demand, alone or
together with other rights, in the sole election of the party entitled thereto,
and no waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article shall
survive any cancellation or other termination of this Contract.


 


E.              In the event of the insolvency of a party
hereto, offsets shall only be allowed in accordance with the laws of the
insolvent party’s state of domicile.


 


Article XIX - Access to Records (BRMA
1D)


 


The
Reinsurer or its designated representatives shall have access at any reasonable
time to all records of the Company which pertain in any way to this
reinsurance.


 


Article XX - Liability of the Reinsurer


 


A.           The liability of the Reinsurer shall follow that of the Company in
every case and be subject in all respects to all the general and specific
stipulations, clauses, waivers and modifications of the Company’s policies and
any endorsements thereon. However, in no event shall this be construed in any
way to provide coverage outside the terms and conditions set forth in this
Contract.


 


B.             Nothing herein shall in any manner create any
obligations or establish any rights against the Reinsurer in favor of any third
party or any persons not parties to this Contract.


 


Article XXI - Net Retained Lines (BRMA
32E)


 


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


 


B.             The amount of the Reinsurer’s liability
hereunder in respect of any loss or losses shall not be increased by reason of
the inability of the Company to collect from any other reinsurer(s), whether
specific or general, any amounts which may have become due from such
reinsurer(s), whether such inability arises from the insolvency of such other
reinsurer(s) or otherwise.


 


18





















 


Article XXII - Errors and Omissions
(BRMA 14F)


 


Inadvertent
delays, errors or omissions made in connection with this Contract or any
transaction hereunder shall not relieve either party from any liability which
would have attached had such delay, error or omission not occurred, provided
always that such error or omission is rectified as soon as possible after
discovery.


 


Article XXIII - Currency (BRMA 12A)


 


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


 


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


 


Article XXIV - Taxes (BRMA 50B)


 


In
consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.


 


Article XXV - Federal Excise Tax


 


A.           The Reinsurer has agreed to allow for the purpose of paying the Federal
Excise Tax the applicable percentage of the premium payable hereon (as imposed
under Section 4371 of the Internal Revenue Code) to the extent such
premium is subject to the Federal Excise Tax.


 


B.             In the event of any return of premium
becoming due hereunder the Reinsurer will deduct the applicable percentage from
the return premium payable hereon and the Company or its agent should take
steps to recover the tax from the United States Government.


 


Article XXVI - Reserves


 


(Applies
only to a reinsurer which (1) does not qualify for full credit with any
insurance regulatory authority having jurisdiction over the Company’s reserves,
or (2) which is or becomes rated “B++” or lower or holds a “Not Rated”
rating by A.M. Best or is or becomes rated BBB+ or lower by Standard &
Poor’s, unless the Reinsurer has an A.M. Best’s rating of “A” or Standard &
Poor’s rating of “A” and group policyholders’ surplus equal to or above
$2,000,000,000 at the inception of this Contract)


 


19





















 


A.           As regards policies or bonds issued by the Company 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
premiums (includes deposit premiums paid in excess of ceded premium earned by
the Reinsurer) and losses covered hereunder which it shall be required by law
to set up, it will forward to the Reinsurer a statement showing the proportion
of such reserves which is applicable to the Reinsurer. The Reinsurer hereby
agrees to fund such reserves in respect of ceded unearned premiums and known
outstanding losses that have been reported to the Reinsurer and allocated loss
adjustment expense relating thereto, losses and allocated loss adjustment
expense paid by the Company but not recovered from the Reinsurer, plus reserves
for losses and allocated loss adjustment expense incurred but not reported, as
shown in the statement prepared by the Company (hereinafter referred to as “Reinsurer’s
Obligations”) by Regulation 114 trust accounts, funds withheld, cash advances
or a Letter of Credit, or combination thereof. The Reinsurer shall have the
option of determining the method of funding provided it is acceptable to the
insurance regulatory authorities having jurisdiction over the Company’s
reserves.


 


B.             When funding by a Letter of Credit, the
Reinsurer agrees to apply for and secure timely delivery to the Company of a
clean, irrevocable and unconditional Letter of Credit issued by a bank meeting
the NAIC Securities Valuation Office credit standards for issuers of Letters of
Credit and containing provisions acceptable to the insurance regulatory
authorities having jurisdiction over the Company’s reserves in an amount equal
to the Reinsurer’s proportion of said reserves. Such Letter of Credit shall be
issued for a period of not less than one year, and shall contain an “evergreen”
clause, which automatically extends the term for one year from its date of
expiration or any future expiration date unless 30 days (60 days where required
by insurance regulatory authorities) prior to any expiration date the issuing
bank shall notify the Company by certified or registered mail that the issuing
bank elects not to consider the Letter of Credit extended for any additional
period.


 


C.             The Reinsurer and Company agree that the
Letters of Credit provided by the 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 any successor, by operation of
law, of the Company including, without limitation, any liquidator,
rehabilitator, receiver or conservator of the Company for the following
purposes, unless otherwise provided for in a separate Trust Agreement:


 


1.               To reimburse the Company for the Reinsurer’s
Obligations, the payment of which is due under the terms of this Contract and
which has not been otherwise paid;


 


2.               To make refund of any sum which is in excess
of the actual amount required to pay the Reinsurer’s Obligations under this
Contract, if so requested by the Reinsurer;


 


3.               To fund an account
with the Company for the Reinsurer’s Obligations. Such cash deposit shall be
held in an interest bearing account separate from the Company’s other assets,
and interest thereon not in excess of the prime rate shall accrue to the
benefit of the Reinsurer;


 


4.               To pay the
Reinsurer’s share of any other amounts
the Company claims are due under this Contract.


 


20





















 


In the event the amount drawn by the Company on any Letter of Credit is
in excess of the actual amount required for subparagraphs 1 or 3, or in the
case of subparagraph 4, the actual amount determined to be due, the Company
shall promptly return to the Reinsurer the excess amount so drawn. All of the
foregoing shall be applied without diminution because of insolvency on the part
of the Company or the Reinsurer.


 


D.            The issuing bank shall have no responsibility
whatsoever in connection with the propriety of withdrawals made by the Company
or the disposition of funds withdrawn, except to ensure that withdrawals are
made only upon the order of properly authorized representatives of the Company.


 


E.              At quarterly intervals and as an estimated
basis 45 days prior to each December 31, or more frequently as agreed but
never more frequently than quarterly, the Company shall prepare a specific
statement of the Reinsurer’s Obligations, for the sole purpose of amending the
Letter of Credit, in the following manner:


 


1.               If the statement shows that the Reinsurer’s
Obligations exceed the balance of credit as of the statement date, the
Reinsurer shall, within 30 days after receipt of notice of such excess, secure
delivery to the Company of an amendment to the Letter of Credit increasing the
amount of credit by the amount of such difference.


 


2.               If, however, the statement shows that the
Reinsurer’s Obligations are less than the balance of credit as of the statement
date, the Company shall, within 30 days after receipt of written request from
the Reinsurer, release such excess credit by agreeing to secure an amendment to
the Letter of Credit reducing the amount of credit available by the amount of
such excess credit.


 


Article XXVII - Insolvency


 


A.           In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the company or to its
liquidator, receiver, conservator or statutory successor on the basis of the
liability of the company without diminution because of the insolvency of the
company or because the liquidator, receiver, conservator or statutory successor
of the company has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the pendency of a
claim against the company indicating the policy or bond reinsured which claim
would involve a possible liability on the part of the Reinsurer within a
reasonable time after such claim is filed in the conservation or liquidation
proceeding or in the receivership, and that during the pendency of such claim,
the 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
that it may deem available to the company or its liquidator, receiver, conservator
or statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to the approval of the Court, against the company as part
of the expense of conservation or liquidation to the extent of a pro rata share
of the benefit which may accrue to the company solely as a result of the
defense undertaken by the Reinsurer.


 


21





















 


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


 


C.             It is further understood and agreed that, in
the event of the insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by the Reinsurer to
the company or to its liquidator, receiver or statutory successor, except as
provided by Section 4118(a) of the New York Insurance Law or except (1) where
this Contract specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the Reinsurer with the
consent of the direct insured or insureds has assumed such policy obligations
of the company as direct obligations of the Reinsurer to the payees under such
policies and in substitution for the obligations of the company to such payees.


 


Article XXVIII - Arbitration


 


A.           As a condition precedent to any right of action hereunder, in the event
of any dispute or difference of opinion hereafter arising with respect to this
Contract, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be chosen by the two
Arbiters before they enter upon arbitration, all of whom shall be active or
retired disinterested executive officers of insurance or reinsurance companies
or Lloyd’s London Underwriters. In the event that either party should fail to
choose an Arbiter within 30 days following a written request by the other party
to do so, the requesting party may choose two Arbiters who shall in turn choose
an Umpire before entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their appointment, the
Umpire shall be appointed in accordance with the procedures of the American
Arbitration Association.


 


B.             Each party shall present its case to the
Arbiters within 30 days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable engagement rather than
merely as a legal obligation and they are relieved of all judicial formalities
and may abstain from following the strict rules of law. The decision of
the Arbiters shall be final and binding on both parties; but failing to agree,
they shall call in the Umpire and the decision of the majority shall be final
and binding upon both parties. Judgment upon the final decision of the Arbiters
may be entered in any court of competent jurisdiction.


 


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


 


D.            Each party shall bear the expense of its own
Arbiter, and shall jointly and equally bear with the other the expense of the
Umpire and of the arbitration. In the event that the two Arbiters are chosen by
one party, as above provided, the expense of the Arbiters, the Umpire and the
arbitration shall be equally divided between the two parties.


 


22





















 


E.              Any arbitration proceedings shall take place
at a location mutually agreed upon by the parties to this Contract, but
notwithstanding the location of the arbitration, all proceedings pursuant
hereto shall be governed by the law of the state in which the Company has its
principal office.


 


Article XXIX - Service of Suit (BRMA  49C)


 


(Applicable
if the Reinsurer is not domiciled in the United States of America, and/or is
not authorized in any State, Territory or District of the United States where
authorization is required by insurance regulatory authorities)


 


A.           It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the 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 Reinsurer’s rights to commence an action in any
court of competent jurisdiction in the United States, to remove an action to a
United States District Court, or to seek a transfer of a case to another court
as permitted by the laws of the United States or of any state in the United
States.


 


B.             Further, pursuant to any statute of any
state, territory or district of the United States which makes provision
therefor, the Reinsurer hereby designates the party named in its Interests and
Liabilities Agreement, or if no party is named therein, the Superintendent,
Commissioner or Director of Insurance or other officer specified for that
purpose in the statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process in any action,
suit or proceeding instituted by or on behalf of the Company or any beneficiary
hereunder arising out of this Contract.


 


Article XXX - Material Changes


 


A.           It is understood that no material changes in business practices will
take place during the term of this Contract that would significantly change the
underwriting results of the subject business without prior approval by the Lead
Reinsurers (i.e., American Re-Insurance Company, A Delaware Corporation and GE
Reinsurance Corporation) including, but not limited to, claims handling and/or
settlement, and business mix (i.e., hazard group, and class of insureds). If a
material change in the Company’s business practices is to occur during the
period, the Reinsurer shall be allowed to negotiate changes in the contractual
terms of the Contract retroactively to remedy the change.


 


B.             It is further agreed that the Company will
furnish statutory quarterly and annual financial statements to the Reinsurer at
the same time these reports are filed with regulatory authorities.


 


23





















 


Article XXXI - Agency Agreement


 


If
more than one reinsured company is named as a party to this Contract, the first
named company shall be deemed the agent of the other reinsured companies
(subject to the provisions of Article XXVI) for purposes of sending or
receiving notices required by the terms and conditions of this Contract, and
for purposes of remitting or receiving any monies due any party.


 


Article XXXII - Governing Law (BRMA 71B)


 


This
Contract shall be governed by and construed in accordance with the laws of the
State of Florida.


 


Article XXXIII - Intermediary (BRMA 23A)


 


Benfield
Inc. is hereby recognized as the Intermediary negotiating this Contract for all
business hereunder. All communications (including but not limited to notices,
statements, premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating thereto shall be
transmitted to the Company or the Reinsurer through Benfield Inc. Payments by
the Company to the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to
constitute payment to the Company only to the extent that such payments are
actually received by the Company.


 


In Witness Whereof, the Company by its duly authorized representative has executed this
Contract as of the date undermentioned at:


 


North
Palm Beach, Florida, this 28th day of March in the year 2005.


 


	
   

  	
  /s/ [Illegible]

  	
   

  
	
   

  	
  AmCOMP
  Preferred Insurance Company

  
	
   

  	
  AmCOMP
  Assurance Corporation

  
	
   

  	
  any
  and all insurance companies which are now or hereafter come under

  
	
   

  	
  the
  same ownership or management as the AmCOMP Group

  



 


24





















 


Schedule A


 


Excess Workers’ Compensation

Reinsurance Contract

Effective: January 1, 2005


 


issued to


 


AmCOMP Preferred Insurance Company

North Palm Beach, Florida
AmCOMP Assurance Corporation
North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida


 


	
   

  	
   

  	
  First

  Excess

  	
   

  	
  Second

  Excess

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Company’s
  Retention

  	
   

  	
  $

  	
  2,000,000

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Reinsurer’s
  Per Occurrence Limit

  	
   

  	
  $

  	
  3,000,000

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Reinsurer’s
  Terrorism Per Occurrence Limit

  	
   

  	
  $

  	
  3,000,000

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Reinsurer’s
  Contract Year Terrorism Limit

  	
   

  	
  $

  	
  3,000,000

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Annual Gross
  Minimum Premium

  	
   

  	
  $

  	
  8,113,680

  	
   

  	
  $

  	
  1,764,840

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gross
  Premium Rate

  	
   

  	
  3.54

  	
  %

  	
  0.77

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Annual Gross
  Deposit Premium

  	
   

  	
  $

  	
  10,142,100

  	
   

  	
  $

  	
  2,206,050

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Quarterly
  Gross Deposit Premium

  	
   

  	
  $

  	
  2,535,525

  	
   

  	
  $

  	
  551,513

  	
   

  



 


The figures listed above for each excess layer shall apply to each
Subscribing Reinsurer in the percentage share for that excess layer as
expressed in its Interests and Liabilities Agreement attached hereto.


 





















 


Nuclear Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)
(Approved by
Lloyd’s Underwriters’ Fire and Non-Marine Association)


 


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


 


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


 


Limited Exclusion Provision.*


 


I.                 It
is agreed that the policy does not apply under any liability coverage, to


(injury, sickness, disease, death or destruction

(bodily injury or property
damage


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


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


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


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


(b)           become effective
before that date and contain the Limited Exclusion Provision set out above;


provided this paragraph (2) shall not be applicable to Family
Automobile Policies, Special Automobile Policies, or policies or combination
policies of a similar nature, issued by the Reassured on New York risks, until
90 days following approval of the Limited Exclusion Provision by the
Governmental Authority having jurisdiction thereof.


 


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


 


Owners, Landlords and Tenants Liability. Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective Liability,
Manufacturers and Contractors Liability, Product Liability, Professional and
Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile
Liability (including Massachusetts Motor Vehicle or Garage Liability)


 


shall be deemed to include, with respect to such coverages, from the
time specified in Clause V of this paragraph (3), the following provision
(specified as the Broad Exclusion Provision):


 


Broad Exclusion Provision.*


 


It is agreed that the policy does not apply:


I.                 Under
any Liability Coverage to


(injury, sickness, disease, death or destruction

(bodily injury or
property damage


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


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


 


1





















 


II.             Under any Medical Payments Coverage, or under
any Supplementary Payments Provision relating to


(immediate
medical or surgical relief

(first aid,


to expenses incurred with respect to


(bodily injury, sickness, disease or
death

(bodily injury


resulting from the hazardous properties of nuclear material and arising
out of the operation of a nuclear facility by any person or organization.


III.         Under any Liability Coverage to


(injury, sickness, disease, death or destruction

(bodily injury or property damage


resulting from the hazardous properties of nuclear material, if


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


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


(c)                                  the


(injury, sickness, disease, death
or destruction

(bodily injury or property damage


arises out of the furnishing by an insured of services, materials, parts
or equipment in connection with the planning, construction, maintenance,
operation or use of any nuclear facility, but if such facility is located
within the United States of America, its territories, or possessions or Canada,
this exclusion (c) applies only to


(injury to or destruction of
property at such nuclear facility

(property damage to
such nuclear facility and any property thereat.


IV.         As used in this endorsement:


“hazardous properties” include radioactive, toxic or explosive
properties; “nuclear material” means source material, special nuclear material
or byproduct material; “source material”, “special nuclear material”, and “byproduct
material” have the meanings given them in the Atomic Energy Act of 1954 or in
any law amendatory thereof; “spent fuel” means any fuel element or fuel
component, solid or liquid, which has been used or exposed to radiation in a
nuclear reactor; “waste” means any waste material (1) containing byproduct
material and (2) resulting from the operation by any person or
organization of any nuclear facility included within the definition of nuclear
facility under paragraph (a) or (b) thereof; “nuclear facility” means


(a)                                  any nuclear reactor,


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


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


(d)                                 any structure, basin, excavation, premises or
place prepared or used for the storage or disposal of waste, and includes the
site on which any of the foregoing is located, all operations conducted on such
site and all premises used for such operations; “nuclear reactor” means any
apparatus designed or used to sustain nuclear fission in a self-supporting
chain reaction or to contain a critical mass of fissionable material;


(With respect to injury to or destruction of property,
the word “injury” or “destruction,”

(“property damage”
includes all forms of radioactive contamination of property.
(includes
all forms of radioactive contamination of property.


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


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


(ii)          statutory liability insurance required under Chapter 90, General Laws of
Massachusetts, until 90 days following approval of the Broad Exclusion
Provision by the Governmental Authority having jurisdiction thereof.


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










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


 


2





















 


Nuclear Incident Exclusion Clause Reinsurance - No. 4


 


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


 


(2)          Without in any way restricting the operations of Nuclear Incident
Exclusion Clause No. 1B - Liability, No. 2 - Physical Damage, No. 3
- Boiler and Machinery and paragraph (1) of this clause, it is understood
and agreed that for all purposes as respects the reinsurance assumed by the
Reinsurer from the Reassured, all original insurance policies or contracts of
the Reassured (new, renewal and replacement) shall be deemed to include the
applicable existing Nuclear Clause and/or Nuclear Exclusion Clause(s) in effect
at the time and any subsequent revisions thereto as agreed upon and approved by
the Insurance Industry and/or a qualified Advisory or Rating Bureau.


 


3





















 


Pollution Exclusion Clause - General Liability - Reinsurance


 


A.           This reinsurance excludes all loss and/or liability accruing to the
reinsured company as a result of:


 


1.               bodily injury or property damage arising out
of the actual, alleged or threatened discharge, dispersal, release or escape of
pollutants:


 


a.               at or from premises owned, rented or occupied
by a named insured;


 


b.              at or from any site or location used by or
for a named insured or others for the handling, storage, disposal, processing
or treatment of waste;


 


c.               which are at any time transported, handled,
stored, treated, disposed of, or processed as waste by or for a named insured
or any person or organization for whom a named insured may be legally
responsible; or


 


d.              at or from any site or location on which a
named insured or any contractors or subcontractors working directly or
indirectly on behalf of a named insured are performing operations:


 


(i)             if the pollutants are brought on or to the
site or location in connection with such operations; or


 


(ii)    if the operations are to test for, monitor,
clean up, remove, contain, treat, detoxify or neutralize the pollutants;


 


2.               any governmental direction or request that a
named insured test for, monitor, clean up, remove, contain, treat, detoxify or
neutralize pollutants.


 


B.             Subparagraphs A(1)(a) and A(1)(d)(i) above
do not apply to bodily injury or property damage caused by heat, smoke or fumes
from a hostile fire.


 


C.             “Hostile fire” means a fire which becomes
uncontrollable or breaks out from where it was intended to be.


 


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


 





















 


War Risk Exclusion Clause (Reinsurance)


 


As
regards interests which at time of loss or damage are on shore, no liability
shall attach hereto in respect of any loss or damage which is occasioned by
war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection,
military or usurped power, or martial law or confiscation by order of any
government or public authority.


 


Nevertheless, this clause shall not be construed to apply to loss or
damage occasioned by riots, strikes, civil commotion, vandalism or malicious
damage.