Document:

EXHIBIT 10.20

 

Amended and
Restated

 

BROKERAGE
BUSINESS

 

QUOTA SHARE
REINSURANCE AGREEMENT

 

between

 

TOWER
INSURANCE COMPANY OF NEW YORK

TOWER NATIONAL INSURANCE COMPANY

(each a “Company”)

 

and

 

CASTLEPOINT
REINSURANCE COMPANY, LTD.

(“Reinsurer”)

 

Effective April 1,
2006

 

ARTICLE I                                                           BUSINESS COVERED

 

This Agreement applies to
all in-force, new and renewal Policies, except as hereinafter excluded, written
and classified by the Company as Fire and Allied Perils, Commercial Multiple
Peril, Homeowners Multiple Peril and Liability, Workers’ Compensation, Inland
Marine and Automobile Liability and Physical Damage, with an inception date
effective during the term of this Agreement and which are classified by the
Company as Brokerage Business.

 

ARTICLE II                                                       DEFINITIONS

 

“Brokerage Business” means broad classes of business
that are underwritten on an individual policy basis by an insurance company’s
underwriting staff through wholesale and retail agents and most or all of the
services are provided by the insurance company as part of the overall
product offering.

 

“Business Covered” shall
mean the business described in Article I.

 

“Extra-Contractual
Obligations” shall mean those liabilities not covered under any other provision
of this Agreement, other than Loss Excess of Policy Limits, including but not
limited to compensatory, consequential, punitive, or exemplary damages together
with any legal costs and expenses incurred in connection therewith, paid as
damages or in settlement by the Company arising from an allegation or claim of
its insured, its insured’s assignee, or other third party, which alleges
negligence, gross negligence, or other tortious conduct on the part of the
Company in the handling, adjustment, rejection, defense or settlement of a
claim under a Policy.

 

“Letter(s) of Credit” shall
have the meaning set forth in Article XVI.

 

 

“Loss” or “Losses” shall
mean, with respect to a Policy, the amount paid or payable by the Company to an
insured with regards a Loss Occurrence, including (i) any Ex Gratia Payments
(i.e., a claim payment not necessarily required by a Policy as a
commercial accommodation by the Company to the insured or reinsured) and (ii) any
payments for Extra-Contractual Obligations or Losses in Excess of Policy
Limits.

 

“Loss Adjustment Expenses”
as used in this Agreement shall mean all loss adjustment expenses incurred by
the Company in settling claims including 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, including court costs and costs of supersedes and appeal bonds and
including (i) pre-judgment interest, unless included as part of the
award or judgment; (ii) post-judgment interest and (iii) legal expenses
and costs incurred in connection with coverage questions and legal actions
connected thereto, including pro rata declaratory judgment expenses.

 

Loss
Adjustment Expenses shall include in-house adjusters, defense attorneys, and
other claims and legal personnel of Tower Insurance Company of New York/Tower
Risk Management and other costs allocated to the defense and adjustment of a
specific claim.

 

“Loss in Excess of Policy
Limits” means any amount of loss, together with any legal costs and expenses
incurred in connection therewith, paid as damages or in settlement by the
Company in excess of its Policy Limits, but otherwise within the coverage terms
of the Policy, arising from an allegation or claim of its insured, its insured’s
assignee, or other third party, which alleges negligence, gross negligence, or
other tortious conduct on the part of the Company in the handling of a
claim under a Policy or bond, in rejecting a settlement within the Policy
Limits, in discharging a duty to defend or prepare the defense in the trial of
an action against its insured, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action. For the avoidance of doubt,
the decision by the Company to settle a claim for an amount within the coverage
of the Policy but not within the Policy limit when the Company has reasonable
basis to believe that it may have liability to its insured or assignee or
other third party on the claim will be deemed a Loss in Excess of Policy
Limits.

 

“Losses Incurred” shall mean
Losses ceded and Loss Adjustment Expense ceded as of the effective date of
calculation, plus the ceded reserves for Losses and Loss Adjustment Expense
outstanding as of the same date (including losses incurred but not reported),
it being understood and agreed that all Losses and related Loss Adjustment
Expense under Policies with effective or renewal dates during an adjustment
period shall be charged to the adjustment period, regardless of the date said
Losses actually occur.

 

“Loss Occurrence” 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:

 

2

 

(i)                                     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 72 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.

 

(ii)                                  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 72 consecutive hours
within the area of one municipality or county and the municipalities or
counties contiguous thereto arising out of and directly occasioned by the same
event. The maximum duration of 72 consecutive hours may be extended in
respect of individual losses which occur beyond such 72 consecutive hours
during the continued occupation of an assured’s premises by strikers, provided
such occupation commenced during the aforesaid period.

 

(iii)                               As regards earthquake (the epicenter of which
need not necessarily be within the territorial confines referred to in the
opening paragraph of this definition) 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.”

 

(iv)                              As regards “Freeze,” only individual losses
directly occasioned by collapse, breakage of glass and water damage (caused by
bursting of frozen pipes and tanks) may be included in the Company’s “Loss
Occurrence.

 

Except
for those “Loss Occurrences” referred to in (i) and (ii) above, 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 and provided that only one such
period of 168 consecutive hours shall apply with respect to one event.

 

However,
as respects those “Loss Occurrences” referred to in (i) and (ii) above,
if the disaster, accident or loss occasioned by the event is of greater
duration than 72 consecutive hours, then the Company may divide that
disaster, accident or loss into two or more “Loss Occurrences” provided 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.

 

No
individual losses occasioned by an event that would be covered by 72 hours
clauses may be included in any “Loss Occurrence” claimed under the 168
hours provision.

 

“Net Liability” shall mean
the liability for Losses and Loss Adjustment Expenses which the Company retains
net for its own account and unreinsured in any way, except for excess of loss
reinsurance, after recoveries from inuring reinsurance.

 

“Net Loss Ratio” shall mean,
for any period of time, the ratio of Losses Incurred during such period to net
Premiums Earned for such period.

 

3

 

“Net Written Premium” shall
mean direct premium written on the Policies covered by this Agreement plus
additions, less refunds and return premium for cancellations and reductions
(but not dividends) and less premium paid or payable for reinsurance that
inures to the benefit of this Agreement.

 

“Obligations” shall have the
meaning set forth in Article XVI.

 

“Policy” or “Policies” shall
mean all policies, binders, contracts, certificates, or agreements of
insurance, whether written or oral, covering Brokerage Business in force,
issued or renewed on or after the Effective Date by the Company.

 

“Premiums Earned” shall
mean, with regards to any adjustment period, ceded net written premiums for
Policies with effective or renewal dates during the adjustment period, less the
unearned portion thereof as of the effective date of calculation, it being
understood and agreed that all premiums for Policies with effective or renewal
dates during an adjustment period shall be credited to that adjustment period.

 

“Terrorism” shall mean an
act, including but not limited to the use of force or violence and/or the
threat thereof, any person or group(s) of persons, whether acting alone or on
behalf of or in connection with any organization(s) or government(s), committed
for political, religious, ideological or similar purposes including the
intention to influence any government and/or to put the public, or any section of
the public, in fear that has been determined by the appropriate federal
authority to have been an act of terrorism.

 

Terrorism
will include loss, damage, cost of expense of whatsoever nature directly or
indirectly caused by, resulting from or in connection with any action taken in
controlling, preventing, supervising or in any way relating to any act of
terrorism.

 

“Trust Account” shall have
the meaning specified in Article XVI.

 

“Trust Agreement” shall have
the meaning specified in Article XVI.

 

“Trustee” shall have the
meaning specified in Article XVI.

 

In the event any portion of this definition section is
found to be invalid or unenforceable, the remainder will remain in full force
and effect.

 

ARTICLE III                                                   COMMENCEMENT
AND TERMINATION

 

A.                                   This Agreement is effective at 12:01 a.m.,
Eastern Standard Time, April 1, 2006 (the “Effective Date”) and shall have
a term of three (3) years. Either party may terminate the Agreement
as of the date twelve (12) months after the Effective Date and on the twelve
month anniversary thereafter by giving at least sixty (60) days prior written
notice to the other party by certified or registered mail, or as otherwise
provided below.

 

B.                                     The Reinsurer shall also have the right to
terminate this Agreement as of the date twenty four (24) months after the
Effective Date by giving sixty (60) days prior written notice by certified or
registered mail to the Company if the sum of the Net Loss Ratio plus (weighted)

 

4

 

ceding commission percentage hereunder for
the Business Covered hereunder since the Effective Date equals or exceeds 99 %
at the end of the calendar quarter immediately preceding the date of such
notice. If the parties cannot agree as to the calculation of the Net Loss Ratio
or ceding commission, within 30 days of receiving the appropriate report, the
calculation shall be arbitrated. The actuarial firm of Towers Perrin shall
furnish an arbiter for Company and Reinsurer will choose another actuarial firm
to furnish its arbiter. Those two arbiters will select a third independent actuarial
firm to furnish the third arbiter. However, it is agreed that in the event of
termination by Reinsurer pursuant to this provision, the parties will act
reasonably to negotiate a new reinsurance agreement on terms similar to those
then being offered by other reinsurers.

 

C.                                     In the event either party terminates this
Agreement in accordance with Paragraph A,or B. above, the Reinsurer shall
participate in all Policies ceded within the terms of this Agreement written or
renewed by the Company after receipt of notice of termination but prior to
termination, and shall remain liable for all cessions in force at termination
of this Agreement; however, the liability of the Reinsurer shall cease with
respect to Loss Occurrences subsequent to the first anniversary, natural
expiration or cancellation of each Policy ceded, but not to extend beyond
twelve months after such termination. The Company and the Reinsurer may agree
to terminate this Agreement or some portion of the Business Covered on a
cut-off basis. Upon such termination, the Reinsurer shall incur no liability
for Loss Occurrences subsequent to the effective date of termination and the
Reinsurer shall return to the Company the Reinsurer’s portion of the unearned
premium reserve for all in force Policies less previously paid Ceding
Commission on such unearned premium reserve.

 

D.                                    Either the Company or the Reinsurer may terminate
this Agreement at any time by the giving of thirty (30) days prior written
notice to the other party upon the happening of any one of the following
circumstances:

 

(a)                                  A State Insurance Department or other legal
authority orders the other party to cease writing business, or;

 

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

 

(c)                                  The other party has reinsured its entire
liability under this Agreement without the terminating party’s prior written
consent, or

 

(d)                                 The Company ceases to retain any of the risks
of the Business Covered.

 

E.                                      The Company may terminate this agreement
immediately upon the happening of any of the following circumstances:

 

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

 

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(b)                                 The Reinsurer’s statutory policyholders’
surplus has been reduced by either 50% of the amount of surplus at the
inception of this Agreement or 50% of the amount at the latest anniversary,
whichever is greater, or has lost any part of, or has reduced its paid-up
capital;

 

F.                                      The Company may terminate this Agreement
upon thirty (30) days notice if the A.M. Best Rating of the Reinsurer
falls below “A-”.

 

G.                                     In the event of any such termination under D.,
E or F., the liability of the Reinsurer shall be terminated in accordance with
the termination provisions set forth in Paragraph C. above. However, if the
terminating party is the Company, the Company shall have the right, by the
giving of prior written notice, to terminate this Agreement on a cut-off basis
as provided in Paragraph C. above.

 

ARTICLE IV                                                  TERRITORIAL SCOPE

 

The territorial limits of this Agreement shall be
identical with those of the Company’s Policies.

 

ARTICLE V                                                      EXCLUSIONS

 

This
Agreement shall not apply to and specifically excludes:

 

A.                                   Nuclear Incident, in accordance with the
following clauses attached hereto:

 

1.                                       Nuclear Incident Exclusion Clause – Physical
Damage –Reinsurance – U.S.A. – NMA 1119;

 

2.                                       Nuclear Incident Exclusion Clause – Liability
– Reinsurance – U.S.A. – NMA 1590;

 

B.                                     War Risks, in accordance with BRMA Clause
56B;

 

C.                                     Insolvency, in accordance with BRMA Clause
20A;

 

D.                                    Liability assumed by the Company as a member
of any pool, association or syndicate, in accordance with BRMA Clause 40A;

 

E.                                      Earthquake when written as such;

 

F.                                      Liability arising out of ownership,
maintenance or use of any aircraft or flight operations;

 

G.                                     Professional Liability, when written as such,
however not to exclude when written as part of a package Policy or when
written in conjunction with other Policies issued by the Company;

 

H.                                    Insolvency and Financial Guarantee;

 

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I.                                         Any acquisitions of companies or books of
business outside of the normal course of business (“agent rollovers”) without
the prior written consent of the Reinsurer hereon;

 

J.                                        Asbestos liabilities of any nature;

 

K.                                    Pollution liabilities of any nature;

 

L.                                      Assumed reinsurance with the exception of
inter-affiliate reinsurance.

 

ARTICLE VI                                                  REINSURANCE COVERAGE

 

A.                                   Upon the contribution of capital to Reinsurer
by its parent in the amount of at least $156 million, the Company shall
automatically and obligatorily cede to the Reinsurer, and the Reinsurer shall
be obligated to accept as assumed reinsurance, a 30% quota share portion of the
Net Liabilities with respect to such Policies, subject to adjustment as set
forth below. The Company may, in its sole discretion, change the quota share
participation of the Reinsurer, from time to time, as of any six month
anniversary date of the effective date of this Agreement upon not less than
ninety (90) days prior written notice to the Reinsurer; provided, however
that the quota share participation of the Reinsurer shall at all times during
the term of this Agreement be a minimum of 25% and a maximum of 45%, and
provided further that the quota share participation of the Reinsurer does not
exceed $150 million for the 12 month period ended March 31, 2007, with
such maximum amount subject to a 25% growth factor per year thereafter. If the
Reinsurer’s quota share participation maximum of $150 million (subject to the
growth factor) is attained in any twelve month period ended March 31, then
the quota share participation percentage, which shall apply to all premiums and
losses on a pro-rated basis for such period, shall be decreased for that 12
month period even if such participation is below 25%. Each such change shall
apply to Policies issued or renewed after the effective date of such change.
Notwithstanding the foregoing, if the Company writes business of the type that
it has historically not written or writes more than 25% of its gross written
premiums outside the state of New York in any 12 month period ending on the
anniversary date of this Agreement, then the Reinsurer has the right to refuse
to reinsure such business that the Company has not historically written and
such excess business written outside the State of New York.

 

B.                                     The Reinsurer’s liability as respect Losses
shall be subject to the following limits:

 

	
  Property:

  	
   

  	
  $1,000,000 Per Risk

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $10,000,000 Per Occurrence

  
	
   

  	
   

  	
   

  
	
  Liability:

  	
   

  	
  $1,000,000 Per Claim

  
	
   

  	
   

  	
   

  
	
  Terrorism Sub-Limit:

  	
   

  	
  $10,000,000 Per Occurrence property and liability combined

  

 

ARTICLE VII                                              REINSURANCE PREMIUM

 

As premium for the reinsurance provided by this
Agreement, the Company shall cede to the Reinsurer an amount equal to the
Reinsurer’s quota share cession of the Net Written Premium

 

7

 

of
the Company for the Business Covered by this Agreement. The Company’s ceded net
unearned premium reserve for the Business Covered for the 2005 and 2006 treaty
years as of March 31, 2006 was $39,618,867.

 

ARTICLE VIII                                          CEDING COMMISSION

 

The Reinsurer shall allow the Company a 34 %
commission on all premiums ceded hereunder until April 1, 2007. Beginning
with the twelve month period commencing April 1, 2007, the commission may be
adjusted every six months on the six month anniversary of the Effective Date
based on Net Loss Ratio of the Brokerage Business ceded hereunder from the
Effective Date. The ceding commission shall increase nine-tenths of a
percentage point for every 1.0 percentage point decline in the Net Loss Ratio
below 61% up to a maximum ceding commission of 36%, and decrease nine-tenths of
a percentage point for every 1.0 percentage point increase in the Net Loss
Ratio above 61%, subject to a minimum ceding commission of 31%, as follows:

 

	
  Net Loss Ratio

  	
   

  	
  Ceding Commission

  	
   

  
	
  64.33 or
  higher

  	
   

  	
  31.0

  	
  %

  
	
  64

  	
   

  	
  31.3

  	
   

  
	
  63

  	
   

  	
  32.2

  	
   

  
	
  62

  	
   

  	
  33.1

  	
   

  
	
  61

  	
   

  	
  34.0

  	
   

  
	
  60

  	
   

  	
  34.9

  	
   

  
	
  59

  	
   

  	
  35.8

  	
   

  
	
  58.78 or
  lower

  	
   

  	
  36.0

  	
   

  

 

The
Company shall allow the Reinsurer return commission on return premiums at the
same rate. It is expressly agreed that the ceding commission allowed the
Company includes provision for all dividends, commissions, taxes, assessments,
and all other expenses of whatever nature, except loss adjustment expense.
However, in the event that regulatory authorities do not approve an
intercompany transaction containing these ceding commissions, the Company and
the Reinsurer shall use their best good faith efforts to structure the
transaction in order that the sum of the Net Loss Ratio plus ceding commission
percentage equals 95% for the Brokerage Business.

 

ARTICLE IX                                                  REPORTS AND REMITTANCES

 

A.                                   Within forty five (45) days following the end
of each month during the term of this Agreement, the Company shall provide the
Reinsurer with a report summarizing the following with regards to such month
and on a cumulative basis:

 

1.                           Net Written Premium and ceded Net Written
Premiums received by line of business;

 

2.                           Net Premiums Earned and ceded net Premiums
Earned by line of business;

 

3.                           Ceding commission due on ceded Net Written
Premium received;

 

4.                           Net ceded Loss and Loss Adjustment Expenses
paid by line of business; and

 

5.                           Salvage recovered plus net salvage recovered
by line of business.

 

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In
addition, the Company shall furnish the Reinsurer such other information as may be
required by the Reinsurer for completion of its financial statements.

 

B.                                     Amounts due by either party shall be (1) ceded
Net Written Premiums received less (2) ceding commission on ceded Net
Written Premiums received less (3) ceded Loss and Loss Adjustment Expenses
paid plus (4) net salvage recovered, and shall be remitted within 15 days
of the report on a collected basis. Should payment due from the Reinsurer
exceed $100,000 as respects any one Loss Occurrence, the Company may give
the Reinsurer notice of payment made or its intention to make payment on a
certain date. If the Company has paid the loss, payment shall be made by the
Reinsurer immediately after receipt of notice from the Company. If the Company
intends to pay the loss by a certain date and has submitted a satisfactory
proof of loss or similar document, payment shall be due from the Reinsurer 24
hours prior to that date, provided the Reinsurer has a period of five working
days after receipt of said notice to make the payment. Cash amounts
specifically remitted by the Reinsurer as set forth herein shall be credited to
the next monthly account.

 

ARTICLE X                                                                  EXTRA CONTRACTUAL OBLIGATIONS/LOSS EXCESS
OF POLICY LIMITS

 

A.                                   The Reinsurer shall protect the Company for
the Reinsurer’s quota share portion of Extra-Contractual Obligations and Loss
Excess of Policy Limits, subject to the limitations set forth in Article VI.

 

B.                                     An Extra-Contractual Obligation or a Loss
Excess of Policy Limits shall be deemed to have occurred on the same date as
the loss covered under the Company’s original Policy and shall be considered part of
the original loss (subject to other terms of this Agreement.)

 

C.                                     Neither an Extra-Contractual Obligation nor a
Loss Excess of Policy Limits shall include a loss incurred by the Company as
the result of any bad faith, fraudulent or criminal act by the Company.

 

D.                                    Recoveries, whether collectible or not,
including any retentions and/or deductibles, from any other form of
insurance or reinsurance which protect the Company against any loss or
liability covered under this Article shall inure to the benefit of the
Reinsurer and shall be deducted from the total amount of any Extra-Contractual
Obligation and/or Loss Excess of Policy Limits in determining the amount of
Extra-Contractual Obligation and/or Loss Excess of Policy Limits that shall be
indemnified under this Article.

 

E.                                      The Company shall be indemnified in
accordance with this Article to the extent permitted by, and not contrary
to, New York and other applicable law.

 

ARTICLE XI                                                  ORIGINAL CONDITIONS

 

The Reinsurer’s liability to the Company shall
attach simultaneously with that of the Company and the reinsurance of all
Business Covered hereunder shall be subject in all respects to the same risks,
terms, clauses, conditions, interpretations, alterations, modifications
cancellations and waivers as the respective insurances (or reinsurances) of the
Company’s Policies and the Reinsurer shall pay losses as may be paid
thereon, the true intent of this

 

9

 

Agreement
being that in each and every case to which this Agreement applies, the
Reinsurer shall follow the settlements and fortunes of the Company, subject
always to the limits, terms and conditions of this Agreement.

 

ARTICLE XII                                              ERRORS AND OMISSIONS 

 

Inadvertent delays, errors or omissions made by the
Company in connection with this Agreement (including the reporting of claims)
shall not relieve the Reinsurer from any liability which would have attached
had such delay, error or omission not occurred, provided always that such
delay, error or omission shall be rectified as soon as possible after
discovery.

 

ARTICLE XIII                                          CURRENCY

 

Whenever the word “Dollars” or the “$” sign appears
in this Agreement, they shall be construed to mean United States Dollars and
all transactions under this Agreement shall be in United States Dollars.
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 XIV                                         FEDERAL EXCISE TAX AND OTHER TAXES

 

A.                                   To the extent that any portion of the
reinsurance premium for this Agreement is subject to the Federal Excise Tax (as
imposed under Section 4371 of the Internal Revenue Code) and the Reinsurer
is not exempt therefrom, the Reinsurer shall allow for the purpose of paying
the Federal Excise Tax, a deduction by the Company of the applicable percentage
of the premium payable hereon. In the event of any return of premium becoming
due hereunder, the Reinsurer shall deduct the applicable same percentage from
the return premium payable hereon and the Company or its agent shall take steps
to recover the tax from the United States Government. In the event of any
uncertainty, upon the written request of the Company, the Reinsurer will immediately
file a certificate of a senior corporate officer of the Reinsurer certifying to
its entitlement to the exemption from the Federal Excise Tax with respect to
one or more transactions.

 

B.                                     In consideration of the terms under which
this Agreement is issued, the Company undertakes not to claim any deduction 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 to the
District of Columbia.

 

ARTICLE XV                                             ACCESS TO RECORDS

 

The Company shall place at the disposal of the
Reinsurer at all reasonable times, and the Reinsurer shall have the right to
inspect (and make reasonable copies) through its designated representatives,
during the term of this Agreement and thereafter, all books, records and papers
of the Company directly related to any reinsurance hereunder, or the subject
matter hereof, provided that if the Reinsurer has ceased active market
operations, this right of access shall be subject to that Reinsurer being
current in all payments owed the Company.

 

10

 

ARTICLE XVI                                         RESERVES

 

A.                                   If any Reinsurer is unauthorized or otherwise
unqualified in any state or other United States jurisdiction, and if, without
such security, a financial penalty to the Company would result on any statutory
statement or report it is required to make or file with insurance regulatory
authorities or a court of law in the event of insolvency, the Reinsurer will
timely secure the Reinsurer’s share of Obligations under this Agreement in a
manner, form, and amount acceptable to the Company and to all applicable
insurance regulatory authorities in accordance with this Article.

 

B.                                     The Reinsurer shall secure such Obligations
by either:

 

1.                                       Clean, irrevocable, and unconditional
evergreen letter(s) of credit (“Letter(s) of Credit”) meeting the requirements
of New York Regulation 133; and/or

 

2.                                       A trust account meeting the requirements of
New York Regulation 114.

 

C.                                     The “Obligations” referred to herein means
the then current (as of the end of each calendar quarter) sum of:

 

1.                                       The amount of the ceded unearned premium
reserve for which the Reinsurer is responsible to the Company;

 

2.                                       The amount of Losses and Loss Adjustment
Expenses and other amounts paid by the Company for which the Reinsurer is
responsible to the Company but has not yet paid;

 

3.                                       The amount of ceded reserves for Losses and
Loss Adjustment Expenses (including, ceded reserves for losses incurred but not
reported) for which the Reinsurer is responsible to the Company; and

 

4.                                       The amount of return and refund premiums paid
by the Company for which the Reinsurer is responsible to the Company but has
not yet paid.

 

D.                                    To the extent that the Reinsurer elects to
provide Letter(s) of Credit, the following shall apply.

 

1.                                       Each Letter of Credit will be issued for a
term of at least one year and will include an “evergreen clause”, which
automatically extends the term for at least one additional year at each
expiration date unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date.

 

2.                                       The Letter of Credit must be issued or
confirmed by a bank which is authorized to issue letters of credit, which is
either a member of the Federal Reserve System or is a New York State chartered
bank, and which in all other respects satisfies the definition of a “Qualified
Bank” under Section 79.1(e) of New York Insurance Regulation 133. If
the Letter of Credit is issued by a bank authorized to issue letters of credit
but which is not such a “Qualified Bank”, then the Letter of Credit must be
confirmed by such a bank and the Letter of Credit must meet all of the
conditions set forth in Section 79.4 of New York Insurance Regulation 133.

 

11

 

3.                                       The Reinsurer and the Company agree that the
Company may draw upon the Letter(s) of Credit at any time, notwithstanding
any other provisions in the Agreement, provided such assets are applied and
utilized by the Company or any successor of the Company by operation of law,
including, without limitation, any liquidator, rehabilitator, receiver or
conservator of the Company, without diminution because of the insolvency of the
Company or the Reinsurer, only for the following purposes:

 

(i)                                     to reimburse the Company for the Reinsurer’s
share of premiums returned to the owners of policies reinsured under this
Agreement on account of cancellations of such policies;

 

(ii)                                  to reimburse the Company for the Reinsurer’s
share of surrenders and benefits or losses paid by the Company under the terms
and provisions of the policies reinsured under this Agreement;

 

(iii)                            to fund an account with the Company in an
amount at least equal to the deduction, for reinsurance ceded, from the Company’s
liabilities for policies ceded under this Agreement. Such amount shall include,
but not be limited to, amounts for policy reserves for claims and losses
incurred (including losses incurred but not reported), loss adjustment
expenses, and unearned premiums; and

 

(iv)                              to pay any other amounts the Company claims
are due under this Agreement.

 

4.                                       The Company shall immediately return to the
Reinsurer any amounts drawn down on the Letter of Credit that are subsequently
determined not to be due.

 

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

 

E.                                      To the extent that the Reinsurer elects to
establish a trust account, the following shall apply.

 

1.                                       It is agreed that the Reinsurer shall enter
into a trust agreement (the “Trust Agreement”) in a form acceptable to the
Company and establish a trust account (the “Trust Account”) for the sole
benefit of the Company with a trustee (the “Trustee”), which shall be at the
time the Trust is established, and shall continue to be, either a member of the
Federal Reserve System or a New York state chartered bank and which shall not
be a parent, subsidiary or affiliate of the Reinsurer or the Company.

 

2.                                       The Reinsurer agrees to deposit and maintain
in said Trust Account assets to be held in trust by the Trustee for the benefit
of the Company as security for the payment of the Reinsurer’s Obligations to
the Company under the Agreement. Such assets shall be maintained in the Trust
Account by the Reinsurer as long as the Reinsurer continues to remain liable
for such Obligations.

 

12

 

3.                                       The Reinsurer agrees that the assets
deposited into the Trust Account shall be valued according to their current
fair market value and shall consist only of currency of the United States of
America, certificates of deposit issued by a United States bank and payable in
United States legal tender, and investments of the types specified in
paragraphs (1), (2), (3), (8) and (10) of Section 1404(a) of
the New York Insurance Law, provided such investments are issued by an
institution that is not the parent, subsidiary or affiliate of either the
Grantor or the Beneficiary (“Authorized Investments”).

 

4.                                       The Reinsurer, prior to depositing assets
with the Trustee, shall execute all assignments and endorsements in blank, and
shall transfer legal title to the Trustee of all shares, obligations or any
other assets requiring assignments, in order that the Company, or the Trustee
upon direction of the Company, may whenever necessary negotiate any such
assets without consent or signature from the Reinsurer or any other entity.

 

5.                                       All settlements of account under the Trust
Agreement between the Company and Reinsurer shall be made in cash or its
equivalent.

 

6.                                       The Reinsurer and the Company agree that the
assets in the Trust Account may be withdrawn by the Company at any time,
notwithstanding any other provisions in the Agreement, provided such assets are
applied and utilized by the Company or any successor of the Company by
operation of law, including, without limitation, any liquidator, rehabilitator,
receiver or conservator of the Company, without diminution because of the
insolvency of the Company or the Reinsurer, only for the following purposes:

 

(i)                                     to reimburse the Company for the Reinsurer’s
share of any Losses and Loss Adjustment Expenses paid by the Company but not
received from the Reinsurer or for unearned premiums due to the Company but not
otherwise paid by the Reinsurer under the Agreement; or

 

(ii)                                  to make payment to the Reinsurer of any
amounts held in the Trust Account that exceed 102% of the Reinsurer’s
Obligations (less the balance of credit available under any Letter(s) of
Credit) hereunder; or

 

(iii)                               where the Company has received notification
of termination of the Trust Account, and where the Reinsurer’s entire
Obligations under the Agreement remain unliquidated and undischarged ten (10) days
prior to such termination, to withdraw amounts equal to such Obligations (less
the balance of credit available under any Letter(s) of Credit) and deposit such
amounts in a separate account, in the name of the Company, in any United States
bank or trust company, apart from its general assets, in trust for such
uses and purposes specified in sub-paragraphs (i) and (ii) above as may remain
executory after such withdrawal and for any period after such termination.

 

7.                                       The Reinsurer shall have the right to seek
the Company’s approval to withdraw all or any part of the assets from the
Trust Account and transfer such assets to the Reinsurer, provided that the
withdrawal conforms to the following requirements:

 

13

 

(i)                                     the Reinsurer shall, at the time of
withdrawal, replace the withdrawn assets with other Authorized Investments
having a market value equal to the market value of the assets withdrawn,

 

(ii)                                  after such withdrawal and transfer, the
market value of the Trust Account is no less than 102% of the Reinsurer’s
Obligations (less the balance of credit available under any Letter(s) of
Credit).

 

In the event that the Reinsurer seeks the
Company’s approval hereunder, the Company shall not unreasonably or arbitrarily
withhold its approval.

 

8.                                       In the event that the Company withdraws
assets from the Trust Account for the purposes set forth in Paragraph (6)(i) above
in excess of actual amounts required to meet the Reinsurer’s Obligations to the
Company (less the balance of credit available under any Letter(s) of Credit),
or in excess of amounts determined to be due and under Paragraph (6)(iii) above,
the Company will return such excess to the Reinsurer.

 

9.                                       The Company will prepare and forward at
annual intervals or more frequently as determined by the Company, but not more
frequently than quarterly to the Reinsurer a statement for the purposes of this
Article, showing the Reinsurer’s share of Obligations as set forth above. If
the Reinsurer’s share thereof exceeds the then existing balance of the security
provided, the Reinsurer will, within fifteen (15) days of receipt of the
Company’s statement, but never later than December 31 of any year,
increase the amount of the letter of credit, or Trust Account to the required
amount of the Reinsurer’s share of Obligations set forth in the Company’s
statement, but never later than December 31 of any year. If the then
existing balance of the security provided exceeds an amount equal to 100% of
the Reinsurer’s share thereof, the Company will release the excess thereof to
the Reinsurer upon the Reinsurer’s written request.

 

F.                                      The Reinsurer will take any other reasonable
steps that may be required for the Company to take full credit on its
statutory financial statements for the reinsurance provided by this Agreement.

 

ARTICLE XVII                                     SERVICE OF SUIT

 

A.                                   This Article only applies to a Reinsurer
domiciled outside of the United States and/or unauthorized in any state,
territory or district of the United States having jurisdiction over the
Company. Furthermore, 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 Article entitled Arbitration. 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 Agreement.

 

B.                                     In the event of any dispute, the Reinsurer,
at the request of the Company, shall submit to the jurisdiction of a court of
competent jurisdiction within the United States. Nothing in this Article constitutes
or should be understood to constitute a waiver of any obligation to arbitrate
disputes arising from this Agreement or the Reinsurer’s rights to commence an
action in any court of competent jurisdiction in the United States, to remove
an action to a United States

 

14

 

District Court, or to seek a transfer of a
case to another court as permitted by the laws of the United States or of any
state in the United States.

 

C.                                     Service of process in any such suit against
the Reinsurer may be made upon Mendes and Mount, 750 Seventh Avenue, New
York, New York 10019-6829(“Firm”), or the party identified on behalf of the
Reinsurer on the Reinsurer’s signature page to this Agreement, and in any
suit instituted, the Reinsurer shall abide by the final decision of such court
or of any Appellate Court in the event of an appeal.

 

D.                                    The Firm is authorized and directed to accept
service of process on behalf of the Reinsurer in any such suit and/or upon the
request of the Company to give a written undertaking to the Company that they
shall enter a general appearance upon the Reinsurer’ behalf in the event such a
suit shall be instituted.

 

E.                                      Further, as required by and pursuant to any
statute of any state, territory or district of the United States which makes
provision therefore, the Reinsurer hereby designates the Superintendent,
Commissioner or Director of Insurance or other officer specified for that
purpose in the statute, or his successor or successors in office, as their 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 Agreement, and hereby designates the
above-named as the person to whom the said officer is authorized to mail such
process or a true copy thereof.

 

ARTICLE XVIII                                 ARBITRATION

 

A.                                   Any dispute or other matter in question
between the Company and the Reinsurer arising out of, or relating to, the
formation, interpretation, performance, or breach of this Agreement, whether
such dispute arises before or after termination of this Agreement, shall be
settled by arbitration. Arbitration shall be initiated by the delivery of a
written notice of demand for arbitration by one party to the other within a
reasonable time after the dispute has arisen.

 

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

 

C.                                     Except as set forth in Article III, each
party shall appoint an individual as arbitrator and the two so appointed shall
then appoint a third arbitrator. If either party refuses or neglects to appoint
an arbitrator within 60 days, the other party may appoint the second
arbitrator. If the two arbitrators do not agree on a third arbitrator within 60
days of the appointment of the second arbitrator, each of the arbitrators shall
nominate three individuals. If the two arbitrators are unable to agree upon the
third arbitrator within thirty (30) days of their appointment, the third
arbitrator shall be selected from a list of six individuals (three named by
each arbitrator) by a judge of the United States District Court having
jurisdiction over the geographical area in which the arbitration is to take
place, or if that court declines to act, the state court having general
jurisdiction in such area. The arbitrators shall be active or retired officers
of insurance or

 

15

 

reinsurance companies or Lloyd’s of London
Underwriters; the arbitrators shall not have a personal or financial interest
in the result of the arbitration.

 

D.                                    The arbitration hearings shall be held in New
York, New York. Each party shall submit its case to the arbitrators within 60
days of the selection of the third arbitrator or within such longer period as may be
agreed by the arbitrators. The arbitrators shall not be obliged to follow
judicial formalities or the rules of evidence except to the extent
required by governing law, that is, the state law of the situs of the
arbitration as herein agreed; they shall make their decisions according to the
practice of the reinsurance business. The decision rendered by a majority of
the arbitrators shall be final and binding on both parties. Such decision shall
be a condition precedent to any right of legal action arising out of the
arbitrated dispute which either party may have against the other. Judgment
upon the award rendered may be entered in any court having jurisdiction
thereof.

 

E.                                      Each party shall pay the fee and expenses of
its own arbitrator and one-half of the fee and expenses of the third
arbitrator. All other expenses of the arbitration shall be equally divided
between the parties.

 

F.                                      Except as provided above, arbitration shall
be based, insofar as applicable, upon the procedures of the American
Arbitration Association.

 

ARTICLE XIX                                         INSOLVENCY 

 

A.                                   The reinsurance shall be payable by the
Reinsurer on the basis of the liability of the Company under the Policies
reinsured without diminution because of the insolvency of the Company and the
liability for such reinsurance is assumed by the Reinsurer as of the same
effective date. In the event of insolvency and the appointment of a
conservator, liquidator, or statutory successor of the Company, the portion of
any risk or obligation assumed by the Reinsurer shall be payable to the conservator,
liquidator, or statutory successor on the basis of claims allowed against the
insolvent Company by any court of competent jurisdiction or by any conservator,
liquidator, or statutory successor of the Company having authority to allow
such claims, without diminution because of that insolvency, or because the
conservator, liquidator, or statutory successor has failed to pay all or a
portion of any claims.

 

B.                                     Payments by the Reinsurer as above set forth
shall be made directly to the Company or to its conservator, liquidator, or
statutory successor, except where the Agreement of insurance or reinsurance
specifically provides another payee of such reinsurance or except as provided
by applicable law and regulation (such as subsection (a) of section 4118
of the New York Insurance laws) in the event of the insolvency of the Company.

 

C.                                     In the event of the insolvency of the
Company, 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 insolvent Company on the Policy or Policies reinsured within a
reasonable time after such claim is filed in the insolvency proceeding and
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 which it may deem available to the
Company or its liquidator, receiver, conservator or statutory successor. The
expense thus

 

16

 

incurred by the Reinsurer shall be chargeable
subject to court approval against the insolvent Company as part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.

 

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

 

ARTICLE XX                                             CLAIMS COOPERATION

 

When so requested in
writing, the Company shall afford the Reinsurer or its representatives an
opportunity to be associated with the Company, at the expense of the Reinsurer,
in the defense 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, provided the Company shall have the right to
make any decision in the event of disagreement over any matter of defense or
settlement.

 

ARTICLE XXI                                         CONFIDENTIALITY

 

A.                                   The information, data, statements,
representations and other materials provided by the Company or the Reinsurer to
the other arising from consideration and participation in this Agreement
whether contained in the reinsurance submission, this Agreement, or in
materials or discussions arising from or related to this Agreement, may contain
confidential or proprietary information as expressly indicated by the
disclosing party in writing from time to time to the other party of the
respective parties (“Confidential Information”). This Confidential Information
is intended for the sole use of the parties to this Agreement (and their
retrocessionaires, respective auditors and legal counsel) as may be
necessary in analyzing and/or accepting a participation in and/or executing
their respective responsibilities under or related to this Agreement.
Disclosing or using Confidential Information disclosed under this Agreement for
any purpose beyond (i) the scope of this Agreement, (ii) the
reasonable extent necessary to perform rights and responsibilities
expressly provided for under this Agreement, (iii) the reasonable extent
necessary to administer, report to and effect recoveries from retrocessional
reinsurers, (iv) the extent necessary to comply with legal or regulatory
requirements, or (v) persons with a need to know the information and who
are obligated to maintain the confidentiality of the Confidential Information
or who have agreed in writing to maintain the confidentiality of the
Confidential Information is expressly forbidden without the prior written
consent of the disclosing party. Copying, duplicating, disclosing, or using
Confidential Information for any purpose beyond this expressed purpose is
forbidden without the prior written consent of the disclosing party.

 

B.                                     Should a party (“Receiving Party”) receive a
third party demand pursuant to subpoena, summons, or court or governmental
order, to disclose Confidential Information that has been provided by another
party to this Agreement (“Disclosing Party”), the Receiving Party shall, to the
extent permitted by law, make commercially reasonable efforts to notify the
Disclosing Party promptly upon receipt of the demand and prior to disclosure of
the Confidential Information and provide the Disclosing Party a reasonable
opportunity to object to the

 

17

 

disclosure. If such notice is provided, the
Receiving Party may after the passage of five (5) business days after
providing notice, proceed to disclose the Confidential Information as necessary
to satisfy such a demand without violating this Agreement. If the Disclosing
Party timely objects to the release of the Confidential Information, the
Receiving Party will comply with the reasonable requests of the Disclosing
Party in connection with the Disclosing Party’s efforts to resist release of
the Confidential Information. The Disclosing Party shall bear the cost of
resisting the release of the Confidential Information.

 

ARTICLE XXII                                                             OFFSET

 

The Company and the Reinsurer shall have the right
to offset any balance or amounts due from one party to the other under the
terms of this Agreement,as permitted by sections 1308 and 7427 of the New York
Insurance Law. The party asserting the right of offset may exercise such
right any time whether the balances due are on account of premiums or losses or
otherwise. However, in the event of the insolvency of any party hereto, offset
shall only be allowed in accordance with applicable law.

 

ARTICLE XXIII                                                         RECOVERIES

 

A.                                   All recoveries, including but not limited to
salvage, subrogation, payments and reversals or reductions of verdicts or
judgments (net of the cost of obtaining such recovery, payment or reversal or
reduction of a verdict or judgment) whether recovered, received or obtained
prior or subsequent to a loss settlement under this Agreement, including
amounts recoverable under other reinsurance whether collected or not, shall be
applied as if recovered, received or obtained prior to the aforesaid settlement
and shall be deducted from the actual losses sustained to arrive at the amount
of the Net Liability. Nothing in this Article shall be construed to mean
amounts are not recoverable from the Reinsurer until the final Net Liability to
the Company has been ascertained. Amounts recovered from salvage and/or
subrogation will always be used to reimburse any excess reinsurers (and the
Company should it carry a portion of excess coverage net) before being used in
any way to reimburse the Company and the Reinsurer hereon, who will share
pro-rata in any remainder.

 

B.                                     The Reinsurer shall be subrogated, as
respects any Loss Occurrence for which the Reinsurer shall actually pay or become
liable, but only to the extent of the amount of payment by or the amount of
liability to the Reinsurer, to all the rights of the Company against any person
or other entity who may be legally responsible for damages as a result of
said Loss Occurrence. Should the Company elect not to enforce such rights, the
Reinsurer is hereby authorized and empowered to bring any appropriate action in
the name of the Company or its policyholders, or otherwise to enforce such
rights. The Reinsurer shall promptly remit to the Company the amount of any
judgment awarded in such an action in excess of the amount of payment by, or
the amount of liability to, the Reinsurer hereunder.

 

C.                                     In the event that this Agreement shall
provide reinsurance for the Net Liability from a Loss Occurrence or event
incurred by two or more Companies, each Company contributing to the Net
Liability shall be entitled to its proportionate share of the recovery in the
proportion that its contribution to the total Net Liability bears to the total Net
Liability. Payment of any recovery

 

18

 

amount to one Company by the Reinsurer shall
make that Company the agent for payment of all other Companies contributing to
the Net Liability.

 

ARTICLE XXIV                                MISCELLANEOUS

 

A.                                   This Agreement shall be binding upon and
inure to the benefit of the Company and Reinsurer and their respective
successors and assigns provided, however, that this Agreement may not be
assigned by either party without the prior written consent of the other which
consent may be withheld by either party in its sole unfettered discretion.
This provision shall not be construed to preclude the assignment by the Company
of reinsurance recoverables to another party for collection.

 

B.                                     This Agreement shall constitute the entire
agreement between the parties with respect to the Business Covered hereunder.
There are no understandings between the parties other than as expressed in this
Agreement or any amendment thereto. Any change or modification of this Agreement
shall be null and void unless made by amendment to the Agreement and signed by
the parties or otherwise clearly and unequivocally amended by exchange of
letters or electronic mail. Nothing in this Article shall act to preclude
the introduction of submission-related documents in any dispute between the
parties.

 

C.                                     This Agreement shall be governed by and
construed according to the laws of the state of the New York, exclusive of the rules with
respect to conflicts of law.

 

D.                                    The headings preceding the text of the
Articles and paragraphs of this Agreement are intended and inserted solely for
the convenience of reference and shall not affect the meaning, interpretation,
construction or effect of this Agreement.

 

E.                                      This Agreement is solely between the Company
and the Reinsurer, and in no instance shall any insured, claimant or other
third party have any rights under this Agreement.

 

F.                                      If any provisions of this Agreement should be
invalid under applicable laws, the latter shall control but only to the extent
of the conflict without affecting the remaining provisions of this Agreement.

 

G.                                     The failure of the Company or Reinsurer to
insist on strict compliance with this Agreement or to exercise any right or
remedy shall not constitute a waiver of any rights contained in this Agreement
nor estop the parties from thereafter demanding full and complete compliance
nor prevent the parties from exercising any remedy.

 

H.                                    Each party shall be excused for any
reasonable failure or delay in performing any of its respective obligations
under this Agreement, if such failure or delay is caused by Force Majeure. “Force
Majeure” shall mean any act of God, strike, lockout, act of public enemy, any
accident, explosion, fire, storm, earthquake, flood, drought, peril of sea,
riot, embargo, war or foreign, federal, state or municipal order or directive
issued by a court or other authorized official, seizure, requisition or
allocation, any failure or delay of transportation, shortage of or inability to
obtain supplies, equipment, fuel or labor or any other circumstance or event
beyond the reasonable control of the party relying upon such circumstance or
event; provided, however, that no such Force Majeure circumstance or event
shall excuse any failure or delay beyond a

 

19

 

period exceeding ten (10) days from the
date such performance would have been due but for such circumstance or event.

 

I.                                         All Articles of this Agreement shall survive
the termination of this Agreement until all obligations between the parties
have been finally settled, provided however that this Agreement shall not be
construed to provide reinsurance for Business Covered, other than as
specifically described in the Articles of this Agreement entitled Reinsurance
Coverage nor to Loss occurring after the termination date of this Agreement
other than as expressed in the Article entitled Commencement and
Termination.

 

J.                                        This Agreement may be executed by the
parties hereto in any number of counterparts, and by each of the parties hereto
in separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.

 

K.                                    Each party to this agreement shall honor the
terms set forth herein as if this Agreement were a separate agreement between
the Reinsurer and each Company. Balances payable or recoverable by the
Reinsurer, or each named Company, shall not serve to offset any balances,
payable, or recoverable to, any Company hereunder.

 

Reports and remittances made
to the Reinsurer in accordance with the applicable articles hereof are to be in
sufficient detail to identify both the Reinsurer’s loss obligations due each
reinsured Company and each reinsured Company’s premium remittance under the
report. In the event of insolvency of any of the parties to this Agreement,
offsets shall only be allowed in accordance with section 7427 of the New
York Insurance Law.

 

This Agreement is entered
into as of the date hereof by the parties hereto, subject in any case to the
satisfaction of applicable insurance regulatory requirements of New York and
Massachusetts, including any conditions such regulators may impose on the
terms of this Agreement subsequent to the date hereof. Subject to the
foregoing, this Agreement shall be effective as of April 1, 2006.

 

[Signature Page Follows]

 

20

 

IN WITNESS WHEREOF, the Company and the Reinsurer have caused
this Amended and Restated Agreement to be executed August 30, 2006.

 

 

	
   

  	
  TOWER INSURANCE COMPANY OF NEW YORK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Francis M. Colalucci

  	
   

  
	
   

  	
   

  	
  Name: Francis M. Colalucci

  
	
   

  	
   

  	
  Title: Senior Vice-President and Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TOWER NATIONAL INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Francis M. Colalucci

  	
   

  
	
   

  	
   

  	
  Name: Francis M. Colalucci

  
	
   

  	
   

  	
  Title: Senior Vice-President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CASTLEPOINT REINSURANCE COMPANY, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph Beitz

  	
   

  
	
   

  	
   

  	
  Name: Joseph Beitz

  
	
   

  	
   

  	
  Title: Acting President

  
						

 

21EXHIBIT 10.21

 

AMENDED
AND RESTATED

 

TRADITIONAL
PROGRAM BUSINESS

 

QUOTA
SHARE REINSURANCE AGREEMENT

 

between

 

TOWER
INSURANCE COMPANY OF NEW YORK

TOWER NATIONAL INSURANCE COMPANY

(each a “Company”)

 

and

 

CASTLEPOINT
REINSURANCE COMPANY, LTD.

(“Reinsurer”)

 

Effective
April 1, 2006

 

ARTICLE I                                                           BUSINESS
COVERED

 

A.                                   This
Agreement applies to all in-force, new and renewal Policies, except as
hereinafter excluded, written and classified by the Company as Fire and Allied
Perils, Commercial Multiple Peril, Homeowners Multiple Peril and Liability,
Workers’ Compensation, Inland Marine and Automobile Liability and Physical
Damage, with an inception date effective during the term of this Agreement and
which are classified by the Company as Traditional Program Business.

 

ARTICLE II                                                       DEFINITIONS

 

“Business
Covered” shall mean the business described in Article I.

 

“Extra-Contractual
Obligations” shall mean those liabilities not covered under any other provision
of this Agreement, other than Loss Excess of Policy Limits, including but not
limited to compensatory, consequential, punitive, or exemplary damages together
with any legal costs and expenses incurred in connection therewith, paid as
damages or in settlement by the Company arising from an allegation or claim of
its insured, its insured’s assignee, or other third party, which alleges
negligence, gross negligence, or other tortious conduct on the part of the
Company in the handling, adjustment, rejection, defense or settlement of a
claim under a Policy.

 

“Letter(s) of
Credit” shall have the meaning set forth in Article XVI.

 

“Loss” or “Losses”
shall mean, with respect to a Policy, the amount paid or payable by the Company
to an insured with regards a Loss Occurrence, including (i) any Ex Gratia

 

 

Payments (i.e., a claim payment
not necessarily required by a Policy as a commercial accommodation by the
Company to the insured or reinsured) and (ii) any payments for
Extra-Contractual Obligations or Losses in Excess of Policy Limits.

 

“Loss
Adjustment Expenses” as used in this Agreement shall mean all loss adjustment
expenses incurred by the Company in settling claims including 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, including court costs and costs of supersedes and appeal
bonds and including (i) pre-judgment interest, unless included as part of
the award or judgment; (ii) post-judgment interest and (iii) legal
expenses and costs incurred in connection with coverage questions and legal
actions connected thereto, including pro rata declaratory judgment expenses.

 

Loss Adjustment Expenses shall include in-house adjusters, defense
attorneys, and other claims and legal personnel of Tower Insurance Company of
New York/Tower Risk Management and other costs allocated to the defense and
adjustment of a specific claim.

 

“Loss in
Excess of Policy Limits” means any amount of loss, together with any legal
costs and expenses incurred in connection therewith, paid as damages or in
settlement by the Company in excess of its Policy Limits, but otherwise within
the coverage terms of the Policy, arising from an allegation or claim of its
insured, its insured’s assignee, or other third party, which alleges
negligence, gross negligence, or other tortious conduct on the part of the
Company in the handling of a claim under a Policy or bond, in rejecting a
settlement within the Policy Limits, in discharging a duty to defend or prepare
the defense in the trial of an action against its insured, or in discharging
its duty to prepare or prosecute an appeal consequent upon such an action. For
the avoidance of doubt, the decision by the Company to settle a claim for an
amount within the coverage of the Policy but not within the Policy limit when
the Company has reasonable basis to believe that it may have liability to
its insured or assignee or other third party on the claim will be deemed a Loss
in Excess of Policy Limits.

 

“Losses
Incurred” shall mean Losses ceded and Loss Adjustment Expense ceded as of the
effective date of calculation, plus the ceded reserves for Losses and Loss
Adjustment Expense outstanding as of the same date (including losses incurred
but not reported), it being understood and agreed that all Losses and related
Loss Adjustment Expense under Policies with effective or renewal dates during
an adjustment period shall be charged to the adjustment period, regardless of
the date said Losses actually occur.

 

“Loss
Occurrence” 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:

 

(i)                                     As
regards windstorm, hail, tornado, hurricane, cyclone, including ensuing
collapse and water damage, all individual losses sustained by the Company occurring
during any

 

2

 

period of 72 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.

 

(ii)                                  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 72 consecutive hours within the area of one municipality or county
and the municipalities or counties contiguous thereto arising out of and
directly occasioned by the same event. The maximum duration of 72 consecutive
hours may be extended in respect of individual losses which occur beyond
such 72 consecutive hours during the continued occupation of an assured’s
premises by strikers, provided such occupation commenced during the aforesaid
period.

 

(iii)                               As
regards earthquake (the epicenter of which need not necessarily be within the
territorial confines referred to in the opening paragraph of this definition)
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.”

 

(iv)                              As
regards “Freeze,” only individual losses directly occasioned by collapse,
breakage of glass and water damage (caused by bursting of frozen pipes and
tanks) may be included in the Company’s “Loss Occurrence.

 

Except for those “Loss Occurrences” referred to in (i) and (ii) above,
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 and provided that only
one such period of 168 consecutive hours shall apply with respect to one event.

 

However, as respects those “Loss Occurrences” referred to in (i) and
(ii) above, if the disaster, accident or loss occasioned by the event is
of greater duration than 72 consecutive hours, then the Company may divide
that disaster, accident or loss into two or more “Loss Occurrences” provided 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.

 

No individual losses occasioned by an event that would be covered by 72
hours clauses may be included in any “Loss Occurrence” claimed under the
168 hours provision.

 

“Net Liability”
shall mean the liability for Losses and Loss Adjustment Expenses which the
Company retains net for its own account and unreinsured in any way, except for
excess of loss reinsurance, after recoveries from inuring reinsurance.

 

“Net Loss
Ratio” shall mean, for any period of time, the ratio of Losses Incurred during
such period to net Premiums Earned for such period.

 

“Net Written
Premium” shall mean direct premium written on the Policies covered by this
Agreement plus additions, less refunds and return premium for cancellations and
reductions

 

3

 

(but not dividends) and less premium
paid or payable for reinsurance that inures to the benefit of this Agreement.

 

“Obligations”
shall have the meaning set forth in Article XVI.

 

“Policy” or “Policies”
shall mean all policies, binders, contracts, certificates, or agreements of
insurance, whether written or oral, covering Traditional Program Business
in-force, issued or renewed on or after the Effective Date by the Company.

 

“Premiums
Earned” shall mean, with regards to any adjustment period, ceded net written
premiums for Policies with effective or renewal dates during the adjustment
period, less the unearned portion thereof as of the effective date of
calculation, it being understood and agreed that all premiums for Policies with
effective or renewal dates during an adjustment period shall be credited to
that adjustment period.

 

“Program Business” shall mean narrowly
defined classes of business that are underwritten on an individual policy basis
by a Program Underwriting Agent on behalf of insurance companies.

 

“Terrorism”
shall mean an act, including but not limited to the use of force or violence
and/or the threat thereof, any person or group(s) of persons, whether acting
alone or on behalf of or in connection with any organization(s) or
government(s), committed for political, religious, ideological or similar
purposes including the intention to influence any government and/or to put the
public, or any section of the public, in fear that has been determined by
the appropriate federal authority to have been an act of terrorism.

 

Terrorism will include loss, damage, cost of expense of whatsoever
nature directly or indirectly caused by, resulting from or in connection with
any action taken in controlling, preventing, supervising or in any way relating
to any act of terrorism.

 

“Traditional Program Business” shall mean
blocks of Program Business in excess of $5 million in gross written premium
that Tower has historically underwritten, consisting of non-auto related
personal lines and the following commercial lines of business: retail stores and
wholesale trades, commercial and residential real estate, restaurants, grocery
stores, office and service industries, and artisan contractors.

 

“Trust Account”
shall have the meaning specified in Article XVI.

 

“Trust
Agreement” shall have the meaning specified in Article XVI.

 

“Trustee” shall have the meaning specified in
Article XVI.

 

In the event any portion of this definition section is found to be
invalid or unenforceable, the remainder will remain in full force and effect.

 

4

 

ARTICLE III                                                   COMMENCEMENT
AND TERMINATION

 

A.                                   This
Agreement is effective at 12:01 a.m., Eastern Standard Time, April 1
2006 (the “Effective Date”) and shall have a term of three (3) years. Either
party may terminate the Agreement as of the date twelve (12) months after
the Effective Date and on the twelve month anniversary thereafter thereafter by
giving at least sixty (60) days prior written notice to the other party by
certified or registered mail, or as otherwise provid3ed below.

 

B.                                     The
Reinsurer shall have the right to terminate this Agreement as of the date
twenty four (24) months after the Effective Date and annually thereafter by
giving sixty (60) days prior written notice by certified or registered mail to
the Company if the sum of the Net Loss Ratio plus (weighted) ceding commission
percentage hereunder for the Business Covered hereunder since the Effective
Date equals or exceeds 99 % at the end of the calendar quarter immediately
preceding the date of such notice. If the parties cannot agree as to the
calculation of the Net Loss Ratio or ceding commission, within 30 days of
receiving the appropriate report, the calculation shall be arbitrated. The
actuarial firm of Towers Perrin shall furnish an arbiter for Company and Reinsurer
will choose another actuarial firm to furnish its arbiter. Those two arbiters
will select a third independent actuarial firm to furnish the third arbiter. However,
it is agreed that in the event of termination by Reinsurer pursuant to this
provision, the parties will act reasonably to negotiate a new reinsurance
agreement on terms similar to those then being offered by other reinsurers.

 

C.                                     In
the event either party terminates this Agreement in accordance with Paragraph
A. or B. above, the Reinsurer shall participate in all Policies ceded within
the terms of this Agreement written or renewed by the Company after receipt of
notice of termination but prior to termination, and shall remain liable for all
cessions in force at termination of this Agreement; however, the liability of
the Reinsurer shall cease with respect to Loss Occurrences subsequent to the
first anniversary, natural expiration or cancellation of each Policy ceded, but
not to extend beyond twelve (12) months after such termination. The Company and
the Reinsurer may agree to terminate this Agreement or some portion of the
Business Covered on a cut-off basis. Upon such termination, the Reinsurer shall
incur no liability for Loss Occurrences subsequent to the effective date of
termination and the Reinsurer shall return to the Company the Reinsurer’s
portion of the unearned premium reserve for all in force Policies less
previously paid Ceding Commission on such unearned premium reserve.

 

D.                                    Either
the Company or the Reinsurer may terminate this Agreement at any time by
the giving of thirty (30) days prior written notice to the other party upon the
happening of any one of the following circumstances:

 

(1)                                  A
State Insurance Department or other legal authority orders the other party to
cease writing business, or;

 

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

 

(3)                                  The
other party has reinsured its entire liability under this Agreement without the
terminating party’s prior written consent, or

 

5

 

(4)                                  The
Company ceases to retain any of the risks of the Business Covered.

 

E.                                      The
Company may terminate this Agreement immediately upon the happening of any
of the following circumstances:

 

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

 

(2)                                  The
Reinsurer’s statutory policyholders’ surplus has been reduced by either 50% of
the amount of surplus at the inception of this Agreement or 50% of the amount
at the latest anniversary, whichever is greater, or has lost any part of,
or has reduced its paid-up capital, or

 

F.                                       The
Company may terminate this Agreement upon thirty (30) days notice if the A.M.
Best Rating of the Reinsurer falls below “A-”.

 

G.                                      In
the event of any such termination under D., E. or F., the liability of the
Reinsurer shall be terminated in accordance with the termination provisions set
forth in Paragraph C. above. However, if the terminating party is the Company,
the Company shall have the right, by the giving of prior written notice, to
terminate this Agreement on a cut-off basis as provided in Paragraph C. above.

 

ARTICLE IV                                                  TERRITORIAL
SCOPE

 

The territorial limits of this Agreement shall be identical with those
of the Company’s Policies.

 

ARTICLE V                                                      EXCLUSIONS

 

This Agreement shall not apply to and specifically excludes:

 

A.                       Nuclear Incident, in accordance
with the following clauses attached hereto:

 

1.                                       Nuclear Incident
Exclusion Clause – Physical Damage –Reinsurance – U.S.A. – NMA 1119;

 

2.                                       Nuclear Incident
Exclusion Clause – Liability – Reinsurance – U.S.A. – NMA 1590;

 

B.                                     War Risks, in
accordance with BRMA Clause 56B;

 

C.                                     Insolvency, in
accordance with BRMA Clause 20A;

 

D.                                    Liability assumed
by the Company as a member of any pool, association or syndicate, in accordance
with BRMA Clause 40A;

 

E.                                      Earthquake
when written as such;

 

6

 

F.                                      Liability arising
out of ownership, maintenance or use of any aircraft or flight operations;

 

G.                                     Professional
Liability, when written as such, however not to exclude when written as part of
a package Policy or when written in conjunction with other Policies issued by
the Company;

 

H.                                    Insolvency
and Financial Guarantee;

 

I.                                         Any
acquisitions of companies or books of business outside of the normal course of
business (“agent rollovers”) without the prior written consent of the Reinsurer
hereon;

 

J.                                        Asbestos
liabilities of any nature;

 

K.                                    Pollution
liabilities of any nature;

 

L.                                      Assumed
reinsurance with the exception of inter-affiliate reinsurance.

 

ARTICLE VI                                                  REINSURANCE
COVERAGE

 

A.                                        Upon
the contribution of capital to the Reinsurer by its parent in the amount of at
least $156 million, the Company shall automatically and obligatorily cede to
the Reinsurer, and the Reinsurer shall be obligated to accept as assumed
reinsurance, a 30% quota share portion of the Net Liabilities with respect to
such Policies, subject to adjustment as set forth below. The Company may, in
its sole discretion, change the quota share participation of the Reinsurer from
time to time as of any six month anniversary date of the effective date of this
Agreement upon not less than ninety (90) days prior written notice to the
Reinsurer; provided, however that the quota share participation
of the Reinsurer shall at all times during the term of this Agreement be a
minimum of 25% and a maximum of 45%; and provided further that the Reinsurer’s
quota share participation does not exceed $50 million of gross written premium
for the 12 month period ended March 31, 2007, with such maximum amount
subject to a 25% growth factor per 12 month period thereafter. If the Reinsurer’s
quota share participation maximum of $50 million (subject to growth factor) is
attained in any twelve month period ended March 31, then the quota share
participation percentage, which shall apply to all premiums and losses on a
pro-rated basis for such period, shall be decreased for that 12 month period even
if such participation is below 25%. Each such change shall apply to Policies
issued or renewed after the effective date of such change. Notwithstanding the
foregoing, if the Company writes business of the type that it has historically
not written or writes more than 25% of its gross written premiums outside the
state of New York in any 12 month period ending on the anniversary date of this
Agreement, then the Reinsurer has the right to refuse to reinsure such business
that the Company has not historically written and such excess business written
outside the State of New York.

 

B.                                The Reinsurer’s
liability as respect Losses shall be subject to the following limits:

 

	
  Property:

  	
   

  	
  $1,000,000 Per Risk

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $10,000,000 Per Occurrence

  
	
   

  	
   

  	
   

  

 

7

 

	
  Liability:

  	
   

  	
  $1,000,000 Per Claim

  
	
   

  	
   

  	
   

  
	
  Terrorism Sub-Limit:

  	
   

  	
  $10,000,000 Per Occurrence property and
  liability combined

  

 

ARTICLE VII                                              REINSURANCE
PREMIUM

 

As premium for the reinsurance provided by this Agreement, the Company
shall cede to the Reinsurer an amount equal to the Reinsurer’s quota share
cession of the Net Written Premium of the Company for the Business Covered by
this Agreement. The Company’s ceded net unearned premium reserve for the
Business Covered for the 2005 and 2006 treaty years as of March 31, 2006
was $1,065,038.

 

ARTICLE VIII                                          CEDING
COMMISSION

 

The Reinsurer shall allow the Company a 30%
commission on all premiums ceded hereunder. The ceding commission may be
adjusted every six months on each six month anniversary of the Effective Date
based on the Net Loss Ratio of the Traditional Program Business ceded hereunder
from the Effective Date. It shall increase by nine-tenths of a percentage point
for every 1.0 percentage point decline in the Net Loss Ratio below 63% up to a
maximum ceding commission of 36%, as follows:

 

	
  Net Loss Ratio

  	
   

  	
  Ceding Commission

  	
   

  
	
  63% or
  higher

  	
   

  	
  30.0

  	
  %

  
	
  62

  	
   

  	
  30.9

  	
   

  
	
  61

  	
   

  	
  31.8

  	
   

  
	
  60

  	
   

  	
  32.7

  	
   

  
	
  59

  	
   

  	
  33.6

  	
   

  
	
  58

  	
   

  	
  34.5

  	
   

  
	
  57

  	
   

  	
  35.4

  	
   

  
	
  56.33 or
  lower

  	
   

  	
  36.0

  	
   

  

 

The Company shall allow the Reinsurer return commission on return
premiums at the same rate. It is expressly agreed that the ceding commission
allowed the Company includes provision for all dividends, commissions, taxes,
assessments, and all other expenses of whatever nature, except loss adjustment
expense. However, in the event that regulatory authorities do not approve an
intercompany transaction containing these ceding commissions, the Company and
Reinsurer shall use their best good faith efforts to structure the transaction
in order that the sum of the Net Loss Ratio plus ceding commission percentage
equals 93% for the Traditional Program Business.

 

8

 

ARTICLE IX                                                  REPORTS
AND REMITTANCES

 

Within forty
five (45) days following the end of each calendar month during the term of this
Agreement, the Company shall provide the Reinsurer with a report summarizing
the following with regards to such month and on a cumulative basis:

 

1.                                            Net
Written Premium and ceded Net Written Premiums received by line of business;

2.                                            Net
Premiums Earned and ceded net Premiums Earned by line of business;

3.                                            Ceding
commission due on ceded Net Written Premium received;

4.                                            Net
ceded Loss and Loss Adjustment Expenses paid by line of business; and

5.                                            Salvage
recovered plus net salvage recovered by line of business.

 

In addition, the Company shall furnish the Reinsurer such other
information as may be required by the Reinsurer for completion of its
financial statements.

 

B.                                          Amounts
due by either party shall be (1) ceded Net Written Premiums received less (2) ceding
commission on ceded Net Written Premiums received less (3) ceded Loss and
Loss Adjustment Expenses paid plus (4) net salvage recovered, and shall be
remitted within 15 days of the report on a collected basis. Should payment due
from the Reinsurer exceed $100,000 as respects any one Loss Occurrence, the
Company may give the Reinsurer notice of payment made or its intention to
make payment on a certain date. If the Company has paid the loss, payment shall
be made by the Reinsurer immediately after receipt of notice from the Company. If
the Company intends to pay the loss by a certain date and has submitted a
satisfactory proof of loss or similar document, payment shall be due from the
Reinsurer 24 hours prior to that date, provided the Reinsurer has a period of
five working days after receipt of said notice to make the payment. Cash
amounts specifically remitted by the Reinsurer as set forth herein shall be
credited to the next monthly account.

 

ARTICLE X                                                      EXTRA-CONTRACTUAL
OBLIGATIONS/LOSS EXCESS OF POLICY LIMITS

 

A.                                   The
Reinsurer shall protect the Company for the Reinsurer’s quota share portion of
Extra-Contractual Obligations and Loss Excess of Policy Limits, subject to the
limitations set forth in Article VI.

 

B.                                     An
Extra-Contractual Obligation or a Loss Excess of Policy Limits shall be deemed
to have occurred on the same date as the loss covered under the Company’s
original Policy and shall be considered part of the original loss (subject
to other terms of this Agreement.)

 

C.                                     Neither
an Extra-Contractual Obligation nor a Loss Excess of Policy Limits shall
include a loss incurred by the Company as the result of any bad faith,
fraudulent or criminal act by the Company.

 

D.                                    Recoveries,
whether collectible or not, including any retentions and/or deductibles, from
any other form of insurance or reinsurance which protect the Company
against any loss or liability covered under this Article shall inure to
the benefit of the Reinsurer and shall be deducted from the total amount of any
Extra-Contractual Obligation and/or Loss Excess of

 

9

 

Policy Limits in determining
the amount of Extra-Contractual Obligation and/or Loss Excess of Policy Limits
that shall be indemnified under this Article.

 

E.                                      The
Company shall be indemnified in accordance with this Article to the extent
permitted by, and not contrary to, New York and other applicable law.

 

ARTICLE XI                                                  ORIGINAL
CONDITIONS

 

The Reinsurer’s liability to the Company
shall attach simultaneously with that of the Company and the reinsurance of all
Business Covered hereunder shall be subject in all respects to the same risks,
terms, clauses, conditions, interpretations, alterations, modifications
cancellations and waivers as the respective insurances (or reinsurances) of the
Company’s Policies and the Reinsurer shall pay losses as may be paid
thereon, the true intent of this Agreement being that in each and every case to
which this Agreement applies, the Reinsurer shall follow the settlements and fortunes
of the Company, subject always to the limits, terms and conditions of this
Agreement.

 

ARTICLE XII                                              ERRORS
AND OMISSIONS

 

Inadvertent delays, errors or omissions made
by the Company in connection with this Agreement (including the reporting of
claims) shall not relieve the Reinsurer from any liability which would have
attached had such delay, error or omission not occurred, provided always that
such delay, error or omission shall be rectified as soon as possible after
discovery.

 

ARTICLE XIII                                          CURRENCY

 

Whenever the word “Dollars” or the “$” sign
appears in this Agreement, they shall be construed to mean United States
Dollars and all transactions under this Agreement shall be in United States
Dollars. 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 XIV                                         FEDERAL
EXCISE TAX AND OTHER TAXES

 

A.                                   To
the extent that any portion of the reinsurance premium for this Agreement is
subject to the Federal Excise Tax (as imposed under Section 4371 of the
Internal Revenue Code) and the Reinsurer is not exempt therefrom, the Reinsurer
shall allow for the purpose of paying the Federal Excise Tax, a deduction by the
Company of the applicable percentage of the premium payable hereon. In the
event of any return of premium becoming due hereunder, the Reinsurer shall
deduct the applicable same percentage from the return premium payable hereon
and the Company or its agent shall take steps to recover the tax from the
United States Government. In the event of any uncertainty, upon the written
request of the Company, the Reinsurer will immediately file a certificate of a
senior corporate officer of the Reinsurer certifying to its entitlement to the
exemption from the Federal Excise Tax with respect to one or more transactions.

 

B.                                     In
consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making tax
returns, other

 

10

 

than income or profits tax
returns, to any State or Territory of the United States of America or to the
District of Columbia.

 

ARTICLE XV                                             ACCESS
TO RECORDS

 

The Company shall place at the disposal of the Reinsurer at all
reasonable times, and the Reinsurer shall have the right to inspect (and make
reasonable copies) through its designated representatives, during the term of
this Agreement and thereafter, all books, records and papers of the Company
directly related to any reinsurance hereunder, or the subject matter hereof,
provided that if the Reinsurer has ceased active market operations, this right
of access shall be subject to that Reinsurer being current in all payments owed
the Company.

 

ARTICLE XVI                                         RESERVES

 

A.                                   If
any Reinsurer is unauthorized or otherwise unqualified in any state or other
United States jurisdiction, and if, without such security, a financial penalty
to the Company would result on any statutory statement or report it is required
to make or file with insurance regulatory authorities or a court of law in the
event of insolvency, the Reinsurer will timely secure the Reinsurer’s share of
Obligations under this Agreement in a manner, form, and amount acceptable to the
Company and to all applicable insurance regulatory authorities in accordance
with this Article.

 

B.                                          The
Reinsurer shall secure such Obligations by either:

 

1.                                       Clean,
irrevocable, and unconditional evergreen letter(s) of credit (“Letter(s) of
Credit”) meeting the requirements of New York Regulation 133; and/or

 

2.                                       A
trust account meeting the requirements of New York Regulation 114.

 

C.                                     The
“Obligations” referred to herein means the then current (as of the end of each
calendar quarter) sum of:

 

1.                                       The
amount of the ceded unearned premium reserve for which the Reinsurer is
responsible to the Company;

 

2.                                       The
amount of Losses and Loss Adjustment Expenses and other amounts paid by the
Company for which the Reinsurer is responsible to the Company but has not yet
paid;

 

3.                                       The
amount of ceded reserves for Losses and Loss Adjustment Expenses (including,
ceded reserves for losses incurred but not reported) for which the Reinsurer is
responsible to the Company; and

 

4.                                       The
amount of return and refund premiums paid by the Company for which the
Reinsurer is responsible to the Company but has not yet paid.

 

D.                                    To
the extent that the Reinsurer elects to provide Letter(s) of Credit, the
following shall apply.

 

11

 

1.                                       Each
Letter of Credit will be issued for a term of at least one year and will
include an “evergreen clause”, which automatically extends the term for at
least one additional year at each expiration date unless written notice of
non-renewal is given to the Company not less than 30 days prior to said
expiration date.

 

2.                                       The
Letter of Credit must be issued or confirmed by a bank which is authorized to
issue letters of credit, which is either a member of the Federal Reserve System
or is a New York State chartered bank, and which in all other respects
satisfies the definition of a “Qualified Bank” under Section 79.1(e) of
New York Insurance Regulation 133. If the Letter of Credit is issued by a bank
authorized to issue letters of credit but which is not such a “Qualified Bank”,
then the Letter of Credit must be confirmed by such a bank and the Letter of
Credit must meet all of the conditions set forth in Section 79.4 of New
York Insurance Regulation 133.

 

3.                                       The
Reinsurer and the Company agree that the Company may draw upon the
Letter(s) of Credit at any time, notwithstanding any other provisions in the
Agreement, provided such assets are applied and utilized by the Company or any
successor of the Company by operation of law, including, without limitation,
any liquidator, rehabilitator, receiver or conservator of the Company, without
diminution because of the insolvency of the Company or the Reinsurer, only for
the following purposes:

 

(i)                                     to
reimburse the Company for the Reinsurer’s share of premiums returned to the
owners of policies reinsured under this Agreement on account of cancellations
of such policies;

 

(ii)                                  to
reimburse the Company for the Reinsurer’s share of surrenders and benefits or
losses paid by the Company under the terms and provisions of the policies reinsured
under this Agreement;

 

(iii)                               to
fund an account with the Company in an amount at least equal to the deduction,
for reinsurance ceded, from the Company’s liabilities for policies ceded under
this Agreement. Such amount shall include, but not be limited to, amounts for
policy reserves for claims and losses incurred (including losses incurred but
not reported), loss adjustment expenses, and unearned premiums; and

 

(iv)                              to
pay any other amounts the Company claims are due under this Agreement.

 

4.                                       The
Company shall immediately return to the Reinsurer any amounts drawn down on the
Letter of Credit that are subsequently determined not to be due.

 

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

 

E.                                      To
the extent that the Reinsurer elects to establish a trust account, the following
shall apply.

 

12

 

1.                                       It
is agreed that the Reinsurer shall enter into a trust agreement (the “Trust
Agreement”) in a form acceptable to the Company and establish a trust
account (the “Trust Account”) for the sole benefit of the Company with a
trustee (the “Trustee”), which shall be at the time the Trust is established,
and shall continue to be, either a member of the Federal Reserve System or a
New York state chartered bank and which shall not be a parent, subsidiary or
affiliate of the Reinsurer or the Company.

 

2.                                       The
Reinsurer agrees to deposit and maintain in said Trust Account assets to be
held in trust by the Trustee for the benefit of the Company as security for the
payment of the Reinsurer’s Obligations to the Company under the Agreement. Such
assets shall be maintained in the Trust Account by the Reinsurer as long as the
Reinsurer continues to remain liable for such Obligations.

 

3.                                       The
Reinsurer agrees that the assets deposited into the Trust Account shall be
valued according to their current fair market value and shall consist only of
currency of the United States of America, certificates of deposit issued by a
United States bank and payable in United States legal tender, and investments
of the types specified in paragraphs (1), (2), (3), (8) and (10) of Section 1404(a) of
the New York Insurance Law, provided such investments are issued by an
institution that is not the parent, subsidiary or affiliate of either the
Grantor or the Beneficiary (“Authorized Investments”).

 

4.                                       The
Reinsurer, prior to depositing assets with the Trustee, shall execute all
assignments and endorsements in blank, and shall transfer legal title to the
Trustee of all shares, obligations or any other assets requiring assignments,
in order that the Company, or the Trustee upon direction of the Company, may whenever
necessary negotiate any such assets without consent or signature from the
Reinsurer or any other entity.

 

5.                                       All
settlements of account under the Trust Agreement between the Company and
Reinsurer shall be made in cash or its equivalent.

 

6.                                       The
Reinsurer and the Company agree that the assets in the Trust Account may be
withdrawn by the Company at any time, notwithstanding any other provisions in
the Agreement, provided such assets are applied and utilized by the Company or
any successor of the Company by operation of law, including, without
limitation, any liquidator, rehabilitator, receiver or conservator of the
Company, without diminution because of the insolvency of the Company or the
Reinsurer, only for the following purposes:

 

(i)                                     to
reimburse the Company for the Reinsurer’s share of any Losses and Loss
Adjustment Expenses paid by the Company but not received from the Reinsurer or
for unearned premiums due to the Company but not otherwise paid by the
Reinsurer under the Agreement; or

 

(ii)                                  to
make payment to the Reinsurer of any amounts held in the Trust Account that
exceed 102% of the Reinsurer’s Obligations (less the balance of credit
available under any Letter(s) of Credit) hereunder; or

 

(iii)                               where
the Company has received notification of termination of the Trust Account, and
where the Reinsurer’s entire Obligations under the Agreement remain
unliquidated

 

13

 

and undischarged ten (10) days
prior to such termination, to withdraw amounts equal to such Obligations (less
the balance of credit available under any Letter(s) of Credit) and deposit such
amounts in a separate account, in the name of the Company, in any United States
bank or trust company, apart from its general assets, in trust for such
uses and purposes specified in sub-paragraphs (i) and (ii) above as may remain
executory after such withdrawal and for any period after such termination.

 

7.                                       The
Reinsurer shall have the right to seek the Company’s approval to withdraw all
or any part of the assets from the Trust Account and transfer such assets
to the Reinsurer, provided that the withdrawal conforms to the following
requirements:

 

(i)                                     the
Reinsurer shall, at the time of withdrawal, replace the withdrawn assets with
other Authorized Investments having a market value equal to the market value of
the assets withdrawn,

 

(ii)                                  after
such withdrawal and transfer, the market value of the Trust Account is no less
than 102% of the Reinsurer’s Obligations (less the balance of credit available
under any Letter(s) of Credit).

 

In the event that the Reinsurer seeks the Company’s approval hereunder,
the Company shall not unreasonably or arbitrarily withhold its approval.

 

8.                                       In
the event that the Company withdraws assets from the Trust Account for the
purposes set forth in Paragraph (6)(i) above in excess of actual amounts
required to meet the Reinsurer’s Obligations to the Company (less the balance
of credit available under any Letter(s) of Credit), or in excess of amounts
determined to be due and under Paragraph (6)(iii) above, the Company will
return such excess to the Reinsurer.

 

9.                                       The
Company will prepare and forward at annual intervals or more frequently as
determined by the Company, but not more frequently than quarterly to the
Reinsurer a statement for the purposes of this Article, showing the Reinsurer’s
share of Obligations as set forth above. If the Reinsurer’s share thereof
exceeds the then existing balance of the security provided, the Reinsurer will,
within fifteen (15) days of receipt of the Company’s statement, but never later
than December 31 of any year, increase the amount of the letter of credit,
or Trust Account to the required amount of the Reinsurer’s share of Obligations
set forth in the Company’s statement, but never later than December 31 of
any year. If the then existing balance of the security provided exceeds an
amount equal to 100% of the Reinsurer’s share thereof, the Company will release
the excess thereof to the Reinsurer upon the Reinsurer’s written request.

 

F.                                      The
Reinsurer will take any other reasonable steps that may be required for
the Company to take full credit on its statutory financial statements for the
reinsurance provided by this Agreement.

 

ARTICLE XVII                                     SERVICE
OF SUIT

 

A.                                   This
Article only applies to a Reinsurer domiciled outside of the United States
and/or unauthorized in any state, territory or district of the United States
having jurisdiction over the Company. Furthermore, this Article will not
be read to conflict with or override the

 

14

 

obligations of the parties to
arbitrate their disputes as provided for in the Article entitled
Arbitration. 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 Agreement.

 

B.                                     In
the event of any dispute, the Reinsurer, at the request of the Company, shall submit
to the jurisdiction of a court of competent jurisdiction within the United
States. Nothing in this Article constitutes or should be understood to
constitute a waiver of any obligation to arbitrate disputes arising from this
Agreement or the Reinsurer’s rights to commence an action in any court of
competent jurisdiction in the United States, to remove an action to a United
States District Court, or to seek a transfer of a case to another court as
permitted by the laws of the United States or of any state in the United
States.

 

C.                                     Service
of process in any such suit against the Reinsurer may be made upon Mendes
and Mount, 750 Seventh Avenue, New York, New York 10019-6829 (“Firm”), or the
party identified on behalf of the Reinsurer on the Reinsurer’s signature page to
this Agreement, and in any suit instituted, the Reinsurer shall abide by the
final decision of such court or of any Appellate Court in the event of an
appeal.

 

D.                                    The
Firm is authorized and directed to accept service of process on behalf of the
Reinsurer in any such suit and/or upon the request of the Company to give a
written undertaking to the Company that they shall enter a general appearance
upon the Reinsurer’ behalf in the event such a suit shall be instituted.

 

E.                                      Further,
as required by and pursuant to any statute of any state, territory or district
of the United States which makes provision therefore, the Reinsurer hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their 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
Agreement, and hereby designates the above-named as the person to whom the said
officer is authorized to mail such process or a true copy thereof.

 

ARTICLE XVIII                                 ARBITRATION

 

A.                                   Any
dispute or other matter in question between the Company and the Reinsurer
arising out of, or relating to, the formation, interpretation, performance, or
breach of this Agreement, whether such dispute arises before or after
termination of this Agreement, shall be settled by arbitration. Arbitration
shall be initiated by the delivery of a written notice of demand for
arbitration by one party to the other within a reasonable time after the
dispute has arisen.

 

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

 

15

 

C.                                     Except
as set forth in Article III, each party shall appoint an individual as
arbitrator and the two so appointed shall then appoint a third arbitrator. If
either party refuses or neglects to appoint an arbitrator within 60 days, the
other party may appoint the second arbitrator. If the two arbitrators do
not agree on a third arbitrator within 60 days of the appointment of the second
arbitrator, each of the arbitrators shall nominate three individuals. If the
two arbitrators are unable to agree upon the third arbitrator within thirty
(30) days of their appointment, the third arbitrator shall be selected from a
list of six individuals (three named by each arbitrator) by a judge of the
United States District Court having jurisdiction over the geographical area in
which the arbitration is to take place, or if that court declines to act, the
state court having general jurisdiction in such area. The arbitrators shall be
active or retired officers of insurance or reinsurance companies or Lloyd’s of
London Underwriters; the arbitrators shall not have a personal or financial
interest in the result of the arbitration.

 

D.                                    The
arbitration hearings shall be held in New York, New York. Each party shall
submit its case to the arbitrators within 60 days of the selection of the third
arbitrator or within such longer period as may be agreed by the
arbitrators. The arbitrators shall not be obliged to follow judicial
formalities or the rules of evidence except to the extent required by
governing law, that is, the state law of the situs of the arbitration as herein
agreed; they shall make their decisions according to the practice of the
reinsurance business. The decision rendered by a majority of the arbitrators
shall be final and binding on both parties. Such decision shall be a condition
precedent to any right of legal action arising out of the arbitrated dispute
which either party may have against the other. Judgment upon the award
rendered may be entered in any court having jurisdiction thereof.

 

E.                                      Each
party shall pay the fee and expenses of its own arbitrator and one-half of the
fee and expenses of the third arbitrator. All other expenses of the arbitration
shall be equally divided between the parties.

 

F.                                      Except
as provided above, arbitration shall be based, insofar as applicable, upon the
procedures of the American Arbitration Association.

 

ARTICLE XIX                                         INSOLVENCY

 

A.                                   The
reinsurance shall be payable by the reinsurer on the basis of liability of the
Company under the Policies reinsured without diminution because of the
insolvency of the Company and the liability for such reinsurance is assumed by
the Reinsurer as of the same effective date. In the event of insolvency and the
appointment of a conservator, liquidator, or statutory successor of the
Company, the portion of any risk or obligation assumed by the Reinsurer shall
be payable to the conservator, liquidator, or statutory successor on the basis
of claims allowed against the insolvent Company by any court of competent
jurisdiction or by any conservator, liquidator, or statutory successor of the
Company having authority to allow such claims, without diminution because of
that insolvency, or because the conservator, liquidator, or statutory successor
has failed to pay all or a portion of any claims.

 

B.                                     Payments
by the Reinsurer as above set forth shall be made directly to the Company or to
its conservator, liquidator, or statutory successor, except where the Agreement
of insurance or reinsurance specifically provides another payee of such
reinsurance or except as provided by

 

16

 

applicable law and regulation
(such as subsection (a) of section 4118 of the New York
Insurance laws) in the event of the insolvency of the Company.

 

 C.                                  In the event of the
insolvency of the Company, 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 insolvent Company on the Policy or Policies
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding and 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 which 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 court approval against the insolvent Company as part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.

 

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

 

ARTICLE XX                                             CLAIMS
COOPERATION

 

When so
requested in writing, the Company shall afford the Reinsurer or its
representatives an opportunity to be associated with the Company, at the
expense of the Reinsurer, in the defense 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, provided the
Company shall have the right to make any decision in the event of disagreement
over any matter of defense or settlement.

 

ARTICLE XXI                                         CONFIDENTIALITY

 

A.                                   The
information, data, statements, representations and other materials provided by
the Company or the Reinsurer to the other arising from consideration and
participation in this Agreement whether contained in the reinsurance
submission, this Agreement, or in materials or discussions arising from or
related to this Agreement, may contain confidential or proprietary
information as expressly indicated by the disclosing party in writing from time
to time to the other party of the respective parties (“Confidential Information”).
This Confidential Information is intended for the sole use of the parties to
this Agreement (and their retrocessionaires, respective auditors and legal
counsel) as may be necessary in analyzing and/or accepting a participation
in and/or executing their respective responsibilities under or related to this
Agreement. Disclosing or using Confidential Information disclosed under this
Agreement for any purpose beyond (i) the scope of this Agreement, (ii) the
reasonable extent necessary to perform rights and responsibilities
expressly provided for under this Agreement, (iii) the reasonable extent
necessary to administer, report to and effect recoveries from retrocessional
reinsurers, (iv) the extent necessary to comply with legal or regulatory
requirements, or (v) persons with a need to know the information and who
are obligated to maintain the confidentiality of the Confidential Information
or who have agreed in writing to maintain the confidentiality of the Confidential
Information is expressly forbidden without the prior written

 

17

 

consent of the disclosing
party. Copying, duplicating, disclosing, or using Confidential Information for
any purpose beyond this expressed purpose is forbidden without the prior
written consent of the disclosing party.

 

B.                                     Should
a party (“Receiving Party”) receive a third party demand pursuant to subpoena,
summons, or court or governmental order, to disclose Confidential Information
that has been provided by another party to this Agreement (“Disclosing Party”),
the Receiving Party shall, to the extent permitted by law, make commercially
reasonable efforts to notify the Disclosing Party promptly upon receipt of the
demand and prior to disclosure of the Confidential Information and provide the
Disclosing Party a reasonable opportunity to object to the disclosure. If such
notice is provided, the Receiving Party may after the passage of five (5) business
days after providing notice, proceed to disclose the Confidential Information
as necessary to satisfy such a demand without violating this Agreement. If the
Disclosing Party timely objects to the release of the Confidential Information,
the Receiving Party will comply with the reasonable requests of the Disclosing
Party in connection with the Disclosing Party’s efforts to resist release of
the Confidential Information. The Disclosing Party shall bear the cost of
resisting the release of the Confidential Information.

 

ARTICLE XXII                                     OFFSET

 

The Company and the Reinsurer shall have the
right to offset any balance or amounts due from one party to the other under
the terms of this Agreement, as permitted by sections 1308 and 7427 of the New
York Insurance Law.. The party asserting the right of offset may exercise
such right any time whether the balances due are on account of premiums or
losses or otherwise. However, in the event of the insolvency of any party
hereto, offset shall only be allowed in accordance with applicable law.

 

ARTICLE XXIII                                 RECOVERIES

 

A.                                   All
recoveries, including but not limited to salvage, subrogation, payments and
reversals or reductions of verdicts or judgments (net of the cost of obtaining
such recovery, payment or reversal or reduction of a verdict or judgment)
whether recovered, received or obtained prior or subsequent to a loss
settlement under this Agreement, including amounts recoverable under other
reinsurance whether collected or not, shall be applied as if recovered,
received or obtained prior to the aforesaid settlement and shall be deducted
from the actual losses sustained to arrive at the amount of the Net Liability. Nothing
in this Article shall be construed to mean amounts are not recoverable
from the Reinsurer until the final Net Liability to the Company has been ascertained.
Amounts recovered from salvage and/or subrogation will always be used to
reimburse any excess reinsurers (and the Company should it carry a portion of
excess coverage net) before being used in any way to reimburse the Company and
the Reinsurer hereon, who will share pro-rata in any remainder.

 

B.                                     The
Reinsurer shall be subrogated, as respects any Loss Occurrence for which the
Reinsurer shall actually pay or become liable, but only to the extent of the
amount of payment by or the amount of liability to the Reinsurer, to all the
rights of the Company against any person or other entity who may be
legally responsible for damages as a result of said Loss Occurrence. Should the
Company elect not to enforce such rights, the Reinsurer is hereby authorized
and

 

18

 

empowered to bring any
appropriate action in the name of the Company or its policyholders, or
otherwise to enforce such rights. The Reinsurer shall promptly remit to the
Company the amount of any judgment awarded in such an action in excess of the
amount of payment by, or the amount of liability to, the Reinsurer hereunder.

 

C.                                     In
the event that this Agreement shall provide reinsurance for the Net Liability
from a Loss Occurrence or event incurred by two or more Companies, each Company
contributing to the Net Liability shall be entitled to its proportionate share
of the recovery in the proportion that its contribution to the total Net
Liability bears to the total Net Liability. Payment of any recovery amount to
one Company by the Reinsurer shall make that Company the agent for payment of
all other Companies contributing to the Net Liability.

 

ARTICLE XXIV                                MISCELLANEOUS

 

A.                                   This
Agreement shall be binding upon and inure to the benefit of the Company and
Reinsurer and their respective successors and assigns provided, however, that
this Agreement may not be assigned by either party without the prior
written consent of the other which consent may be withheld by either party
in its sole unfettered discretion. This provision shall not be construed to
preclude the assignment by the Company of reinsurance recoverables to another
party for collection.

 

B.                                     This
Agreement shall constitute the entire agreement between the parties with
respect to the Business Covered hereunder. There are no understandings between
the parties other than as expressed in this Agreement or any amendment thereto.
Any change or modification of this Agreement shall be null and void unless made
by amendment to the Agreement and signed by the parties or otherwise clearly
and unequivocally amended by exchange of letters or electronic mail. Nothing in
this Article shall act to preclude the introduction of submission-related
documents in any dispute between the parties.

 

C.                                     This
Agreement shall be governed by and construed according to the laws of the state
of the New York, exclusive of the rules with respect to conflicts of law.

 

D.                                    The
headings preceding the text of the Articles and paragraphs of this Agreement
are intended and inserted solely for the convenience of reference and shall not
affect the meaning, interpretation, construction or effect of this Agreement.

 

E.                                      This
Agreement is solely between the Company and the Reinsurer, and in no instance
shall any insured, claimant or other third party have any rights under this
Agreement.

 

F.                                      If
any provisions of this Agreement should be invalid under applicable laws, the
latter shall control but only to the extent of the conflict without affecting
the remaining provisions of this Agreement.

 

G.                                     The
failure of the Company or Reinsurer to insist on strict compliance with this
Agreement or to exercise any right or remedy shall not constitute a waiver of
any rights

 

19

 

contained in this Agreement nor
estop the parties from thereafter demanding full and complete compliance nor
prevent the parties from exercising any remedy.

 

H.                                    Each
party shall be excused for any reasonable failure or delay in performing any of
its respective obligations under this Agreement, if such failure or delay is
caused by Force Majeure. “Force Majeure” shall mean any act of God, strike,
lockout, act of public enemy, any accident, explosion, fire, storm, earthquake,
flood, drought, peril of sea, riot, embargo, war or foreign, federal, state or
municipal order or directive issued by a court or other authorized official,
seizure, requisition or allocation, any failure or delay of transportation,
shortage of or inability to obtain supplies, equipment, fuel or labor or any
other circumstance or event beyond the reasonable control of the party relying
upon such circumstance or event; provided, however, that no such Force Majeure
circumstance or event shall excuse any failure or delay beyond a period
exceeding ten (10) days from the date such performance would have been due
but for such circumstance or event.

 

I.                                         All
Articles of this Agreement shall survive the termination of this Agreement
until all obligations between the parties have been finally settled, provided
however that this Agreement shall not be construed to provide reinsurance for
Business Covered, other than as specifically described in the Articles of this
Agreement entitled Reinsurance Coverage nor to Loss occurring after the
termination date of this Agreement other than as expressed in the Article entitled
Commencement and Termination.

 

J.                                        This
Agreement may be executed by the parties hereto in any number of
counterparts, and by each of the parties hereto in separate counterparts, each
of which counterparts, when so executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.

 

K.                                    Each
party to this agreement shall honor the terms set forth herein as if this
Agreement were a separate agreement between the reinsurer and each company.
Balances payable or recoverable by any reinsurer, or each named Company, shall
not serve to offset any balances, payable, or recoverable to, any company
hereunder.

 

Reports and
remittances made to the Reinsurer in accordance with the applicable articles
hereof are to be in sufficient detail to identify both the Reinsurer’s loss
obligations due each reinsured company and each reinsured company’s premium
remittance under the report. In the event of insolvency of any of the parties
to this Agreement, offsets shall only be allowed in accordance with section 7427
of the New York Insurance Law.

 

L.                                      This
Agreement is entered into as of the date hereof by the parties hereto, subject
in any case to the satisfaction of applicable insurance regulatory requirements
of New York and Massachusetts, including any conditions such regulators may impose
on the terms of this Agreement subsequent to the date hereof. Subject to the
foregoing, this Agreement shall be effective as of April 1, 2006.

 

[Signature
Page Follows]]

 

20

 

IN WITNESS WHEREOF,
the Company and the Reinsurer have caused this Amended and Restated Agreement
to be executed August 30, 2006.

 

	
   

  	
  TOWER INSURANCE COMPANY OF NEW YORK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Francis M. Colalucci

  	
   

  
	
   

  	
   

  	
  Name: Francis M. Colalucci

  
	
   

  	
   

  	
  Title: Senior Vice-President and Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TOWER NATIONAL INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Francis M. Colalucci

  	
   

  
	
   

  	
   

  	
  Name: Francis M. Colalucci

  
	
   

  	
   

  	
  Title: Senior Vice-President and Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CASTLEPOINT REINSURANCE COMPANY, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph Beitz

  	
   

  
	
   

  	
   

  	
  Name: Joseph Beitz

  
	
   

  	
   

  	
  Title: Acting President

  

 

21

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