EXH. 10.3 2015 Top Layer 7 CAT Contract






Exhibit 10.3












PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
Effective:  June 1, 2015




issued to




UNITED PROPERTY & CASUALTY INSURANCE COMPANY
St. Petersburg, Florida
and
FAMILY SECURITY INSURANCE COMPANY, INC.
St. Petersburg, Florida
including any and/or all companies that are or hereafter become affiliated therewith















TABLE OF CONTENTS
	
					
	1.
	 
	BUSINESS COVERED
	 
	3

	2.
	 
	DEFINITIONS
	 
	3

	3.
	 
	TERM
	 
	4

	4.
	 
	TERRITORY
	 
	5

	5.
	 
	EXCLUSIONS
	 
	5

	6.
	 
	SPECIAL ACCEPTANCE
	 
	6

	7.
	 
	RETENTION AND LIMIT
	 
	6

	8.
	 
	FLORIDA HURRICANE CATASTROPHE FUND
	 
	7

	9.
	 
	OTHER REINSURANCE
	 
	7

	10.
	 
	LOSS NOTICES AND SETTLEMENTS
	 
	8

	11.
	 
	PREMIUM
	 
	8

	12.
	 
	SALVAGE AND SUBROGATION
	 
	9

	13.
	 
	OFFSET
	 
	9

	14.
	 
	LATE PAYMENTS
	 
	9

	15.
	 
	LIABILITY OF THE REINSURER
	 
	10

	16.
	 
	NET RETAINED LINES
	 
	10

	17.
	 
	TRUST ACCOUNT
	 
	10

	18.
	 
	COLLATERAL RELEASE
	 
	12

	19.
	 
	ACCESS TO RECORDS
	 
	13

	20.
	 
	CONFIDENTIALITY
	 
	13

	21.
	 
	ERRORS AND OMMISSIONS
	 
	14

	22.
	 
	CURRENCY
	 
	14

	23.
	 
	TAXES
	 
	14

	24.
	 
	FEDERAL EXCISE TAX
	 
	14

	25.
	 
	FOREIGN ACCOUNT TAX COMPLIANCE ACT
	 
	14

	26.
	 
	INSOLVENCY
	 
	14

	27.
	 
	ARBITRATION
	 
	15

	28.
	 
	SERVICE OF SUIT
	 
	17

	29.
	 
	SEVERABILITY
	 
	17

	30.
	 
	GOVERNING LAW
	 
	17

	31.
	 
	AGENCY
	 
	17

	32.
	 
	ENTIRE AGREEMENT
	 
	17

	33.
	 
	MODE OF EXECUTION
	 
	17

	34.
	 
	INTERMEDIARY
	 
	19










ATTACHMENTS
Schedule A
Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (USA)
Terrorism Exclusion









ARTICLE 1 - BUSINESS COVERED


By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies, contracts and binders of insurance or reinsurance (hereinafter called “Policies”) in force at the effective time and date hereof or issued or renewed at or after that time and date, covering business classified by the Company as Property business, including business assumed by the Company in connection with depopulation of Policies from insurers of last resort, including but not limited to, Citizens Property Insurance Corporation and Texas Windstorm Insurance Association, subject to the terms, conditions and limitations set forth herein and in Schedule A, attached to and forming part of this Contract.


ARTICLE 2 - DEFINITIONS


		
	A.
	“Ultimate Net Loss” as used herein shall be defined as the sum or sums (including Loss in Excess of Policy Limits, Extra Contractual Obligations, Loss Adjustment Expense, as hereinafter defined, and any Loss Adjustment Expense/fair rental value unrecoverable from the FHCF) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not.  Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company’s Ultimate Net Loss has been ascertained.




		
	B.
	“Loss in Excess of Policy Limits” and “Extra Contractual Obligations” as used herein shall be defined as follows:




		
	1.
	“Loss in Excess of Policy Limits” shall mean 90% of any amount paid or payable by the Company in excess of its Policy limits, but otherwise within the terms of its Policy, such loss in excess of the Company’s Policy limits having been incurred because of, but not limited to, failure by the Company to settle within the Policy limits or by reason of the Company’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.




		
	2.
	“Extra Contractual Obligations” shall mean 90% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the Policy limits or by reason of the Company’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  An Extra Contractual Obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the Policy.




Notwithstanding anything stated herein, this Contract shall not apply to any Loss in Excess of Policy Limits or any Extra Contractual Obligation incurred by the Company as a result of final legal adjudication of a fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.  Further, it is understood that Loss Adjustment Expense in connection with Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered under this Contract in the same manner as other Loss Adjustment Expense.


Savings Clause (Applicable only if the Subscribing Reinsurer is domiciled in the State of New York):  In no event shall coverage be provided to the extent that such coverage is not permitted under New York law.


		
	C.
	“Loss Adjustment Expense” as used herein shall be defined as all costs and expenses allocable to a specific claim that are incurred by the Company in the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim, regardless of how such costs and expenses are allocated for statutory reporting purposes, including but not limited to court costs and costs of supersedes and appeal bonds, and including but not limited to a) pre-judgment interest, unless included as part of the award or judgment; b) post-judgment interest; c) legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto; d) monitoring counsel expenses; and e) a pro rata share of salaries and expenses of Company field employees, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract.  Loss Adjustment Expense does not include salaries and expenses of employees, other than (e) above, and office and other overhead expenses.







3






		
	D.
	“Loss Occurrence” as used herein shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one “Loss Occurrence” shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term “Loss Occurrence” shall be further defined as follows: 




		
	1.
	As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 144 consecutive hours arising out of and directly occasioned by the same event.  However, the event need not be limited to one state or province or states or provinces contiguous thereto. 




		
	2.
	As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event.  The maximum duration of 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period. 




		
	3.
	As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the introductory portion of this paragraph D) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company’s “Loss Occurrence.” 




		
	4.
	As regards “freeze,” only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting of frozen pipes and tanks or freezing and/or melting snow or sleet) may be included in the Company’s “Loss Occurrence.” 




The Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. 


Only one period of consecutive hours shall apply with respect to one event, except that, as respects those “Loss Occurrences” referred to in subparagraph 2 above, if the disaster, accident or loss occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident or loss into two or more “Loss Occurrences,” provided that no two periods overlap and no individual loss is included in more than one such period, and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. 


It is understood that losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one “Loss Occurrence.”  Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils and no single “Loss Occurrence” shall encompass a time period greater than 168 consecutive hours.


		
	E.
	“Term of this Contract” as used herein shall be defined as the period from 12:01 a.m., Eastern Time, June 1, 2015, until 12:01 a.m., Eastern Time, June 1, 2016.  However, if this Contract is terminated, “Term of this Contract” as used herein shall mean the period from 12:01 a.m., Eastern Time, June 1, 2015, until the effective time and date of termination.




ARTICLE 3 - TERM


		
	A.
	This Contract shall become effective at 12:01 a.m., Eastern Time, June 1, 2015, with respect to losses arising out of Loss Occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Time, June 1, 2016, unless earlier terminated in accordance with the provisions of this Contract.




		
	B.
	If this Contract is terminated or expires while a Loss Occurrence covered hereunder is in progress, the Reinsurer’s liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire Loss Occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such Loss Occurrence is claimed against any renewal or replacement of this Contract.





4






		
	C.
	Notwithstanding the expiration or termination of this Contract or the Reinsurer’s participation hereunder, the provisions of this Contract will continue to apply to all obligations and liabilities of the parties incurred hereunder to the end that all such obligations and liabilities will be fully discharged and performed.




ARTICLE 4 - TERRITORY


The territorial limits of this Contract shall follow the Company’s Policies.


ARTICLE 5 - EXCLUSIONS


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


		
	1.
	Reinsurance assumed, except as respects the following:  




		
	a.
	Business assumed as a result of the depopulation of any insurer of last resort, including but not limited to the Citizens Property Insurance Corporation and the Texas Windstorm Insurance Association, and any successor organization of such entities; and/or 




		
	b.
	Any business assumed from private carriers as a result of depopulations; and/or




		
	c.
	Intercompany reinsurance between the Company and its affiliates; and/or




		
	d.
	Reinsurance assumed by the Company where the Policies involved are to be reissued as Policies of the Company at the next anniversary or expiration.




		
	2.
	Financial guarantee and/or insolvency.




		
	3.
	Third party liability and medical payments business.




		
	4.
	Liability as a member, subscriber or reinsurer of any pool, syndicate or association and any combination of insurers or reinsurers formed for the purpose of covering specific perils, specific classes of business or for the purpose of insuring risks located in specific geographical areas and any assessments from Citizens Property Insurance Company and any successor organization of this entity.




		
	5.
	All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency Fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.




		
	6.
	Loss or liability from any pool, association or syndicate and any assessment or similar demand for payment related to the Florida Hurricane Catastrophe Fund.




		
	7.
	All Accident and Health, Fidelity, Surety, Boiler and Machinery, Workers’ Compensation and Credit business.




		
	8.
	All Ocean Marine business.




		
	9.
	Flood and/or earthquake when written as such, but only as respects those Policies issued in the State of Florida.




		
	10.
	Difference in Conditions insurances and similar kinds of insurances, however styled, insofar as they may provide coverage for losses from the following causes:




		
	a.
	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 wind-driven or not, except when covering property in transit; or




		
	b.
	Earthquake, landslide, subsidence or other earth movement or volcanic eruption, except when covering 



5






property in transit.


		
	11.
	Mortgage Impairment insurances and similar kinds of insurances, however styled.




		
	12.
	All Automobile business.




		
	13.
	Loss or damage directly or indirectly occasioned by, happening through or in consequences of war, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, military or usurped power, or confiscation or nationalization or requisition or destruction of or damage to property by or under the order of any government or public or local authority.




		
	14.
	Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke.  Nevertheless, this exclusion does not preclude any payment of the cost of removal of debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25% of the Company’s property loss under the applicable original Policy.




		
	15.
	Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance” attached to and forming part of this Contract.




		
	16.
	All liability arising out of mold, spores and/or fungus but this exclusion shall not apply to those losses which follow as a direct result of a loss caused by a peril otherwise covered hereunder.




		
	17.
	Terrorism, in accordance with the “Terrorism Exclusion Clause - Property Treaty Reinsurance - NMA2930c” attached to and forming part of this Contract.




		
	B.
	The Reinsurer shall not be required to provide cover or pay any claim or provide any benefit hereunder that would cause the Reinsurer to be in violation of any applicable trade or economic sanctions, laws or regulations.




		
	C.
	Should any judicial, regulatory or legislative entity having legal jurisdiction invalidate any exclusion on the Company’s Policy, any amount of loss for which the Company is liable because of such invalidation will not be excluded hereunder.




		
	D.
	The exclusions set forth in paragraph A above, with the exception of subparagraphs 2, 4, 5, 6, 13, 15 and 17, shall not apply when they are merely incidental to the main operations or exposures of the insured, provided such main operations or exposures are also covered by the Company and are not themselves excluded from the scope of this Contract.  The Company will be the sole judge of what is “incidental.”




		
	E.
	Should the Company, by reason of an inadvertent act, error or omission, be bound to afford coverage excluded hereunder or should an existing insured extend its operations to include coverage excluded hereunder, the Reinsurer shall waive the exclusion(s) set forth in paragraph A above, with the exception of subparagraphs 2, 4, 5, 6, 13, 15 and 17.  The duration of said waiver shall not extend beyond the time that notice of such coverage has been received by the responsible underwriting authority of the Company plus the minimum time period thereafter for the Company to terminate such coverage.




ARTICLE 6 - SPECIAL ACCEPTANCE


The Company may submit to the Reinsurer for special acceptance business not covered by this Contract.  Such business, if accepted by the Reinsurer, shall be covered hereunder, and shall be subject to the terms and conditions of this Contract, except as otherwise modified by such special acceptance.  The Reinsurer shall be deemed to have accepted a risk if it has not responded within five business days after receipt of the request for special acceptance.  Any business covered by special acceptance under the reinsurance contract being replaced by this Contract will be automatically covered hereunder.  Further, in the event a Subscribing Reinsurer becomes a party to this Contract subsequent to the special acceptance of any business not normally covered hereunder, the Subscribing Reinsurer will be deemed to have accepted such business for coverage hereunder.


ARTICLE 7 - RETENTION AND LIMIT


		
	A.
	On or before 21 days following the commencement of a Loss Occurrence with estimated Ultimate Net Loss equal to $400,000,000 or greater (prior to inuring reinsurance recoveries) as determined by the Company in the Company’s sole judgment (hereinafter the “Activation Event”), the Company shall have the option to elect coverage hereunder applicable to all Loss Occurrences commencing after the Activation Event in accordance with the provisions of paragraphs B, C 



6






and D below.  Such coverage elections shall be made within 21 days following the commencement of the Activation Event, and shall not be subject to change thereafter.


		
	B.
	The Company shall elect a retention equal to either $200,000,000 or $400,000,000, and such amount shall hereinafter be referred to as the “Retention.”




		
	C.
	The Company shall elect a limit equal to any amount between $0 and $95,000,000, and such amount shall hereinafter be referred to as the “Limit.”




D.    Following the Company’s election of coverage in accordance with the provisions of paragraphs A, B and C above following the commencement of the Activation Event, if any, the Company shall retain and be liable for the first amount of Ultimate Net Loss equal to the Retention arising out of each Loss Occurrence commencing during the Term of this Contract subsequent to the commencement of the Activation Event.  The Reinsurer shall then be liable for the amount by which such Ultimate Net Loss exceeds the Retention, but the liability of the Reinsurer shall not exceed the Limit as respects any one Loss Occurrence commencing during the Term of this Contract subsequent to the commencement of the Activation Event, nor shall it exceed the Limit as respects all Loss Occurrences commencing during the Term of this Contract subsequent to the commencement of the Activation Event.


ARTICLE 8 - FLORIDA HURRICANE CATASTROPHE FUND


		
	A.
	The Company shall purchase mandatory coverage from the Florida Hurricane Catastrophe Fund (hereinafter referred to as the “FHCF”) with the following provisional limit and retention:




45% of $631,247,000 excess of $230,356,000 (hereinafter referred to as the “Mandatory Layer”)


The provisional limit and retention above may increase or decrease in accordance with the provisions of the reimbursement contract between the Company and the State Board of Administration of the State of Florida (hereinafter referred to as the “SBA”).


		
	B.
	Any loss reimbursement paid or payable to the Company for the Mandatory Layer provided by the FHCF and resulting from Loss Occurrences commencing during the Term of this Contract, shall inure to the benefit of this Contract whether collectible or not, and shall be deemed paid to the Company in accordance with the reimbursement contract between the Company and the SBA at the projected payout multiple set forth therein as of the date hereof (calculated based on a claims paying capacity of the FHCF of $17,000,000,000 and will be deemed not to be reduced by any subsequent recalculation of the projected payout multiple or the final payout multiple due to any reduction or exhaustion of the FHCF’s claims-paying capacity). 




		
	C.
	Prior to final calculation of the Company’s FHCF retention and payout for the Mandatory Layer coverage provided by the reimbursement contract between the Company and the SBA, the Reinsurer’s liability hereunder will be calculated provisionally based on the projected FHCF payout and in accordance with paragraphs A and B above.  Following the FHCF’s final calculation of the payout for the Mandatory Layer provided by the reimbursement contract, the Ultimate Net Loss under this Contract will be recalculated.  If, as a result of such calculation, the loss to the Reinsurer under this Contract in any one Loss Occurrence is less than the amount previously paid by the Reinsurer hereunder, the Company shall promptly remit the difference to the Reinsurer.  If the loss to the Reinsurer under this Contract in any one Loss Occurrence is greater than the amount previously paid by the Reinsurer hereunder, the Reinsurer shall promptly remit the difference to the Company.




D.    If an FHCF reimbursement amount is based on the Company’s losses in more than one Loss Occurrence commencing 
during the Term of this Contract and the FHCF does not designate the amount allocable to each Loss Occurrence, the FHCF reimbursement amount shall be prorated in the proportion that the Company’s losses in each Loss Occurrence bear to the Company’s total losses arising out of all Loss Occurrences to which the FHCF reimbursement applies. 


ARTICLE 9 - OTHER REINSURANCE


		
	A.
	The Company shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.




		
	B.
	The Company shall maintain, or be deemed to maintain in place the following excess of loss reinsurance, recoveries under which shall inure to the benefit of this Contract:



7








		
	1.
	Coverage A:  100% of $20,000,000 excess of $25,000,000 per occurrence with an annual aggregate limit of $20,000,000;




		
	2.
	Coverage B:  100% of $100,000,000 excess of $25,000,000 per occurrence with an annual aggregate limit of $100,000,000 and recoveries under Coverage A shall inure to the benefit of Coverage B;




		
	3.
	Coverage C:  100% of $100,000,000 excess of $25,000,000 per occurrence with an annual aggregate limit of $100,000,000 and recoveries under Coverage A and Coverage B shall inure to the benefit of Coverage C;




		
	4.
	Coverage D:  100% of $115,000,000 excess of $25,000,000 per occurrence with an annual aggregate limit of $115,000,000 and recoveries under Coverage A, Coverage B and Coverage C shall inure to the benefit of Coverage D;




		
	5.
	Coverage E:  100% of $125,000,000 excess of $25,000,000 per occurrence with an annual aggregate limit of $125,000,000 and recoveries under Coverage A, Coverage B, Coverage C and Coverage D shall inure to the benefit of Coverage E;




		
	6.
	Coverage F:  100% of $125,000,000 excess of $25,000,000 per occurrence with an annual aggregate limit of $125,000,000 and recoveries under Coverage A, Coverage B, Coverage C, Coverage D and Coverage E shall inure to the benefit of Coverage F.




		
	C.
	The Company shall maintain, or be deemed to maintain in place excess of loss reinsurance, providing coverage on the same basis as the FHCF for the layer 45% of 631,247,000 excess of $230,356,000 each Loss Occurrence, subject to an annual limit of 45% of $631,247,000, recoveries under which shall inure to the benefit of this Contract.  It is understood that such reinsurance shall not adjust to correspond to the final Mandatory Layer provided by the FHCF.




ARTICLE 10 - LOSS NOTICES AND SETTLEMENTS


		
	A.
	Whenever losses sustained by the Company appear likely, in the Company’s opinion, to result in a claim hereunder, the Company shall notify the Reinsurer.




		
	B.
	The Company alone and in its sole discretion shall adjust, settle or compromise all claims and losses hereunder.




		
	C.
	The Company shall provide the Reinsurer with non-binding estimates of its Ultimate Net Loss from any one Loss Occurrence that is estimated to be equal to or greater than the retention, as reported on the Company’s books and records.  The estimate shall be delivered from the Company to the Reinsurer within the first 10 business days of each calendar month, starting the month following the date of the first Loss Occurrence subsequent to the Activation Event, if any, estimated to be equal to or greater than the retention.




ARTICLE 11 - PREMIUM


		
	A.
	As premium for the reinsurance coverage provided hereunder, the Company shall pay the Reinsurer premium equal to $1,425,000 in four equal installments of $356,250 on July 1 and October 1 of 2015 and January 1 and April 1 of 2016.




		
	B.
	Following the Activation Event, if any, in the event the Company elects a Retention equal to $200,000,000, the Company shall pay additional premium to the Reinsurer equal to 0.185 times the Limit.  Such premium shall be paid in three equal installments due within five business days following the Reinsurer’s deposit of Additional Collateral into the Trust Account in accordance with the provisions of paragraph A of the Trust Account Article, January 1 and April 1 of 2016.




		
	C.
	Following the Activation Event, if any, in the event the Company elects a Retention equal to $400,000,000, the Company shall pay additional premium to the Reinsurer equal to 0.105 times the Limit.  Such premium shall be paid in three equal installments due within five business days following the Reinsurer’s deposit of Additional Collateral into the Trust Account in accordance with the provisions of paragraph A of the Trust Account Article, January 1 and April 1 of 2016.




		
	D.
	In the event the Company pays additional premium in accordance with the provisions of paragraph B or C above, the Company, at its option at any time on or before May 31, 2016, may elect to declare that no loss recoveries will be made under this Contract and that the Reinsurer will be relieved of all past, present and future liability under this Contract.  If the Company elects to make this declaration, the effective date of commutation will be the effective date of termination 



8






or expiration of this Contract.  Upon receipt of this written declaration, the Reinsurer shall return to the Company 10% of the additional premium paid by the Company in accordance with the provisions of paragraph B or C above, as applicable.  Upon receipt thereof, both parties shall be relieved of all liability for all losses occurring during the term of this Contract, whether known or unknown


ARTICLE 12 - SALVAGE AND SUBROGATION


		
	A.
	The Reinsurer shall be credited with salvage or subrogation recoveries (i.e., reimbursement obtained or recovery made by the Company) on account of claims and settlements involving reinsurance hereunder.  Recoveries therefrom shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss.  The Company hereby agrees to enforce its rights to salvage and subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights, provided it is economically reasonable, in the Company’s opinion, to do so.


    
		
	B.
	The expense incurred by the Company in pursuing any such reimbursement or recovery (excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer) shall be borne by each party in proportion to its benefit (if any) from the recovery.  If the recovery expense exceeds the amount recovered, the amount recovered (if any) shall be applied to the reimbursement of recovery expense incurred by the Company, and the remaining expense as well as any originally incurred Loss Adjustment Expense shall be included in the Company’s Ultimate Net Loss.






ARTICLE 13 - OFFSET


The Company and the Reinsurer, each at its option, may offset any balance or balances, whether on account of premiums or losses or otherwise, due from one party to the other under the terms and conditions of this Contract; provided, however, that in the event of the insolvency of a party hereto, offsets shall be allowed only in accordance with applicable statutes and regulations.


ARTICLE 14 - LATE PAYMENTS


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




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




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




		
	2.
	1/365th of the U.S. prime rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made plus 3%; times




		
	3.
	The amount past due, including accrued interest.




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


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




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




		
	2.
	Any claim or loss payment due the Company hereunder shall be deemed due 10 business days after the proof of loss or demand for payment is transmitted to the Reinsurer.  If such loss or claim payment is not received 



9






within the 10 business days, interest will accrue on the payment or amount overdue in accordance with paragraph B of this Article, from the date the proof of loss or demand for payment was transmitted to the Reinsurer.


		
	3.
	As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of this paragraph, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 business days following transmittal of written notification that the provisions of this Article have been invoked.




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




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








ARTICLE 15 - LIABILITY OF THE REINSURER


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




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




ARTICLE 16 - NET RETAINED LINES


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




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




ARTICLE 17 - TRUST ACCOUNT


		
	A.
	On June 1, 2015, or as soon as practicable after the execution of this Contract, the Reinsurer (as Grantor) shall enter into the Trust Agreement with the Company (as Beneficiary) and the Trustee, pursuant to which the Reinsurer shall provide collateral in the form of Permitted Investments (as defined in the Trust Agreement) deposited and held in the Trust Account, with such assets having a market value at time of deposit which is greater than or equal to $19,000,000 (the “Initial Collateral”).  It is understood that deposit premium installments (net of applicable federal excise tax and brokerage) paid by the Company in accordance with the provisions of the Premium Article shall be deposited directly on behalf of the Reinsurer into the Trust Account for credit against the Reinsurer’s security Obligations.  It is understood that brokerage and federal excise tax applicable to the full premium shall be withheld from the first premium installment and subsequent premium installments will be deposited into the Trust Account in full.  In the event any subsequent premium installment is not deposited into the Trust Account or offset against a loss hereunder, brokerage and federal excise tax applicable to such premium installment shall be returned by the Intermediary to the Reinsurer.  Following the Activation Event and the Company’s optional election of coverage in accordance with the provisions of the Retention and Limit Article, if any, the Reinsurer shall deposit assets having a market value at time of deposit which is greater than or equal to the positive 



10






difference, if any, between (a) the Limit; less (b) initial premium (net of applicable brokerage and federal excise tax) due the Reinsurer in accordance with the provisions of paragraph A of the Premium Article; less (c) additional premium (net of applicable brokerage and federal excise tax) due the Reinsurer in accordance with the provisions of paragraph B or paragraph C of the Premium Article; less (d) Initial Collateral.  Such amount shall hereinafter be referred to as the “Additional Collateral.”  It is understood that brokerage and federal excise tax applicable to the full additional premium shall be withheld from the first premium installment and subsequent premium installments will be deposited into the Trust Account in full.  In the event any subsequent premium installment is not deposited into the Trust Account or offset against a loss hereunder, brokerage and federal excise tax applicable to such premium installment shall be returned by the Intermediary to the Reinsurer.  Notwithstanding the foregoing, in the event the Reinsurer does not deposit such Additional Collateral within 10 business days following notification of the Company’s coverage election in accordance with the provisions of paragraphs A, B and C of the Retention and Limit Article, the Company shall terminate the Reinsurer’s share in this Contract and shall withdraw the Initial Collateral from the Trust Account.  In such event the parties hereunder shall have no further obligations under this Contract.  The parties agree that the termination and withdraw rights specified in this paragraph A shall be the sole and exclusive remedy of the Company for any failure of the Reinsurer to deposit Additional Collateral after the Company has notified the Reinsurer of the amount of limit the Company has chosen to activate.  In the event of termination, no premium shall be due the Reinsurer hereunder and the Reinsurer shall have no liability for losses arising out of Loss Occurrences commencing during the term of this Contract.


		
	B.
	The Company hereby acknowledges and agrees that the limitations set out in the Limited Recourse and Bermuda Regulations Article in each Subscribing Reinsurer’s respective Interests and Liability Agreement shall, without limiting its application to this Contract as a whole, apply in respect of the Obligations of the Subscribing Reinsurer under the Trust Account.




		
	C.
	At any time prior to termination or expiration of this Contract, if the Value of the Assets in the Trust Account is less than the Reinsurer’s Obligations hereunder, the Reinsurer shall promptly deposit the difference into the Trust Account.  The term “Value” as used herein shall be an amount equal to the sum of the face value of Permitted Investments as defined in the Trust Agreement. 




		
	D.
	The term “Obligations” as used in this Article shall mean, during the term of this Contract, the greater of:




		
	1.
	On or before the Activation Event and the Company’s optional election of coverage in accordance with the provisions of the Retention and Limit Article, if any, $19,000,000 plus any premium amounts (net of applicable federal excise tax and brokerage) deposited by the Company into the Trust Account.  Following the Activation Event and the Company’s optional election of coverage in accordance with the provisions of the Retention and Limit Article, if any, the Limit, less losses and loss adjustment expenses recovered from the Reinsurer, less any premium owed to the Reinsurer by the Company under the terms of this Contract which has, contrary to the terms of this Contract, not been paid by the Company to the Reinsurer (or to the Trust Account on behalf of the Reinsurer), subject to the automatic termination provisions set forth in paragraph A above; or




		
	2.
	The reinsured losses and allocated loss adjustment expenses paid by the Company hereunder, but not recovered from the Reinsurer, reserves for reinsured losses reported and outstanding hereunder, reserves for reinsured losses incurred but not reported hereunder, and reserves for allocated reinsured loss adjustment expenses and unearned premiums hereunder.




		
	E.
	The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said Trust Account may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:




		
	1.
	To reimburse the Company for the Reinsurer’s share of unearned premium on account of cancellation, unless paid in cash by the Reinsurer;




		
	2.
	To reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and which has not otherwise been paid;




		
	3.
	To fund a cash account in the amount equal to the Reinsurer’s Obligations, if said Trust Account has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;




		
	4.
	To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer’s Obligations, if so requested by the Reinsurer.



11








In the event the amount drawn by the Company on the Trust Account is in excess of the actual amount required, the Company shall hold such amounts in constructive trust and return to the Reinsurer the excess amount so drawn within 10 days of receiving notice of the amount due.


ARTICLE 18 - COLLATERAL RELEASE


		
	A.
	At the expiration or termination of this Contract, if the Trust Agreement has not yet been terminated, the Company shall calculate, on a monthly basis, how much, if any, of the collateral shall be released from the Trust Account, as follows:




		
	1.
	For each potentially covered Loss Occurrence following the Activation Event and the Company’s optional election of coverage in accordance with the provisions of the Retention and Limit Article, if any, the Company shall multiply the Loss Amount (being equal to the sum of losses and Loss Adjustment Expense paid plus reserves for losses and Loss Adjustment Expense outstanding plus reserves for losses incurred but not reported) by the appropriate Buffer Loss Factor from the table below, based upon the type of Loss Occurrence and the number of months which have elapsed since the event.  The product of this calculation shall be defined as the Buffered Loss Amount (“BLA”).




	
				
	 
	Buffer Loss Factor Table

	Number of Calendar Months Since Date of Loss Occurrence
	



Windstorm*
/Brushfire
	





Earthquake
and Fire
 Following
	Other

	0 to 3
	200%
	300%
	250%

	> 3 to 6
	150%
	200%
	175%

	> 6 to 9
	125%
	175%
	150%

	> 9 to 12
	110%
	150%
	130%

	> 12 to 15
	105%
	125%
	115%

	> 15 to 18
	100%
	120%
	110%

	Thereafter
	100%
	100%
	100%




* For the purpose of this Article, the term “Windstorm” shall include Hurricane, Storm, Tornado, Cyclone and Hail.


		
	2.
	Each BLA will then be reduced by inuring reinsurance recoveries and the Retention to the Limit.  The Presumed Ultimate Net Loss will equal the sum of these contributions.




		
	3.
	The Presumed Total Ceded Loss will equal the Presumed Ultimate Net Loss multiplied by the Reinsurer’s share of the Limit.  An amount equal to the Presumed Total Ceded Loss less losses paid by the Reinsurer under this Contract shall be retained in the Trust Account and any excess in the Trust Account over such amount shall be released to the Reinsurer.




		
	4.
	Notwithstanding the aforementioned, the Reinsurer and the Company agree to consider the release of collateral.  The intention is to release collateral for all limits for which there is essentially no possibility of loss from past or future events before the expiration of this Contract.  All collateral securing what the Reinsurer and the Company agree are unreachable limits will be released within three business days.




		
	B.
	So long as there is any security on deposit in the Trust Account, the Company shall perform the calculation set forth above within 10 business days after the end of each month and deliver a report substantially in the form of the Collateral Calculation Table attached to this Contract to the Reinsurer and the Trustee named in the Trust Agreement.  Collateral will be adjusted monthly based on this calculation.  To the extent the calculation indicates that collateral may be reduced, the delivery of the report to the Trustee will constitute a directive to return excess collateral to the Reinsurer.  In the event the calculation indicates additional collateral is required, the Reinsurer will have 10 business days from receipt of the report to deposit the required collateral into the Trust Account.





12






		
	C.
	On or before May 31, 2016, the parties shall have the option to commute this Contract.  In such event, the Reinsurer shall send the Company an amount equal to the loss and Loss Adjustment Expense reserves hereunder, including reserves for incurred but not reported losses, as estimated by the Company, which would be recoverable hereunder.  Upon the Reinsurer’s payment of such amount, both parties shall be completely released from all liability under this Contract, whether known or unknown.




ARTICLE 19 - ACCESS TO RECORDS


The Reinsurer or its duly appointed representative shall have access to the books and records of the Company on matters relating to this reinsurance upon reasonable advance written notice to the Company and at reasonable times during the regular business hours of the Company, at the location where such books and records are maintained in the ordinary course of business, for the purpose of obtaining information concerning this Contract or the subject matter thereof.  However, the Reinsurer shall have such access only if it is current in all undisputed payments due to the Company in accordance with the provisions of this Contract.  It is understood that reasonable advance written notice shall not be less than five business days.  The Reinsurer may make copies of records of the Company related to this Contract, but at the Reinsurer’s sole expense.


ARTICLE 20 - CONFIDENTIALITY


		
	A.
	The Reinsurer hereby acknowledges that the terms and conditions of this Contract, documents, information and data provided to it by the Company, whether directly or through an authorized agent, during the course of negotiation, administration, and performance of this Contract (hereinafter referred to as “confidential information”) are proprietary and confidential to the Company.  Confidential information shall not include documents, information or data that the Reinsurer can show:




		
	1.
	Are publicly available or have become publicly available through no unauthorized act of the Reinsurer;




		
	2.
	Have been rightfully received from a third person without obligation of confidentiality; or




		
	3.
	Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.




		
	B.
	Absent the written consent of the Company, the Reinsurer shall not disclose any confidential information to any third parties, including any affiliated companies, except:




		
	1.
	When required by retrocessionaires subject to the business ceded to this Contract; 




		
	2.
	When required by regulators performing an audit of the Reinsurer’s records and/or financial condition; 




		
	3.
	When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or




		
	4.
	When required by courts or arbitrators in connection with an actual or potential dispute hereunder.




Further, the Reinsurer agrees not to use any confidential information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.


The Subscribing Reinsurer may disclose Confidential Information to its advisors, Elementum (Bermuda) Ltd and/or Elementum Advisors, LLC, and such parties may disclose summaries of the Confidential Information to their direct and indirect investors and their agents and advisors.


		
	C.
	Notwithstanding the above, in the event the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the confidential information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article.




		
	D.
	The provisions of this Article shall extend to the officers, directors, shareholders and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.





13






ARTICLE 21 - ERRORS AND OMISSIONS


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


ARTICLE 22 - CURRENCY


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




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




ARTICLE 23 - TAXES


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


ARTICLE 24 - FEDERAL EXCISE TAXFEDERAL EXCISE TAX


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




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




ARTICLE 25 - FOREIGN ACCOUNT TAX COMPLIANCE ACT


		
	A.
	The Subscribing Reinsurer shall provide the Company with all documentation and information required for the Company to comply with any obligations imposed under the foreign account tax compliance provisions of the Hiring Incentives to Restore Employment Act of 2010, including any related regulations of the Internal Revenue Service (hereinafter referred to as “FATCA”).




		
	B.
	In addition, the Subscribing Reinsurer shall indemnify the Company for any penalty or other expense the Company incurs as a result of the Subscribing Reinsurer’s failure to comply with FATCA or to provide the Company with the documentation or information required in accordance with the provisions of paragraph A above.




ARTICLE 26 - INSOLVENCY


		
	A.
	If more than one reinsured company is included within the definition of “Company” hereunder, this Article shall apply individually to each such company.




		
	B.
	In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor, with reasonable provision for verification, on the basis of the liability of the Company or on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company 



14






as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.


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




		
	D.
	It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee or other party as more specifically limited by any statute or regulation applicable hereto, of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such Policy obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Company to such payees.  However, the exceptions provided in (1) and (2) above shall apply only to the extent that applicable statutes or regulations specifically permit such exceptions.




ARTICLE 27 - ARBITRATION


		
	A.
	Binding Arbitration.  Except as may be elected by the Company pursuant to paragraph F of the Funding of Reserves Article of this Contract, any dispute relating in any way to the formation, scope, implementation, performance or enforcement of this Contract, or which arises out of or relates to this Contract, shall be resolved through binding arbitration in accordance with this Article.  The provisions of this Article are intended to control in the event that other provisions of this Contract or of any other contract are in conflict with the provisions of this Article.  No provision of this Contract or of any other contract or understanding shall result in the provisions of this Article being interpreted as being permissive or optional.


 
		
	B. 
	Initiation of Arbitration.  To initiate arbitration, a party to this Contract shall notify the other party in writing by certified or registered mail, return receipt requested, of its desire to arbitrate.  The notice shall refer to this Article of the Contract and state the nature of the dispute and the remedy sought.  The Party to which the notice is sent shall respond to it in writing within 10 business days after receipt thereof.


 
		
	C. 
	Arbitrator Appointment Process.  The dispute shall be resolved by a panel of three arbitrators.  Subject to the qualification requirements set forth in the following sections, each Party shall, by e-mail to the other Party or its counsel, appoint one of the arbitrators within 30 days after the notification of initiation of arbitration is received.  If a Party fails to appoint an arbitrator within such 30 days, the other Party may appoint the second arbitrator.


 
		
	D. 
	Umpire Selection Process.  Within 30 calendar days after the date of the e-mail naming them as an arbitrator, the two party-appointed arbitrators shall each provide the other by e-mail the names of three candidates for the third arbitrator, who shall act as umpire, chairing the arbitration panel.  If a party-appointed arbitrator fails timely to provide such names, subject to the disqualification of candidates for conflicts disclosed on an umpire questionnaire, the umpire may be selected by the party-appointed arbitrator who timely submitted umpire candidate names.  Each named candidate shall be asked to complete and return, within 10 business days, a questionnaire similar to the Neutral Selection Questionnaire found on the ARIAS-US website, such questionnaire being acceptable to the Company.  If a candidate fails to return a fully completed umpire questionnaire postmarked in the 10 business days provided, the name of that candidate shall be stricken from the list and not considered further.  Any candidate whose responses in the questionnaire indicate a conflict of interest shall be disqualified from consideration as umpire, but may be replaced by another candidate by the party which named the disqualified candidate within five business days.  Substitute candidates shall be subject to the questionnaire process set forth above.  If the party-appointed arbitrators do not, within 20 business days of the return of the completed umpire questionnaires, agree on an umpire from among the persons named and not disqualified by the questionnaires, then within a further period of 10 business days, each party-named arbitrator shall strike two names from those suggested by the other party-appointed arbitrator (or strike a lesser number if necessary to leave one name pending proposed by each Party), and the umpire shall be selected from the remaining two candidates (one of whom being designated as the “even” candidate, and one the “odd” candidate), using the first digit to the left of the decimal point of the closing Dow industrial average on the next business day (said digit being either “even” or “odd”), subject to the provisions of this Article.


 
		
	E. 
	Arbitrator Qualifications.  Each of the two party-appointed arbitrators (1) shall be a current or former officer of a property and casualty insurance or reinsurance company, (2) shall have not less than 10 years’ experience with property insurance or reinsurance, and (3) shall not be a current or former employee, officer, or director of a Party or any of their respective affiliates.  The umpire (a) shall be a current or former officer of a property and casualty insurance or reinsurance company, 



15






(b) shall have not less than 10 years’ experience in property and casualty insurance or reinsurance, and (c) shall not be a current or former employee, officer, or director of a Party or any of their respective affiliates.  If an appointed arbitrator or umpire dies, develops a conflict of interest, becomes disabled or is otherwise unable or unwilling to serve, a substitute shall be selected in the same manner as the departing member was chosen, and the arbitration shall continue.
 
		
	F. 
	Place and Time; Procedure.  Within 30 calendar days after both arbitrators and the umpire have been appointed or selected, the panel shall hold an organizational meeting to determine and notify the Parties of the procedure to be filed, what discovery will be permitted and the date of the final hearing.  The arbitration hearing and any pre-hearing conferences shall be held in St. Petersburg, Florida, on the date(s) fixed by the arbitrators, provided that the arbitrators may call for pre-hearing conferences by means of teleconference or videoconference as they may deem appropriate.  The arbitrators shall establish pre-hearing and hearing procedures as warranted by the facts and issues of the dispute.  The arbitrators may consider any relevant evidence and shall give the evidence such weight as they deem appropriate after consideration of any objections raised.  Each Party may examine any witnesses who testify at the arbitration hearing. The arbitrators may allow discovery limited to that discovery reasonably necessary to facilitate the effective presentation of the dispute to the arbitrators.  If the arbitrators elect to allow discovery, they shall distribute a discovery plan which shall set forth the scope of permissible discovery and the time frame during which discovery shall be conducted.  All arbitration proceedings shall be conducted in the English language.  The arbitrators shall base their decision on the terms and conditions of this Contract and applicable law.  The arbitrators shall decide all substantive and procedural issues by majority vote.  The arbitration proceedings and the outcome thereof shall be kept strictly confidential.  The panel is empowered to grant interim relief as it may deem appropriate.  If the reinsurance agreement is accompanied by any collateral requirements, the panel shall enforce the collateral requirements pending the final hearing.


 
		
	G. 
	Costs.  Each party shall bear the cost of the arbitrators appointed by it, and shall jointly and severally bear the cost of the umpire.  The remaining costs of arbitration shall be allocated by the panel as part of its final award.  The arbitrators may not award attorneys’ fees to any Party.


 
		
	H. 
	Award.  The award of the arbitration panel shall be in writing and shall be binding upon the Parties.  If either Party fails to carry out any aspect of the award, the other Party may seek enforcement of the award in a court of competent jurisdiction, as specified in this Contract, under the Federal Arbitration Act. 




		
	I. 
	Consolidation.  Any claims asserted by a Party against the other Party with respect to this Contract or any agreement related to this Contract or the reinsurance program to which this Contract pertains shall be asserted in a single arbitration proceeding, and it is agreed that if such claims are asserted in more than one arbitration proceeding, that the claims shall be consolidated in a single arbitration proceeding, to be heard by the first arbitration panel that is appropriately selected and constituted.  The Parties further agree that any arbitration under this Contract shall, at the sole option of either Party, be consolidated with any other arbitration relating to the reinsurance program to which this Contract pertains. 




		
	J. 
	Alternative Expedited Arbitration.  




		
	1.
	Notwithstanding the foregoing provisions of this Article, in the event an amount in dispute hereunder is $1,000,000 or less, the parties will submit to an expedited arbitration process with the use of a single arbitrator.  The arbitrator will be chosen in accordance with the procedures for selecting an arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society - U.S. (ARIAS), using that organization’s Enhanced Umpire Selection program, or any similar program, limiting the potential arbitrators to persons satisfying the qualifications set forth in paragraph E of this Article.


 
		
	2.
	Each party’s case will be submitted to the arbitrator within 100 calendar days of the date of determination of the arbitrator.  Discovery will be limited to exchanging only those documents directly relating to the issue in dispute, subject to a limit of two discovery depositions from each party, unless otherwise authorized by the arbitrator upon a showing of good cause.


 
		
	3.
	Within 120 calendar days of the date of determination of the arbitrator, the hearing will be completed and a written award will be issued by the arbitrator.  As the parties agree that time is of the essence, the sole arbitrator does not have the authority to lengthen the schedule, absent agreement of both parties.  The arbitrator will have all the powers conferred on the arbitration panel as hereinabove provided and the terms of this Article not otherwise specifically altered by the terms of this paragraph J will apply.




		
	K.
	Notwithstanding anything herein to the contrary, the arbitration panel shall not award special, punitive or exemplary damages to any Party in connection with deciding a dispute submitted to arbitration pursuant to this Contract.



16






ARTICLE 28 - SERVICE OF SUIT


(Applicable if the Subscribing Reinsurer is not domiciled in the United States of America, and/or is not authorized in any state, territory or district of the United States where authorization is required by insurance regulatory authorities)


		
	A.
	This Article will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article.  This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.




		
	B. 
	The parties agree that the state and federal courts located in Pinellas County, Florida or state and federal courts having jurisdiction for disputes from Pinellas County, are the courts of competent personal and subject matter jurisdiction and are the proper venue for any court proceedings permitted under this Article or under this Contract.  The parties further agree not to assert, by way of motion, as a defense, or otherwise in any such proceeding, that the venue of the suit is improper or that the agreement or the subject matter may not be enforced by such courts.




		
	C.
	In the event the Reinsurer fails to pay any amount claimed to be due hereunder or otherwise fails to perform its obligations hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of the state or federal courts in Pinellas County, Florida or the state and federal courts having jurisdiction for disputes from Pinellas County, as determined by the Company.  The Reinsurer will comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, will abide by the final decision of such court or of any appellate court in the event of an appeal.




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




ARTICLE 29 - SEVERABILITY


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


ARTICLE 30 - GOVERNING LAW
    
This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of the rules with respect to conflicts of law.


ARTICLE 31 - AGENCY


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


ARTICLE 32 - ENTIRE AGREEMENT


		
	A.
	This Contract and any related trust agreement, letter of credit and/or special acceptance(s), shall constitute the entire agreement between the parties hereto with respect to the business reinsured hereunder and there are no understandings between the parties other than as expressed in this Contract.




		
	B.
	Any change to or modification of this Contract shall be null and void unless made by an addendum signed by both parties.




ARTICLE 33 - MODE OF EXECUTION


		
	A.
	This Contract (including any addenda thereto) may be executed by any of the following methods: 




		
	1.
	An original written ink signature of paper documents; 





17






		
	2.
	Facsimile or electronic copies of paper documents showing an original ink signature; and/or




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




		
	B.
	The use of any one or a combination of the methods set forth in paragraph A above shall constitute a valid execution of this Contract.  This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.





18






ARTICLE 34 - INTERMEDIARY


TigerRisk Partners LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder.  All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, Loss Adjustment Expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through TigerRisk Partners LLC, 7601 France Avenue South, Suite 200, Edina, Minnesota 55435.  Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.


IN WITNESS WHEREOF, the Company has confirmed its review of the Interests and Liabilities Agreement(s) attached to and forming part of this Contract and its agreement to be bound by the terms and conditions thereof, and has executed this Contract by its duly authorized representative on:


this         27th          day of                  May                      , in the year     2015            .


               /s/ B. Bradford Martz                                                          
UNITED PROPERTY & CASUALTY INSURANCE COMPANY (for and on behalf of the “Company”)





19






SCHEDULE A - COLLATERAL COLLECTION TABLE


PROPERTY CATASTROPHE OPTIONAL LAYER EXCESS OF LOSS REINSURANCE CONTRACT


UNITED PROPERTY & CASUALTY INSURANCE COMPANY
FAMILY SECURITY INSURANCE COMPANY, INC.


	
										
	Collateral Release Calculation as of [INSERT REPORTING PERIOD]

	Line No.
	Col 1
	Col. 2
	Col. 3
	Col. 4
	Col. 5
	Col. 6
	Col. 7
	Col. 8
	Col. 9

	 
	Date
of Loss Event
	Description
	Loss Amount
	Buffer Loss Factor
	Buffer Loss Amount
(Col. 3 x Col. 4)
	Inuring Reinsurance
Coverage  
	Buffered Loss Amount, net of Inuring Reinsurance
(Col. 5 - Col. 6)
	Less:
Retention
	Balance1
(Col. 7 - Col. 8)

	1A
	 
	 
	 
	 
	 
	 
	 
	 
	 

	1B
	 
	 
	 
	 
	 
	 
	 
	 
	 

	1C
	 
	 
	 
	 
	 
	 
	 
	 
	 

	1D
	 
	 
	 
	 
	 
	 
	 
	 
	 

	2
	Sum of Column 9
	 

	3
	Less:  Otherwise recoverable layer loss
	N/A

	4
	Presumed Ultimate Net Loss = Line 2
	 

	5
	Presumed Total Ceded Loss = Line 4, but not greater than Reinsurer’s share of the total Limit
	 

	6
	Losses paid under this Contract
	 

	7
	Reinsurer’s Obligation = Line 5 minus Line 6
	 

	8
	Collateral in the trust
	 

	9
	Collateral Adjustment = Line 7 minus Line 8 (a negative number indicates the amount by which the collateral must be reduced)
	 




1 If the Balance is zero or a negative number, put zero since such Loss Occurrence does not contribute to the aggregate loss.





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NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - 
REINSURANCE - U.S.A.


		
	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.


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.


12/12/57
N.M.A. 1119
BRMA 35B



21






TERRORISM EXCLUSION
(Property Treaty Reinsurance)


Notwithstanding any provision to the contrary within this reinsurance agreement or any endorsement thereto, it is agreed that this reinsurance agreement excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any act of terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. 


An act of terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or political division thereof, or in pursuit of political, religious, ideological, or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: 


		
	(i)
	involves violence against one or more persons; or 


		
	(ii)
	involves damage to property; or 


		
	(iii)
	endangers life other than that of the person committing the action; or 


		
	(iv)
	creates a risk to health or safety of the public or a section of the public; or 


		
	(v)
	is designed to interfere with or to disrupt an electronic system. 




This reinsurance agreement also excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any act of terrorism. 


Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this reinsurance agreement, in respect only of personal lines this reinsurance agreement will pay actual loss or damage (but not related cost or expense) caused by any act of terrorism provided such act is not directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with biological, chemical, radioactive, or nuclear pollution or contamination or explosion. 


NMA 2930c 
22/11/02



22