No.3154-0031

                            CERTIFIED TERRORISM LOSS
                              AGGREGATE QUOTA SHARE
                              REINSURANCE AGREEMENT

                                     between

                         PENN AMERICA INSURANCE COMPANY
                           PENN-STAR INSURANCE COMPANY
                         PENN-PATRIOT INSURANCE COMPANY

                                       and

                          AMERICAN RE-INSURANCE COMPANY



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                                                                    No.3154-0031


                                TABLE OF CONTENTS
                                -----------------

 ARTICLE                                                                 PAGE
 -------                                                                 ----

    I                 AFFILIATED COMPANIES                                1

    II                BUSINESS REINSURED                                  1

    III               TERRITORY                                           2

    IV                COMPLIANCE WARRANTY                                 2

    V                 EXCLUSIONS                                          3

    VI                REINSURANCE LIMITS                                 16

    VII               AGGREGATE ULTIMATE NET LOSS                        16

    VIII              EXTRA CONTRACTUAL
                      OBLIGATIONS                                        17

    IX                EXCESS JUDGMENTS                                   18

    X                 DECLARATORY JUFGMENT EXPENSE                       19

    XI                DEFINITIONS                                        19

    XII               FEDERAL TERRORISM EXCESS
                      RECOVERY                                           20

    XIII              PREMIUM                                            20

    XIV               REPORTS AND REMITTANCES                            21

    XV                ERRORS AND OMISSIONS                               22

    XVI               ACCESS TO RECORDS                                  22

    XVII              RESERVES AND TAXES                                 22

    XVIII             OFFSET                                             23

    XIX               INSOLVENCY                                         23

    XX                COMMENCEMENT AND
                      TERMINATION                                        24



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                                                                    No.3154-0031



                              FEDERAL TERRORISM ACT
                              AGGREGATE QUOTA SHARE
                              REINSURANCE AGREEMENT
                              ---------------------
                       (herein referred to as "Agreement")

This  Agreement  made and entered  into by and between  PENN  AMERICA  INSURANCE
COMPANY and  PENN-STAR  INSURANCE  COMPANY,  both of Hatboro,  Pennsylvania  and
PENN-PATRIOT INSURANCE COMPANY of Richmond,  Virginia (hereinafter  collectively
referred  to  as  "Company")  and  AMERICAN  RE-INSURANCE  COMPANY,  a  Delaware
corporation with  administrative  offices in Princeton,  New Jersey (hereinafter
referred to as "Reinsurer").

WITNESSETH:

The  Reinsurer  hereby  reinsures the Company to the extent and on the terms and
conditions and subject to the exceptions, exclusions and limitations hereinafter
set forth and nothing  hereinafter shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any third party or entity
not a party to this Agreement.

                                    ARTICLE I
                                    ---------

AFFILIATED COMPANIES
--------------------

A.       This Agreement is solely  between the Company and the  Reinsurer.  When
         more than one insurance  company is named as a party to this Agreement,
         the  first  reinsured  company  named  shall be the  agent of the other
         reinsured companies as to all matters pertaining to this Agreement. Any
         payments by the Reinsurer to any of the parties  comprising the Company
         shall  constitute  payment from the Reinsurer to the Company under this
         Agreement.

B.       The retention of the Company and the liability of the Reinsurer and all
         other benefits accruing to the Company as provided in this Agreement or
         any  amendments  hereto,   shall  apply  to  the  reinsured   companies
         comprising  the  Company as a group and not  separately  to each of the
         reinsured companies named in this Agreement.

                                   ARTICLE II
                                   ----------

BUSINESS REINSURED
------------------

The  Company  shall  cede and the  Reinsurer  shall  accept an 70%  Quota  Share
participation in the Company's  Aggregate Ultimate Net Loss arising from Insured
Losses under the Terrorism Risk Insurance Act of 2002 (the Act) occurring during
the term of this  Agreement,  up to but not  exceeding the  Reinsurer's  maximum
limit of liability as provided herein. The reinsurance  provided hereunder shall
apply only to Insured Losses arising under all written policies,  contracts, and
binders of insurance  (hereinafter  collectively  referred to as "Policies"  and
individually  referred to as "Policy")  under all lines of business


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                                                                    No.3154-0031


to which the
Act is applicable,  which are  underwritten by the Company that are in force new
or renewed during the term of this Agreement.

                                   ARTICLE III
                                   -----------

TERRITORY
---------

This  Agreement  shall  be  limited  to  Insured  Loss  within  the  territorial
boundaries covered under the Policies reinsured  hereunder as further delineated
or limited by the Act.

                                   ARTICLE IV
                                   ----------

COMPLIANCE WARRANTY
-------------------

A.       The Company  warrants  that it will seek to obtain  coverage  under the
         Terrorism Risk Insurance Act and will comply with all provisions of the
         Terrorism Risk Insurance Act necessary to obtain  coverage  thereunder,
         with respect to all  property and casualty  insurance as defined in the
         Act,  written  by  the  Company,  including  but  not  limited  to  the
         prescribed  notice and offer of coverage and the disclosures of premium
         to the policyholder as required under the Act.

B.       The Company further warrants that:
        1.      for any policy  where the insurer  receives a written  statement
                from the insured that affirmatively authorizes an exclusion; or
        2.      where the insured fails to pay the premium charged for providing
                terrorism  coverage,  an exclusion for such  terrorism  coverage
                will be attached to the Company's policy as permitted under law.

C.       The  Company  shall  charge no less than 5% of all  other  Total  Gross
         Premium  for  Certified  Terrorism  coverage  on  each  policy  covered
         hereunder  unless:
        1.      The  original  insured  declines  such  terrorism   coverage  in
                accordance  with the Act and such  declination is not prohibited
                by law.
        2.      Otherwise prohibited from doing so by law.

D.       The Company  warrants that all reinsurance in place at the inception of
         each  Agreement  Year  hereunder  shall  remain  unchanged  during such
         Agreement Year or so deemed.

E.       The Company and the  Reinsurer  have  mutually  agreed to the Company's
         underwriting  guidelines  for Terrorism as respects  certified  acts of
         terrorism.  The Company warrants that these guidelines shall be applied
         to all business  reinsured  hereunder and shall remain unchanged unless
         agreed  to  in  writing   by   American   Re-Insurance   prior  to  the
         implementation  of any such changes.  The terms and  conditions of this
         Agreement shall take  precedence  over any other agreement  between the
         Company and the Reinsurer regarding such guidelines.


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                                                                    No.3154-0031




F.       It shall be deemed that the Company will purchase umbrella  facultative
         reinsurance covering Extra Contractual Obligations and Excess Judgments
         liability as defined  within this  Agreement for an amount equal to and
         in  addition  to  the  umbrella  policy  limit,  subject  to an  annual
         aggregate limit of $5,000,000. Facultative reinsurance coverage for any
         umbrella extra  contractual  obligations or excess judgments  liability
         shall inure to the benefit of this Agreement.

                                    ARTICLE V
                                    ---------

EXCLUSIONS
----------

A. This Agreement does not apply to and specifically excludes:

        1.      Any loss, cost or expense arising under a subscription placement
                coverage.

                "Subscription  placement"  as used herein  shall mean  insurance
                coverage  provided  by the  Company  where two or more  insurers
                provide  coverage  under  layered  policies  for any one insured
                where the total  amount of  insurance  for such insured from all
                sources is $25,000,000 or more.

        2.      Property  risks  having a total  insurable  value  greater  than
                $50,000,000.

        3.      The  Company's  liability  and  any  related  expenses,   beyond
                circumscribed  policy provisions,  including but not limited to,
                punitive,  exemplary,   consequential  or  compensatory  damages
                resulting  from a claim of an insured or an  insured's  assignee
                against the company its agents or employees,  except as provided
                by  the  Extra  Contractual  Obligations  and  Excess  Judgments
                Articles.

        4.      Business  derived from any Pool,  Association  (including  Joint
                Underwriting Associations),  Syndicate,  Exchange, Plan, Fund or
                other facility directly as a member,  subscriber or participant,
                or  indirectly  by  way  of  reinsurance  or  assessments.  This
                exclusion  shall  not  apply  to  automobile  assigned  risks or
                workers'  compensation  assigned risks which may be currently or
                subsequently  covered  hereunder,  except  such  assigned  risks
                arising from property or umbrella coverages.

        5.      Liability  of the  Company  arising  from its  participation  or
                membership,  whether voluntary or involuntary, in any insolvency
                fund, including any guarantee fund,  association,  pool, plan or
                other facility which provides for the assessment of, payment by,
                or  assumption  by the  Company  of a part or the  whole  of any
                claim, debt, charge, fee or other obligations of an insurer,  or
                its successors or assigns,  which has been declared insolvent by
                any authority having jurisdiction.

        6.      Except as respects  Workers'  Compensation  business  hereunder,
                liability  excluded by the  provisions of the following  Nuclear
                clauses



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                                                                    No.3154-0031


                attached  hereto.   The  word  "Reassured"  used  therein  means
                "Company."

                USA:
                    - Liability - Reinsurance No. 1B
                    - Physical Damage - Reinsurance No. 2
                    - Physical Damage and Liability
                      (Boiler and Machinery) - Reinsurance    No. 3.

                Canada:
                    - Liability - Reinsurance  Canada Pre 1985 - Physical Damage
                    - Reinsurance  Canada Pre 1985 -  Liability  -  Reinsurance
                      Canada Post 1985 - Physical Damage - Reinsurance Canada
                      Post 1985
                    - Physical Damage and Liability Canada -Reinsurance (Boiler
                      and Machinery)

                  As   respects   Workers   Compensation   business   hereunder,
                  operations  employing the process of nuclear fission or fusion
                  or handling of radioactive material,  which operations include
                  but are not limited to:

                  1.       the use of  nuclear  reactors  such as atomic  piles,
                           particle accelerators or generators, or
                  2.       the use,  handling or  transportation  of radioactive
                           materials, or
                  3.       the use,  handling or transportation of any weapon of
                           war or explosive device employing  nuclear fission or
                           fusion

                  The preceding exclusions a., b., and c. do not apply to:

                  a.       the exclusive use of particle accelerators incidental
                           to  ordinary   industrial  or  educational   research
                           pursuits, or
                  b.       the  exclusive  use,  handling or  transportation  of
                           radio  isotopes  for  medical or  industrial  use;

                  c.       radium or radium compounds.

         7.       Coverage provided by the Company to insurance,  or reinsurance
                  companies,  captives,  brokers or risk retention  groups (each
                  hereinafter  referred  to as  "insured"  for  purposes of this
                  exclusion) which provide  insurance  against  liability of the
                  insured  for any  damages  resulting  from  alleged  or actual
                  tortious  conduct  by the  insured in the  handling  of claims
                  brought  against  any  policyholders  of the insured or in the
                  handling of any other  business  matters  with or on behalf of
                  any policyholders.

         8.       The following coverages:

                  a.       Financial Guarantees;
                  b.       Credit and Fidelity Coverage;
                  c.       Surety Bonds;



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                                                                    No.3154-0031


                  d.       Warranty Coverage;
                  e.       Political Risk Coverage;
                  f.       Currency Exchange Coverage;
                  g.       Forgery Coverage; or
                  h.       Kidnap, Extortion or Ransom Coverage.

         9.       Aggregate Excess of Loss or Stop Loss Coverages.

         10.      Retroactive  Coverage,   except  in  connection  with  unknown
                  incidents, covered under a claims made coverage.

         11.      Coverage  provided  on  a  co-indemnity   basis  with  another
                  insurer,  reinsurer or other entity including an insured under
                  the Company's policy;  however,  this exclusion does not apply
                  to  the  standard  co-insurance  provisions  of a  policy  and
                  facultative   reinsurance  inuring  to  the  benefit  of  this
                  Agreement.

         12.      Coverage  underwritten  or accepted by any third party  except
                  the  binding  authority  granted  by the  Company  to its duly
                  authorized agents.

         13.      Coverage written  specifically to insure or reinsure  punitive
                  damages.

         14.      Entertainment   business,   including   but  not  limited  to,
                  Commercial   Negative   Film   Coverage,   Cast  Coverage  and
                  Completion Bond Coverage.

         15.      The  Company's  liability  and any  related  expenses,  beyond
                  circumscribed policy provisions, including but not limited to,
                  punitive,  exemplary,  consequential or compensatory  damages,
                  resulting from a claim of an insured or an insured's  assignee
                  against  the  Company  its  agents  or  employees,  except  as
                  provided for in the Extra  Contractual  Obligations and Excess
                  Judgments Articles.

         16.      All reinsurance assumed by the Company,  except  intra-Company
                  pooling arrangements.

         17.      All loss,  cost or  expense  arising  out of,  resulting  as a
                  consequence of or related to War. "War",  as utilized  herein,
                  shall mean war  whether or not  declared,  civil war,  martial
                  law, insurrection,  revolution,  invasion,  bombardment or any
                  use  of  military  force,   usurped  power  or   confiscation,
                  nationalization  or  damage  of  property  by any  government,
                  military or other  authority.  However,  this Agreement  shall
                  exclude from  recovery any Extra  Contractual  Obligations  or
                  Excess  Judgments loss from any umbrella  policy covered under
                  the  Company's  General  Liability  And  Commercial   Umbrella
                  Liability Quota Share Reinsurance Agreement.

                  To the  extent  there is no  Insurance  Service  Office,  Inc.
                  current  standard   coverage  form  for  a  type  of  coverage
                  reinsured under this agreement, "War" as utilized herein shall
                  mean war  whether or not  declared,  civil war,



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                                                                    No.3154-0031


                  martial law, insurrection,  revolution,  invasion, bombardment
                  or any use of military force,  usurped power or  confiscation,
                  nationalization  or  damage  of  property  by any  government,
                  military or other authority.

         18.      All loss, cost or expense  directly or indirectly  arising out
                  of,  resulting  as a  consequence  of or related to  Pollution
                  whether or not there is  another  cause of loss which may have
                  contributed concurrently or in any sequence to a loss.

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

                  This  exclusion  shall  not  apply  to the  extent  that  such
                  liabilities  would  be  covered  under  the  current  standard
                  unendorsed coverage forms issued by Insurance Services Office,
                  Inc. for each type of coverage reinsured under this Agreement.

         19.      Space or  space-related  risks  such as, but not  limited  to,
                  satellites,  spacecraft,  launch  sites  and  launch  vehicles
                  including cargo and freight carried therein,  in all phases of
                  operation.

         20.      a.       Any  coverage   written   specifically  to  apply  to
                           Internet exposures; or

                  b.       Any loss,  cost or expense  arising out of or related
                           to the Internet, except if covered under any coverage
                           not  written  or  endorsed  specifically  to apply to
                           Internet   exposures.   Notwithstanding   the   above
                           referenced exception,  the reinsurance provided under
                           this  agreement  shall  not  apply  to the  following
                           persons,  entities or exposures,  except for in force
                           policies  with  effective  dates  prior to 9/1/01 and
                           covered under this Agreement:

                           (1)      Internet  Service  Providers,   meaning  any
                                    person  or  entity  providing  access to the
                                    Internet,   content  over  the  Internet  or
                                    connection to the Internet; or
                           (2)      Application  Service Providers,  meaning any
                                    person or entity that provides  software and
                                    associated  services  to a  subscriber  base
                                    across an area network; or
                           (3)      Internet  Backbone  Providers,  meaning  any
                                    person or  entity  that  routes or  provides
                                    channels  for packets  that  transport  data
                                    from point to point on the Internet; or
                           (4)      Any  person or entity  that  derives  ninety
                                    percent or more of gross revenue or conducts
                                    or  executes   ninety  percent  or  more  of
                                    business  transactions  on  or  through  the
                                    Internet; or



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                                                                    No.3154-0031


                           (5)      Any   person   or   entity   that   provides
                                    electronic mail services; or

                           (6)      Any   person   or  entity   that   develops,
                                    supplies,    and/or   installs    encryption
                                    software for use on the Internet.

                  "Internet"  as utilized  in this  exclusion  shall  mean,  the
                  international   computer  network  of   interoperable   packet
                  switched  data  networks,  also known as the  worldwide web or
                  worldwide network of computers.

         21.      All  Workers'  Compensation  business,  except for  Employers'
                  Liability Stop Gap coverage.

         22.      All automobile Liability business when written as such.

B.       The reinsurance  provided under this Agreement for Liability  business,
         other than Workers  Compensation,  and Automobile  Liability  business,
         shall not apply to the following:

         1.       Professional  Liability or Errors and Omissions Coverage other
                  than for the following:
                  a.       "Beau-T-Pak";
                  b.       Barbers;
                  c.       Opticians;
                  d.       Veterinarians that treat household pets;
                  e.       Morticians;
                  f.       Clergy;
                  g.       Employee Benefits Liability (E&O Coverage);
                  h.       Druggists;
                  i.       "Day Care Pak";
                  j.       "Adult Day Care;
                  k.       "Health Club Pak";
                  l.       "Instructor Pak";
                  m.       In-Home Day Care;
                  n.       "Pet Pak";
                  o.       "Wellness Pak"; or
                  p.       Massage Program.

         2.       Directors'  and  Officers'  Liability  Coverage,   except  for
                  Condominiums and Homeowners Associations.

         3.       The  following  coverages:
                  a.       Product recall;
                  b.       Product tampering;
                  c.       Product integrity impairment; or
                  d.       Product guarantee.



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                                                                    No.3154-0031


         4.       Coverage  provided  under or for  liability  arising  from any
                  federal law,  including but not limited to; USL&H,  Jones Act,
                  Defense Base Act,  Federal  Employers'  Liability  Act,  Outer
                  Continental  Shelf Lands Act, the Federal Coal Mine Health and
                  Safety    Act   of    1969,    the    Non-appropriated    Fund
                  Instrumentality's  Act, any other federal law awarding damages
                  for violation of those laws or regulations  issued there under
                  and  any  amendments  to  any of the  aforementioned  laws  or
                  regulations.

         5.       Securities Act Liability Coverage (S.E.C. Liability).

         6.       Personal Umbrella Liability Coverage.

         7.       Environmental Impairment Liability Coverage.

         8.       Products   Liability   Coverage   written  without  an  annual
                  aggregate limit.

         9.       Employer's liability and/or common law liability of employer's
                  to their  employees  when coverage is provided  under Worker's
                  Compensation Coverage.

         10.      Protection and Indemnity Liability Coverage.

         11.      Primary  coverage written on a deductible basis or excess of a
                  self-insured   retention  when  such  deductible  or  retained
                  amounts are greater than $50,000.

         12.      Uninsured or Underinsured Motorists Coverage.

         13.      Advertising  or Personal  Injury  Liability  Coverage  for any
                  person or entity whose business is advertising,  broadcasting,
                  publishing or telecasting.

         14.      Aircraft and airports as respects  coverage for all  liability
                  arising out of the  ownership,  maintenance or use of aircraft
                  and/or flight or ground operations.

         15.      Blanket  or  all-risk  type   coverage,   commonly   known  as
                  Organizational Liability,  Organization Liability, Operational
                  Liability,  Integrated Risk,  Enterprise Risk or under similar
                  names, written in, or endorsed to, a policy covering all types
                  of losses incurred by, or claims against, an entity; provided,
                  however, that this exclusion shall not include any named-peril
                  grant of coverage which contemplates  specifically  enumerated
                  types of claims or losses.

         16.      Liability,   including  any  related   expenses   directly  or
                  indirectly  arising out of,  resulting as a consequence of, or
                  related to employment-related  practices,  including,  but not
                  limited  to   liability   related  to   harassment,


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                                                                    No.3154-0031


                  wrongful termination or discrimination, whether under coverage
                  written as such or otherwise.

         17.      Liability  including any related expenses,  arising out of the
                  Employee Retirement Income Security Act of 1974 and amendments
                  thereto.

         18.      Liability   including  any  related   expenses,   directly  or
                  indirectly  arising out of,  resulting as a consequence  of or
                  related to Sexual Misconduct,  whether or not there is another
                  cause of loss which may have  contributed  concurrently  or in
                  any sequence to a loss for the Company's Day Care Pak, In Home
                  Day Care Pak or Adult Day Care  policies,  except for in force
                  policies  with  effective  dates prior to 9/1/01,  and for Day
                  Care Pak,  In Home Day Care Pak or Adult Day Care  policies of
                  the Company where the insured purchases the Company's buy-back
                  coverage or when the Company attaches the  Penn-America  S2092
                  (03/04) abuse and molestation exclusion.

                  "Sexual  Misconduct" as utilized herein shall include,  sexual
                  molestation,  sexual  harassment,  sexual abuse, any verbal or
                  nonverbal  communication,  behavior,  or conduct  with  sexual
                  connotations  or the  infliction  of  physical,  emotional  or
                  psychological   injury   whether   for   purpose   of   sexual
                  gratification, discrimination, intimidation, coercion or other
                  sexual purpose, regardless of whether such action or resulting
                  injury is alleged to be intentionally or negligently caused.

         19.      All loss, cost or expense directly or indirectly,  arising out
                  of,   resulting  as  a  consequence  of,  or  related  to  the
                  manufacture,   distribution,  testing,  remediation,  removal,
                  storage,  disposal, sale, use of or exposure to the following,
                  whether or not there is  another  cause of loss which may have
                  contributed concurrently or in any sequence to a loss:
                  a.       Asbestos  or   materials   or   products   containing
                           asbestos;
                  b.       2.4,5  Trichloroacetic  acid ("2,4,5-1") or 2.3,7,8 -
                           TCDD;
                  c.       Diethylstilbestrol  ("DES") in any dosage or form Any
                           intrauterine device ("IUD");
                  d.       Any product containing silicone, which is in any form
                           injected or implanted into the body;
                  e.       Phen-fen;
                  f.       Dioxin;
                  g.       Polychlorinated biphenyls;
                  h.       Lead or materials or products containing lead;
                  i.       Latex gloves;
                  j.       Polybutylene piping (acrylonitrile-butadine-styrene);
                           or
                  k.       Bio-engineered products,  including any food products
                           or therapeutic or diagnostic  pharmaceutical products
                           which   are    developed    using    some   form   of
                           bioengineering.


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                                                                    No.3154-0031



         20.      All loss, cost or expense  directly  arising out of, resulting
                  as a consequence of, or related to  Electromagnetic  Radiation
                  related to the manufacture or generation of:
                  a.       Electric power and/or power lines;
                  b.       Cellular phones;
                  c.       Radio and TV  broadcasting  and/or  towers except for
                           insured's with total sales less than $500,000;
                  d.       Computers;
                  e.       Electric blankets;
                  f.       Military radar or weapons;
                  g.       Police or weather radar;
                  h.       Satellite stations;
                  i.       Magnetic resonance imaging equipment;
                  j.       X-ray equipment, except sales that are 10% or less of
                           insured's total sales; or
                  k.       Microwave ovens;

                  "Electromagnetic  Radiation"  as used  herein,  shall  include
                  magnetic energy waves,  fields or forces generated,  produced,
                  distributed,  transmitted or maintained by charges,  currents,
                  frequencies, forces of energy or electricity."

         21.      Products Liability or Completed  Operations  Liability related
                  to:
                  a.       Drugs,  except for liability  arising from the retail
                           sale or wholesale  distribution  of drugs by insureds
                           not engaged in their manufacture;
                  b.       Chemicals,  except  for  liability  arising  from the
                           retail sale or  wholesale  distribution  of household
                           chemicals   by   insureds   not   engaged   in  their
                           manufacture;
                  c.       Insecticides  and  pesticides,  except sales that are
                           20% or less of insured's total sales;
                  d.       Aircraft or aircraft parts;
                  e.       Animal feed, other than custom-blended grains without
                           chemical or pharmacological  additives,  except sales
                           that are 20% or less of insured's total sales;
                  f.       Cosmetics  manufacturing,  except for the manufacture
                           of soaps or shampoos where the insured's receipts are
                           less  than 10% of total  sales or skin and hair  care
                           products   prepared  at  beauty   salons  or  similar
                           establishments,
                  g.       Tobacco  and  tobacco  products,  but this  exclusion
                           shall not apply to liability  arising from the retail
                           sale or wholesale distribution of tobacco products by
                           insureds not engaged in their manufacture;
                  h.       Automobiles,   trucks,  motorcycles  and  all-terrain
                           vehicles or component parts critical to the operation
                           of the foregoing,  but this exclusion shall not apply
                           to the  liability  arising  from the  retail  sale or
                           wholesale distribution of component parts critical or
                           non-critical  to the  operation of the  foregoing not
                           engaged in their manufacture;


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                                                                    No.3154-0031

                  i.       Fiberglass,  but this  exclusion  shall  not apply to
                           liability  arising  from the retail sale or wholesale
                           distribution  of fiberglass  products by insureds not
                           engaged in their manufacture;
                  j.       Firearms,  except  sales  that  are  20% or  less  of
                           insured's total sales;
                  k.       Medical equipment;
                  l.       Elevator   or  hoist   manufacturing,   installation,
                           inspection, service or repair;
                  m.       Security    and    alarm    system     manufacturing,
                           installation,  inspection,  service or repair, except
                           for  coverage  as  provided  for  in  the   Company's
                           guidelines as of 9/01/01; or
                  n.       Fire suppression system manufacturing,  installation,
                           inspection, service or repair, except for coverage as
                           provided  for  in  the  Company's  guidelines  as  of
                           9/01/01.

         22.      Wrecking or demolition of buildings, structures, watercraft or
                  aircraft, except for buildings six stories or less.

         23.      Railroad, subway and street railway construction, operation or
                  maintenance, excepting sidetrack agreements.

         24.      Bridge,   tunnel,  dam  or  reservoir  design,   construction,
                  operation or maintenance.

         25.      Mining,  except insureds with receipts from quarry  operations
                  of less than 5% of total sales.

         26.      Onshore or offshore gas or oil drilling operations, pipelines,
                  or wells.

         27.      Mill or grain elevator operation.

         28.      Manufacture,    assembly,   packing,   handling,   processing,
                  transportation,  sale,  storage or  detonation  of  fireworks,
                  fuses, nitroglycerine, ammonium nitrate, magnesium, celluloid,
                  pyroxylin,  ammunition,  explosives or any product in which an
                  explosive substance is an ingredient, or component part.

                  The  term  "explosive  substance,"  as  used  herein,  is  any
                  substance manufactured for the express purpose of exploding as
                  differentiated  from  those  commodities,   other  than  those
                  commodities  specified  in  this  exclusion,  which  are  only
                  fortuitously  explosive,   such  as  gasoline,  fuel  oil,  or
                  dyestuffs.

         29.      Manufacture, production, refining, storage, sale, distribution
                  or  transportation of natural or artificial fuel, gas, butane,
                  methane, propane, other liquefied petroleum gases, gasoline or
                  gases or air under  pressure,  except this  exclusion does not
                  apply to gasoline at hardware stores,  convenience  stores and
                  automobile  service  stations storing gasoline on



                                      -11-


<PAGE>


                                                                    No.3154-0031



                  premises for retail sale, fuel oil dealers, and LPG sales that
                  are 20% or less of the insured's total sales.

         30.      Stevedoring.

         31.      Ski lodges, lifts, cable cars and tows.

         32.      Shipbuilding,  ship repair, ship breaking, dry dock, and quays
                  or wharf operations.

         33.      Watercraft over 50 feet in length.

         34.      Amusement parks,  amusement  devices (other than coin operated
                  devices),  fairs,  exhibitions,  carnivals,  circuses and zoos
                  (other than  petting  zoos),  except when  written  within the
                  guidelines of the of the Company's Special Events Program.

         35.      Sports  or  other   entertainment   events  with  an  expected
                  capacity, at any one time, of 25,000 or more people.

         36.      Arenas, grandstands,  stadiums,  theatres, halls and any other
                  indoor venue with an expected  capacity,  at any one time,  of
                  25,000 or more.

         37.      Electric and gas utilities and the municipalities, authorities
                  and all  boards,  commissions,  or  entities  responsible  for
                  administering or controlling these utilities.

         38.      Governmental agencies,  entities, or political subdivisions of
                  a state or municipalities with a population of 50,000 or more,
                  except for insureds required to name the local municipality as
                  a named insured for special events.

         39.      Insurance  companies,   agents,  brokers,  or  risk  retention
                  groups,   inspection  services,  claims  services  and  rating
                  bureaus,  unless coverage for errors and omissions is excluded
                  under the policy reinsured.

         40.      School boards or school districts.

         41.      Nursing homes and nursing home care, except for adult day care
                  centers or the Family Home Care Program  when  written  within
                  the Company guidelines as of 9/01/01.

         42.      Banks and other  financial  institutions  unless the Company's
                  coverage contains a financial  institution  endorsement agreed
                  to by the Reinsurer.



                                      -12-


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                                                                    No.3154-0031


         43.      Contractors engaged in the construction,  erection or exterior
                  maintenance of structures in excess of six stories, except for
                  window washers or power washing operations.

         44.      Crop-dusting.

         45.      Insureds   in   the   business   of   scaffold    manufacture,
                  installation, repair, removal or rental.

         46.      Inverse condemnation liability.

         47.      All loss,  cost or  expense  arising  out of,  resulting  as a
                  consequence of or related to poultry  products,  operations or
                  exposures,  including  but not  limited  to;  poultry  houses,
                  poultry processing  operations,  live birds,  processed birds,
                  egg laying operations, egg processing operations or eggs.

         48.      All loss, cost or expense,  directly or indirectly arising out
                  of or related to the liability of Contractors  for Residential
                  Construction in Arizona, California, Colorado, Nevada, Oregon,
                  New York, Texas and Washington.

                  "Contractors"  shall mean all developers,  general contractors
                  and subcontractors who sub out more than 50% of their work.

                  "Residential Construction" shall mean all development, design,
                  building or other construction,  improvements, site selection,
                  surface or subsurface site preparation,  or any work, products
                  or component parts thereof,  or services  provided in relation
                  to any of the foregoing,  involving property intended in whole
                  or in part for residential habitation, or any common or public
                  areas or facilities related thereto.

                  Notwithstanding  the  foregoing,   "Residential  Construction"
                  shall  not  include  repair  work,  remodeling  or  any  other
                  contracting  work  which is begun  after  the date of  initial
                  occupancy provided such work is unrelated to or not completing
                  work begun prior to the date of initial occupancy.

C.       In the  event  the  Company  is  inadvertently  bound on any  exclusion
         enumerated  under  paragraph  B, the  reinsurance  provided  under this
         Agreement  shall apply until  discovery by the Company of the existence
         of the inadvertent  binding and for 30 days thereafter,  and shall then
         cease unless,  within the 30-day period,  the Company has received from
         the Reinsurer written notice of its approval of such binding.

D.       The  reinsurance  provided under this  Agreement for Property  business
         shall not apply to the following:

         1.       Difference in Conditions Coverage.


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                                                                    No.3154-0031


         2.       Ocean Marine Coverage.

         3.       Mortgage impairment  insurance and similar kinds of insurance,
                  however styled.

         4.       Mining including mining equipment.

         5.       Aviation business.

         6.       The following coverages:
                  a.       Product recall;
                  b.       Product tampering;
                  c.       Product integrity impairment; or
                  d.       Product guarantee.

         7.       Excess   Coverage,   meaning   coverage   written   to   apply
                  specifically in excess over underlying insurance.

         8.       Boiler and Machinery Coverage.

         9.       Livestock Mortality or Fertility Coverage.

         10.      Furriers' and Jewelers Block Coverage.

         11.      Contingency business interruption risks of any kind.

         12.      Transmission  and  distribution  lines other than those within
                  500 feet of an insured's premises. It is understood and agreed
                  that public utilities  extension  and/or  suppliers  extension
                  and/or  contingent  business  interruption  coverage  are  not
                  subject to this exclusion  provided that these are not part of
                  a transmitter's or distributor's policies.

         13.      All onshore or  offshore:
                  a.       gas and oil drilling risks;
                  b.       petrochemical risks;
                  c.       pipeline risks; or
                  d.       well risks.

         14.      Flood,  surface  water,  waves,  tidal  water or tidal  waves,
                  overflow of streams or other bodies of water or spray from any
                  of the foregoing, all whether driven by wind or not; provided,
                  however,  this  exclusion  shall not  apply to losses  covered
                  under  automobile  physical  damage  policies or Inland Marine
                  Policies.

         15.      Earthquake,  landslide  and  other  earth  movement  provided,
                  however, this exclusion shall not apply to automobile physical
                  damage coverage or Inland Marine Policies.



                                      -14-


<PAGE>


                                                                    No.3154-0031


         16.      Railroad property, rolling stock, tracks or roadbeds.

         17.      Fine arts collections exceeding $5,000,000 in total value.

         18.      Mobile homes, except mobile home parks written on a commercial
                  lines basis with less than 25% of the mobile homes being owned
                  by the insured.

         19.      Risks having total insurable value of more than $50,000,000.

         20.      Growing, standing or drying crops and timber.

         21.      Watercraft except  watercraft  insured under personal property
                  floaters.

         22.      Bridges, dams and tunnels.

         23.      All loss,  cost or  expense  arising  out of,  resulting  as a
                  consequence of or related to poultry  products,  operations or
                  exposures,  including  but not  limited  to;  poultry  houses,
                  poultry processing  operations,  live birds,  processed birds,
                  egg laying operations, egg processing operations or eggs.

         24.      As respects Property risks:

                  a.       Any one risk at any one location where the risk Total
                           Insured  Value  (hereinafter  TIV),  inclusive of all
                           coverages is greater than $50,000,000; or

                  b.       The  aggregate  TIV  for  all  risks  insured  by the
                           company  at  any  one  location,   inclusive  of  all
                           coverages is greater than $50,000,000; or

                  c.       Any of the  following  risks  (i.e.,  owners  of, not
                           tenants in):
                           1.       Airlines or Airports
                           2.       Apartments,  Condos, or Co-Operatives (i.e.,
                                    Urban Only and greater than 25 stories)
                           3.       Bridges  (i.e.,  greater  than  300  feet in
                                    length)
                           4.       Casinos of Las Vegas and Atlantic City only
                           5.       Chemical   Manufacturing   or   Distributing
                                    Companies except for liability  arising from
                                    the retail sale or wholesale distribution of
                                    household  chemicals by insureds not engaged
                                    in their manufacture
                           6.       Convention  or  Exhibition   Centers  (i.e.,
                                    Urban  only) with an expected  capacity,  at
                                    any one time, of 25,000 or more
                           7.       Dams (i.e., greater than 300 feet in length)
                           8.       Defense or Aerospace Industries
                           9.       Department  Stores  that  are  part of malls
                                    over 1,000,000 sq. feet
                           10.      Financial  Institutions (i.e., Building. and
                                    Time Element coverages or multiple locations
                                    (i.e.,  Office  Schedules  of  greater  than
                                    10,000 sq. feet per location))
                           11.      Government   buildings  (i.e.,   Federal  or
                                    State) and National Landmarks


                                      -15-


<PAGE>


                                                                    No.3154-0031


                           12.      High  Tech   Manufacturing   Companies   and
                                    Telecommunication   Companies   with   Total
                                    Insured Values greater than $5,000,000.
                           13.      Hospitals (i.e., Urban only)
                           14.      Hotels (i.e., Urban only and greater than 25
                                    stories)
                           15.      Internet Companies and Major Media Companies
                                    with  Total  Insured   Values  greater  than
                                    $5,000,000.
                           16.      Office  Buildings  (i.e.,   Urban  only  and
                                    greater than 25 stories)
                           17.      Oil and Gas  Manufacturing  or  Distributing
                                    Companies
                           18.      Public School Districts (i.e., Urban only)
                           19.      Port or Transit Authorities
                           20.      Railroads
                           21.      Shopping Malls over 1,000,000 sq. feet
                           22.      Arenas,  grandstands,   stadiums,  theatres,
                                    halls and any  other  indoor  venue  with an
                                    expected  capacity,  at  any  one  time,  of
                                    25,000 or more.
                           22.      Tunnels  (i.e.,  greater  than  300  feet in
                                    length)
                           23.      Universities (i.e., Urban only)
                           24.      Utilities electric, gas, water & sewer

                                   ARTICLE VI
                                   ----------

REINSURANCE LIMITS
------------------

The Reinsurer's maximum liability  hereunder shall not exceed $7,000,000,  being
70% of the first $10,000,000, during the Agreement Year.

                                   ARTICLE VII
                                   -----------

AGGREGATE ULTIMATE NET LOSS
---------------------------

A.       The term "Aggregate  Ultimate Net Loss" shall mean the sum or sums paid
         by the  Company  for  losses as  covered  herein for which it is liable
         under  policies  reinsured  hereunder  including any extra  contractual
         obligations  as  provided  within  the  Extra  Contractual  Obligations
         Article,  any excess  judgments as provided within the Excess Judgments
         Article,  any Loss  Adjustment  Expenses as defined within  Paragraph B
         below,  and any  declaratory  judgment  expense as provided  within the
         Declaratory  Judgment  Expense  Article,  to the extent  qualified  and
         reimbursable  under the Act, which are within the Insurer Deductible or
         Company Retained Amount as determined under the Act. All sums hereunder
         shall first be subject to deductions for all other reinsurances whether
         collectible  or not that are  applicable to losses  hereunder,  and any
         subrogation or salvage  received.  The Reinsurer's  liability shall not
         increase by reason of the  inability of the Company to collect from any
         other reinsurer,  for any reason,  any amount that may be due from such
         reinsurer.

B.       The term "Loss Adjustment  Expenses" shall mean all expenses which have
         been paid by the Company in the investigation,  adjustment,  settlement
         or defense of


                                      -16-


<PAGE>


                                                                    No.3154-0031



         specific losses covered herein for which it is liable under policies of
         the Company reinsured hereunder,  (also including salaries and expenses
         of salaried adjusters associated therewith),  but not including office,
         administrative  or overhead  expenses  of the  Company or salaries  and
         expenses of its officials and employees.

C.       In the event of the insolvency of the Company,  "Aggregate Ultimate Net
         Loss" shall be as otherwise  defined herein except it shall include the
         sum or sums which the Company has incurred for losses as covered herein
         for which it is liable  instead of the sum or sums paid by the  Company
         for losses as covered herein for which it is liable, and payment by the
         reinsurer  shall  be  made to the  liquidator,  receiver  or  statutory
         successor of the Company in accordance with the INSOLVENCY Article.

D.       In the  event a  verdict  or  judgment  is  reduced  by an  appeal or a
         settlement,  subsequent  to the entry of a  judgment,  resulting  in an
         ultimate saving on such verdict or judgment,  or a judgment is reversed
         outright,  the expense  incurred in securing  such final  reduction  or
         reversal shall (1) be prorated between the Reinsurer and the Company in
         proportion  that each benefits from such  reduction or reversal and the
         expense  incurred  up to the time of the  original  verdict or judgment
         shall be  prorated  in  proportion  to each  party's  interest  in such
         verdict  or  judgment;  or (2) when the  terms  and  conditions  of the
         Company's policies reinsured  hereunder include expenses as part of the
         policy limit, be added to the Company's Aggregate Ultimate Net Loss.

E.       Except as otherwise  provided  herein,  the Company shall pay or credit
         the Reinsurer with its proportionate share of any subrogation,  salvage
         or other  amounts  recovered  by the  Company  applying  to the  losses
         hereunder.

                                  ARTICLE VIII
                                  ------------

EXTRA CONTRACTUAL OBLIGATIONS
-----------------------------

A.       As reinsured under this  Agreement,  the Company shall be protected for
         any Extra Contractual  Obligation.  (Such Extra Contractual  Obligation
         shall be added to the  amount of the  award or  settlement  within  the
         Company's policy limit and the sum thereof shall be considered one loss
         subject to the exclusions and limitations set forth in this Agreement.)

B.       "Extra  Contractual  Obligation"  shall be defined as those liabilities
         not covered under any other provision of this Agreement,  and any legal
         costs and expenses incurred in connection  therewith,  which arise from
         the  Company's  handling  of any claim on business  covered  hereunder,
         including  but not  limited  to, the  failure by the  Company to settle
         within the policy limit, or by reason of alleged or actual  negligence,
         fraud,  or bad  faith,  in  rejecting  an offer of  settlement,  in the
         preparation  of the  defense,  in the trial of any action  against  its
         insured or in the  preparation or  prosecution of an appeal  consequent
         upon such action.



                                      -17-



<PAGE>


                                                                    No.3154-0031


C.       For  the  purpose  of the  application  of  this  Agreement,  an  Extra
         Contractual  Obligation shall be deemed to have arisen on the same date
         as  the  original  loss  that  gave  rise  to  the  Extra   Contractual
         Obligation.

D.       This Article shall not apply where the Extra Contractual Obligation has
         been incurred due to the fraud or criminal act of a member of the Board
         of Directors,  an officer,  an agent,  or an employee of the Company or
         any other person or organization involved in the presentation,  defense
         or  settlement  of  any  claim  covered   hereunder,   whether   acting
         individually  or  collectively  or in  collusion  with  any  person  or
         organization.

E.       Recoveries  from  any  form  of  insurance  or   reinsurance,   whether
         separately  purchased from another  insurance carrier or self insurance
         issued by the Company to itself,  which  protects  the Company  against
         claims which are the subject matter of this Article,  will inure to the
         benefit of the Reinsurer  and shall be first  deducted to arrive at the
         amount of any Extra Contractual  Obligation covered hereunder,  whether
         collectible or not.

F.       The  coverage  provided  under this  Article  shall not apply where the
         laws, regulations or public policy of an applicable  jurisdiction would
         prohibit  such  coverage.  If any  provision of this  Article  shall be
         rendered illegal or  unenforceable  by the laws,  regulations or public
         policy of any jurisdiction,  such provision shall be considered void in
         such   jurisdiction,   but  this  shall  not  affect  the  validity  or
         enforceability  of  any  other  provision  of  this  Agreement  or  the
         enforceability of such provision in any other jurisdiction.

                                   ARTICLE IX
                                   ----------

EXCESS JUDGMENTS
----------------

A.       As reinsured under this  Agreement,  the Company shall be protected for
         any  Excess  Judgment  awarded  by a court  of  competent  jurisdiction
         against the Company. (Such Excess Judgment shall be added to the amount
         of the award or settlement  within the  Company's  policy limit and the
         sum thereof shall be considered  one loss subject to the exclusions and
         limitations set forth in this Agreement.)

B.       "Excess  Judgment"  shall  mean any  amount in excess of the  Company's
         policy limits,  but otherwise  within the coverage terms of the policy,
         that is paid by the Company, together with any legal costs and expenses
         incurred in  connection  therewith,  resulting  from the failure by the
         Company to settle within the policy  limit,  or by reason of alleged or
         actual  negligence,  fraud,  or bad faith,  in discharging  its duty to
         defend, in preparing the defense in an action against its insured or in
         discharging its duty to prepare or prosecute an appeal  consequent upon
         such action.



                                      -18-


<PAGE>


                                                                    No.3154-0031


C.       This  Article  shall  not  apply  where the  Excess  Judgment  has been
         incurred  due to the fraud or criminal  act of a member of the Board of
         Directors,  an officer,  an agent or an employee of the Company, or any
         other person or organization  involved in the presentation,  defense or
         settlement of any claim covered hereunder,  whether acting individually
         or collectively or in collusion with any person or organization.

D.       Recoveries  from  any  form  of  insurance  or   reinsurance,   whether
         separately  purchased from another  insurance carrier or self insurance
         issued by the Company to itself,  which  protects  the Company  against
         claims which are the subject matter of this Article,  will inure to the
         benefit of the Reinsurer  and shall be first  deducted to arrive at the
         amount of any Excess Judgment hereunder, whether collectible or not.

E.       The  coverage  provided  under this  Article  shall not apply where the
         laws, regulations or public policy of an applicable  jurisdiction would
         prohibit  such  coverage.  If any  provision of this  Article  shall be
         rendered illegal or  unenforceable  by the laws,  regulations or public
         policy of any jurisdiction,  such provision shall be considered void in
         such   jurisdiction,   but  this  shall  not  affect  the  validity  or
         enforceability  of  any  other  provision  of  this  Agreement  or  the
         enforceability of such provision in any other jurisdiction.

                                    ARTICLE X
                                    ---------

DECLARATORY JUDGMENT EXPENSE
----------------------------

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

                                   ARTICLE XI
                                   ----------

DEFINITIONS
-----------

A.       "Terrorism  Risk Insurance Act" or "Act" as utilized  herein shall mean
         the  provisions of the Terrorism Risk Insurance Act of 2002 in place at
         the  inception  date  of  this   Agreement,   including  any  rules  or
         regulations applicable thereto.  Subsequent amendments to the Act shall
         not be  included  within the  definition  hereunder  except as mutually
         agreed in writing by the parties hereto.

B.       "Insured  Loss(es),"  "Program  Year,"  "Act  of  Terrorism,"  "Insurer
         Deductible"   and  "Insurer"  as  utilized   herein  shall  follow  the
         definitions as provided in the Act.

C.       "Company  Retained  Amount" shall mean amounts covered  hereunder which
         the Company  retains net of any amounts  paid or payable by the Federal
         Government


                                      -19-


<PAGE>


                                                                    No.3154-0031


         for Insured Loss in excess of the Insurer  Deductible,  all as provided
         under the Terrorism Risk Insurance Act of 2002.

D.       "Agreement  Year" as  utilized  herein,  shall mean that period of time
         from the date of inception to the date of termination of this Agreement
         as more fully delineated in the Commencement and Termination Article.

                                   ARTICLE XII
                                   -----------

FEDERAL TERRORISM EXCESS RECOVERY
---------------------------------

As respects  the Insured  Losses of the Insurer  for each  Program  Year,  it is
hereby agreed that to the extent the Insurer's  total  reinsurance  recoverables
for Insured  Losses,  whether  collected  or not,  combined  with the  financial
assistance  available to the Insurer under the Act exceeds the aggregate  amount
of  Insured  Losses  paid  by  the  Insurer,   less  any  other   recoveries  or
reimbursements,  such excess amounts (the "Excess  Recovery") shall be allocated
to the Company.  The  allocation  to the Company shall be deemed to be an amount
equal to the proportion that the Company's  Insured Losses bear to the Insurer's
total Insured Losses for each Program Year. The Company shall then reimburse the
Reinsurer  for its share of the Excess  Recovery  allocated to the Company.  The
Reinsurer's  share of the Excess  Recovery shall be deemed to be an amount equal
to the  proportion  that the  Reinsurer's  payment of Insured  Losses under this
Agreement bears to the Company's total collected  reinsurance  recoverables  for
Insured  Losses.  The  Company  also agrees to provide  the  Reinsurer  with all
necessary data respecting the transactions covered under this Clause.

                                  ARTICLE XIII
                                  ------------

PREMIUM
-------

A.       The premium for the reinsurance  provided under this Agreement shall be
         computed at the rate of 51% of the Company's  Gross Net Earned  Premium
         for terrorism on the business reinsured hereunder.

B.       The minimum and deposit premium for the reinsurance provided under this
         Agreement is $360,000.

C.       "Gross Net Earned  Premium"  as used  herein  means the  Company's  net
         premiums written for terrorism (i.e., gross premiums for terrorism less
         return premiums for terrorism)  during the period for which computation
         is being made,  plus the net  unearned  premiums  for  terrorism at the
         beginning of the period,  less the net unearned  premiums for terrorism
         at the end of the period; said net unearned premium for terrorism to be
         computed on the monthly pro rata basis.

D.       The minimum and deposit premium stipulated herein shall be fully earned
         as of the inception date of this Agreement and shall be paid in advance
         by the Company to


                                      -20-


<PAGE>


                                                                    No.3154-0031



         the Reinsurer in equal installments on 1/1, and 7/1, during the term of
         this Agreement.

                                   ARTICLE XIV
                                   -----------

REPORTS AND REMITTANCES
-----------------------

A.       The  Company  will  provide  the  Reinsurer  with  all  necessary  data
         respecting  premiums and losses,  including reserves thereon,  at dates
         and on forms as indicated below.

B.       The  Company  shall  render an account  within 45 days after the end of
         each quarter summarizing the following information,  by Agreement Year,
         relating to reinsurance  covered under this  Agreement  during the 2004
         Program Year:

         1.       A Statement of premiums including: policy number and effective
                  date;  insured name; line of business;  total written premium;
                  total unearned premium;  written terrorism  premium;  unearned
                  terrorism premium; ceded terrorism premium.

         2.       A Statement of Insured Losses including: company claim number;
                  insured name; claimant name; date of loss or accident;  policy
                  number and effective date;  line of business;  ceded paid loss
                  and  Loss  Adjustment  Expense;  ceded  subrogation,  salvage,
                  reimbursements or other available  recoveries;  ceded loss and
                  Loss Adjustment Expense reserves;  and Property Claim Services
                  catastrophe number (if applicable).

         3.       An Account Current  summarizing  minimum premium paid to date,
                  Insured  Losses  and  Loss   Adjustment   Expenses  paid,  any
                  subrogation,  salvage,  reimbursements or recoveries,  and any
                  net balance due either party hereunder.

         The  Reinsurer  shall remit any balance due the Company as indicated by
         the  aforementioned  Account  Current,  promptly  upon the  Reinsurer's
         receipt of the Account Current.

C.       Within 45 days after the expiration of this Agreement and at the end of
         each Agreement Year  thereafter,  until all premiums are accounted for,
         the Company  shall render to the Reinsurer a statement of the Company's
         Gross Net Earned Premium for terrorism on business hereunder during the
         term of this  Agreement and a calculation  of the premium due hereunder
         computed  by the  application  of the  rate set  forth  in the  Premium
         Article to the Company's Gross Net Earned Premium for terrorism. If the
         actual premium owed to the Reinsurer  under this Agreement is more than
         the minimum premium  stipulated in the Premium Article,  the additional
         premium shall be forwarded to the Reinsurer with the statement.


                                      -21-


<PAGE>


                                                                    No.3154-0031


D.       The Company shall notify the Reinsurer immediately,  in writing, of any
         loss  which may  result in a claim  under  this  Agreement  equal to or
         greater than $100,000 to the Reinsurer.  In addition, the Company shall
         immediately   provide  all  claim  related   information   specifically
         requested by the  Reinsurer on any claim  reported to the  Reinsurer in
         the monthly report herein.

E.       The Company has the  obligation  to  investigate  and defend  claims or
         suits affecting this  reinsurance and to pursue such claims or suits to
         final determination.  The Company,  when so requested,  will afford the
         Reinsurer an  opportunity  to be  associated  with the Company,  at the
         expense of the Reinsurer,  in the defense or control of any claim, suit
         or  proceeding  involving  this  reinsurance,  and the  Company and the
         Reinsurer  shall  cooperate  in every  respect  in the  defense of such
         claim, suit or proceeding.

                                   ARTICLE XV
                                   ----------

ERRORS AND OMISSIONS
--------------------

Inadvertent  errors or omissions  shall not relieve  either party from liability
which  would  have  attached  under the terms of the  Company's  policy and this
Agreement had such error or omission not occurred,  provided  that,  immediately
upon  discovery  the  responsible  party  notifies the other party  hereunder in
writing and takes prompt corrective action.

                                   ARTICLE XVI
                                   -----------

ACCESS TO RECORDS
-----------------

The Company shall place at the disposal of the Reinsurer and the Reinsurer shall
have the  right to  inspect,  through  its  authorized  representatives,  at all
reasonable  times  during the currency of this  Agreement  and  thereafter,  the
books,  records and papers of the Company pertaining to the reinsurance provided
hereunder and all claims made in connection therewith.

                                  ARTICLE XVII
                                  ------------

RESERVES AND TAXES
------------------

A.       The  Reinsurer  shall  maintain  legal  reserves with respect to claims
         hereunder.

B.       The Company  will be liable for all taxes on  premiums  reported to the
         Reinsurer  hereunder  and will  reimburse  the Reinsurer for such taxes
         where the Reinsurer is required to pay the same.



                                      -22-


<PAGE>


                                                                    No.3154-0031


                                  ARTICLE XVIII
                                  -------------

OFFSET
------

Each party  hereto  shall  have,  and may  exercise at any time and from time to
time,  the right to offset  any  balance  or  balances,  whether  on  account of
premiums or on account of losses or otherwise,  due from such party to the other
(or, if more than one, any other) party hereto under this Agreement or under any
other reinsurance  agreement heretofore or hereafter entered into by and between
them,  and may offset the same  against any balance or balances due or to become
due to the  former  from the  latter  under  the same or any  other  reinsurance
agreement  between them; and the party  asserting the right of offset shall have
and may exercise such right whether the balance or balances due or to become due
to such party from the other are on account of  premiums or on account of losses
or otherwise and regardless of the capacity,  whether as assuming  insurer or as
ceding  insurer,  in which each party acted under the agreement or, if more than
one, the different agreements involved, provided, 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
                                   -----------

INSOLVENCY
----------
(If more than one reinsured  company is included in the designation of "Company"
the  provisions  set forth in this  Article  shall  apply only to the  insolvent
company or companies)

In the  event  of the  insolvency  of  the  Company  and  the  appointment  of a
conservator, liquidator or statutory successor, the reinsurance provided by this
Agreement  shall be payable by the  Reinsurer  directly to the Company or to its
liquidator, receiver or statutory successor on the basis of the liability of the
Company  under the  contract  or  contracts  reinsured.  Subject to the right of
offset and the  verification  of coverage,  the Reinsurer shall pay its share of
the loss  without  diminution  because of the  insolvency  of the  Company.  The
liquidator,  receiver or statutory  successor of the Company  shall give written
notice of the  pendency  of each claim  against  the Company on a policy or bond
reinsured  within a reasonable  time after such claim is filed in the insolvency
proceeding.  During the pendency of such claim,  the  Reinsurer  may, at its own
expense, investigate such claim and interpose in the proceeding where such claim
is to be adjudicated  any defense or defenses which it may deem available to the
Company,  its  liquidator or receiver or statutory  successor.  Subject to court
approval, any expense thus incurred by the Reinsurer shall be chargeable against
the  Company  as  part of the  expense  of  liquidation  to the  extent  of such
proportionate  share of the benefit as shall  accrue to the Company  solely as a
result of the defense  undertaken by the  Reinsurer.  The  reinsurance  shall be
payable as set forth above except where this Agreement specifically provides for
the  payment  of  reinsurance  proceeds  to  another  party in the  event of the
insolvency of the Company.



                                      -23-


<PAGE>


                                                                    No.3154-0031


                                   ARTICLE XX
                                   ----------

COMMENCEMENT AND TERMINATION
----------------------------

A.       This Agreement  shall be effective for the Program Year beginning 12:01
         A.M. January 1, 2004 and terminating  12:00 Midnight December 31, 2004,
         at the location as determined under the Act.

B.       The Reinsurer  shall be discharged  and released of all liability as of
         the date of  termination  of this  Agreement for any Insured Loss under
         the  Company's  policies  occurring  on or  after  the date and time of
         termination  of  this  Agreement   unless   otherwise   directed  under
         applicable provisions of the Act.

C.       Notwithstanding  the  termination  of  this  Agreement  as  hereinabove
         provided,  the provisions of this Agreement  shall continue to apply to
         all unfinished  business  hereunder to the end that all the obligations
         and  liabilities  incurred  by  each  party  hereunder  prior  to  such
         termination shall be fully performed and discharged.



                                      -24-



<PAGE>


                                                                    No.3154-0031


IN WITNESS  WHEREOF the parties hereto have caused this Agreement to be executed
in duplicate this day of , 2004;

ACCEPTED:
PENN AMERICA INSURANCE COMPANY
PENN-STAR INSURANCE COMPANY
PENN-PATRIOT INSURANCE COMPANY


____________________________


and in Princeton, New Jersey, this         day of            ,2004.


                                               AMERICAN RE-INSURANCE COMPANY



                                               ____________________________
                                               Vice President


DATED:  June 4, 2004

RG/rg



                                      -25-


<PAGE>


                                                                    No.3154-0031



      NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - No. 1B

     (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
reinsurer 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 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  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


                                      -1-



<PAGE>


                                                                    No.3154-0031



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

         II.      Under   any   Medical   Payments   Coverage,   or  under   any
                  Supplementary  Payments  Provision  relating
                  to { immediate medical or surgical relief,
                                      to expenses incurred with respect
                       first  aid,
                  to { bodily injury, sickness, disease or death
                                      resulting  from the  hazardous  properties
                       of  bodily  injury
                  nuclear  material and arising out of the  operation of 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 materials" means source material, special
                  nuclear  material or byproduct  material;  "source  material,"
                  "special  nuclear  material,"  "byproduct  material"  have the
                  meanings given them in the Atomic Energy Act of 1954 or in any
                  law amendatory thereof; "spent fuel" means any fuel element or
                  fuel  component,  solid or  liquid,  which  has  been  used or
                  exposed to radiation in a nuclear  reactor;  "waste" means any
                  waste  material (1) containing  byproduct  material other than
                  the  tailings  or  wastes   produced  by  the   extraction  or
                  concentration  of uranium or  thorium  from any ore  processed
                  primarily  for its source  material  content and (2) resulting
                  from  the  operation  by any  person  or  organization  of any
                  nuclear  facility  included  within the  definition of nuclear
                  facility  under   paragraph  (a)  or  (b)  thereof;   "nuclear
                  facility" means

                  (a)      any nuclear reactor,

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

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

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



                                      -2-


<PAGE>


                                                                    No.3154-0031


                  and  includes  the  site  on  which  any of the  foregoing  is
                  located,  all  operations  conducted  on  such  site  and  all
                  premises used for such operations; "nuclear reactor" means any
                  apparatus  designed  or used to sustain  nuclear  fission in a
                  self-supporting  chain  reaction or to contain a critical mass
                  of  fissionable  material;   With  respect  to  injury  to  or
                  destruction  of property,  the word "injury" or  "destruction"
                  includes all forms of radioactive  contamination  of property.
                  "Property   damage"   includes   all   forms  of   radioactive
                  contamination of property.

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

                  (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.



                                      -3-




<PAGE>



                                                                    No.3154-0031



                       NUCLEAR INCIDENT EXCLUSION CLAUSE--
                       PHYSICAL DAMAGE--REINSURANCE--NO. 2

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

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

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

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

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

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

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

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

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

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

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

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

         (7) Reassured to be sole judge of what constitutes:

                  (a)      substantial quantities, and

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



                                      -1-


<PAGE>


                                                                    No.3154-0031


     Note.--Without  in any way  restricting  the  operation  of  paragraph  (1)
hereof, it is understood and agreed that:
         (a) all policies  issued by the  Reassured  on or before 31st  December
         1957 shall be free from the application of the other provisions of this
         Clause until expiry date or 31st December 1960  whichever  first occurs
         whereupon  all the  provisions  of this Clause  shall  apply,
         (b) With respect to any risk located in Canada policies issued by the
         Reassured on or before 31st December 1958 shall be free from the
         application of the other provisions of this Clause until expiry date or
         31st December 1960 whichever first occurs whereupon all the provisions
         of this Clause shall apply.



                                      -2-


<PAGE>


                                                                    No.3154-0031



        NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE AND LIABILITY
              (BOILER AND MACHINERY POLICIES) - REINSURANCE - No. 3

         (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  original  Boiler  and  Machinery  Insurance  contracts  of the
Reassured  (new,  renewal  and  replacement)  shall be  deemed  to  include  the
following provisions of this paragraph.

                This  Policy  does not apply to "loss,"  whether it be direct or
indirect, proximate or
remote

                (a)   from an Accident  caused directly or indirectly by nuclear
                      reaction,  nuclear radiation or radioactive contamination,
                      all whether controlled or uncontrolled; or

                (b)   from nuclear  reaction,  nuclear  radiation or radioactive
                      contamination,  all whether  controlled  or  uncontrolled,
                      caused  directly  or  indirectly  by,  contributed  to  or
                      aggravated by an Accident.

         (3)  However,  it is  agreed  that  loss  arising  out  of  the  use of
Radioactive  Isotopes  in any  form  is not  hereby  excluded  from  reinsurance
protection.

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

                (a)   all policies  issued by the Reassured to become  effective
                      on or  before  30th  April,  1958,  shall be free from the
                      application  of the other  provisions of this Clause until
                      expiry date or 30th April,  1961,  whichever first occurs,
                      whereupon all the provisions of this Clause shall apply,

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



                                      -1-


<PAGE>


                                                                    No.3154-0031


   NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - CANADA

           Applicable to policies in effect prior to January 1, 1985.

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

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

                  (1)      Nuclear reactor power plants including all auxiliary
                           property on the site, or

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

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

                  (4)      Installations  other than  those  listed in (3) above
                           using substantial  quantities of radioactive isotopes
                           or other products of nuclear fission.

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

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

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

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

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

         6. The term "prescribed substances" shall have the meaning given it by
the Atomic Energy Control Act R.S.C. 1946 c.37 or by any law amendatory thereof.

         7. The Reassured to be sole judge of what constitutes:

                  (a) substantial quantities, and

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


                                      -1-



<PAGE>



                                                                    No.3154-0031


         NOTE:- Without in any way  restricting  the operation of paragraph 1 of
this clause, it is agreed that policies issued by the Reassured  effective on or
before  31st  December  1958  shall be free  from the  application  of the other
provisions  of this clause until expiry date or 31st  December  1961,  whichever
first occurs, whereupon all the provisions of this clause shall apply.




                                      -2-



<PAGE>


                                                                    No.3154-0031




      NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA

           Applicable to policies in effect prior to January 1, 1985.

         1. This Contract  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 agreed that for all  purposes  of this  Contract  all the  original
liability  contracts of the Reassured,  whether new, renewal or replacement,  of
the following classes, namely,

                  Personal Liability,

                  Farmers Liability,

                  Storekeepers Liability,

which  become  effective  on or after 31st  December,  1962,  shall be deemed to
include, from their inception dates and thereafter, the following provision:-

         Limited Exclusion Provision

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

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

         3. Without in any way  restricting the operation of paragraph 1 of this
clause it is agreed that for all  purposes  of this  Contract  all the  original
liability  contracts of the Reassured,  whether new, renewal or replacement,  of
any  class  whatsoever  (other  than  Personal  Liability,   Farmers  Liability,
Storekeepers   Liability  or  Automobile  Liability  contracts),   which  become
effective  on or after 31st  December,  1962,  shall be deemed to include,  from
their inception dates and thereafter, the following provision:-

         Broad Exclusion Provision

                  This Policy does not apply to injury, sickness, disease,
         death, damage or destruction

                           (a)      with respect to which an Insured  under this
                                    Policy is also  insured  under a contract of
                                    nuclear energy liability  insurance (whether
                                    the Insured is named in such contract or not
                                    and whether or not it is legally enforceable
                                    by the Insured) issued by the Nuclear

                                    Insurance Association of Canada or any other
                                    group  or pool of  insurers  or  would be an
                                    Insured  under any such  policy  but for its
                                    termination  upon exhaustion of its limit of
                                    liability; or

                           (b)      resulting  directly or  indirectly  from the
                                    nuclear energy hazard arising from:

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


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<PAGE>


                                                                    No.3154-0031


                                    (2)     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; and

                                    (3)     the   transportation,   consumption,
                                            possession,  handling,  disposal  or
                                            use of radioactive  material  (other
                                            than   radioisotopes   away  from  a
                                            nuclear  facility)  sold,   handled,
                                            used or distributed by an Insured.

                           As used in this Endorsement:

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

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

                                    (iii)   The term "nuclear facility" means:

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

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

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

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



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



                                      -2-


<PAGE>


                                                                    No.3154-0031



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



                                      -3-


<PAGE>


                                                                    No.3154-0031


   NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - CANADA

                                     Rev. 83

     Applicable to policies becoming effective on and after January 1, 1985.

                                   (See Note)

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

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

         (1)      Nuclear reactor power plants including all auxiliary property
                  on the site, or

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

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

         (4)      Installations  other  than  those  listed in (3)  above  using
                  substantial   quantities  of  radioactive  isotopes  or  other
                  products of nuclear fission.

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

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

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

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

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

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

7. The Company to be sole judge of what constitutes:

                  (a)      substantial quantities, and

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

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


<PAGE>


                                                                    No.3154-0031



NOTE:          In addition,  this clause is applicable to all original contracts
               of the  Company in effect on and after  January  1, 1985  whether
               new,   renewal  or  replacement   which   incorporate  a  nuclear
               incident/radioactive contamination exclusion as contained in Form
               IBC 1105 1-82.



<PAGE>


                                                                    No.3154-0031


        NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY -REINSURANCE CANADA
                                     REV. 83
     Applicable to policies becoming effective on and after January 1, 1985.
                                   (See Note)

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

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

                           Personal Liability,
                           Farmers Liability,
                           Storekeepers Liability,

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

         Limited Exclusion Provision

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

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

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

         Broad Exclusion Provision

                  It is agreed that this policy does not apply:

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

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

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



                                      -1-



<PAGE>


                                                                    No.3154-0031


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

                                    As used in this policy:

                                    1.      The  term  "nuclear  energy  hazard"
                                            means   the   radioactive,    toxic,
                                            explosive    or   other    hazardous
                                            properties of radioactive material;
                                    2.      The  term   "radioactive   material"
                                            means uranium,  thorium,  plutonium,
                                            neptunium,      their     respective
                                            derivatives      and      compounds,
                                            radioactive    isotopes   of   other
                                            elements  and any  other  substances
                                            that the Atomic Energy Control Board
                                            may,  by  regulation,  designate  as
                                            being prescribed  substances capable
                                            of releasing  atomic  energy,  or as
                                            being  requisite for the production,
                                            use or application of atomic energy;
                                    3.      The term "nuclear facility" means:

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

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

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

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



                                      -2-



<PAGE>


                                                                    No.3154-0031


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

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

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

         NOTE:    In addition, the clause is applicable to all the original
                  liability contracts of the Company in effect after January 1,
                  1985 whether, new, renewal or replacement of any class
                  whatsoever, (other than Personal Liability, Farmers Liability,
                  Storekeepers Liability or Automobile Liability contracts)
                  which incorporate a Nuclear Energy Liability Exclusion as
                  contained in Form IBC 2000 1-83.



                                      -3-



<PAGE>


                                                                    No.3154-0031


CANADA
------

            NUCLEAR EXCLUSION CLAUSE - PHYSICAL DAMAGE AND LIABILITY

                  (BOILER AND MACHINERY POLICIES) - REINSURANCE

         (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 original Boiler and Machinery Insurance or Reinsurance contracts
of the  Reassured  shall be deemed to include the  following  provisions of this
paragraph;

         This Policy does not apply to loss,  whether it be direct or  indirect,
proximate or remote

                  (a)      from an Accident  caused  directly or  indirectly  by
                           nuclear  reaction,  nuclear  radiation or radioactive
                           contamination,     all    whether    controlled    or
                           uncontrolled; or

                  (b)      from   nuclear   reaction,   nuclear   radiation   or
                           radioactive contamination,  all whether controlled or
                           uncontrolled,   caused  directly  or  indirectly  by,
                           contributed to or aggravated by an Accident.

         (3) However,  it is  agreed  that  loss  arising  out  of  the  use of
Radioactive Isotopes in any form hereby excluded from reinsurance protection.

         (4) Without in any way  restricting  the  operation  of  paragraph  (1)
hereof,  it is  understood  and agreed  that  policies  issued by the  Reassured
effective on or before 31st December,  1958,  shall be free from the application
of the other provisions of this Clause until expiry date or 31st December, 1961,
whichever first occurs, whereupon all the provisions of this clause shall apply.



<PAGE>