Document:

exv10w174

EXHIBIT
10.174

COMMERCIAL EQUIPMENT BREAKDOWN

QUOTA SHARE REINSURANCE CONTRACT

NO. 3200195

between

PEERLESS INSURANCE COMPANY

Keene, New Hampshire

and

LIBERTY MUTUAL INSURANCE COMPANY

Boston, Massachusetts

Effective: January 1, 2010

	 	 	 
	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contact No. 3200195

 

 

COMMERCIAL EQUIPMENT BREAKDOWN QUOTA SHARE REINSURANCE CONTRACT

NO. 3200195

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	Clause	 	Article Number	 	Page
	ACCESS TO
RECORDS (LM-00102-2008.05.13-O) (AM)
	 	 	16	 	 	 	10	 
	AMENDMENTS
	 	 	17	 	 	 	11	 
	ARBITRATION (LM-00200-2009.10.26-A) (AM)
	 	 	18	 	 	 	12	 
	ASSIGNMENT, NOVATION or TRANSFER (LM-00300-2008.05.13-A)
	 	 	19	 	 	 	14	 
	BUSINESS COVERED
	 	 	 1	 	 	 	 1	 
	CEDING COMMISSION
	 	 	13	 	 	 	 8	 
	CONFIDENTIALITY
(LM-00401-2008.07.21-O) (AM LMEB)
	 	 	20	 	 	 	14	 
	CURRENCY (LM-00500-2009.09.29)
	 	 	21	 	 	 	15	 
	DEFINITIONS
	 	 	 5	 	 	 	 2	 
	DIVIDENDS AND TAXES (LM-00600-2009.03.10-A)
	 	 	22	 	 	 	15	 
	EFFECTIVE DATE AND TERMINATION
	 	 	 4	 	 	 	 2	 
	ENTIRE
AGREEMENT (LM-00701-2008.08.15-A)
	 	 	23	 	 	 	15	 
	ERRORS OR OMISSIONS (LM-00800-2005.06.02-A)
	 	 	24	 	 	 	16	 
	EXCLUSIONS
	 	 	 6	 	 	 	 3	 
	EXTRA
CONTRACTUAL OBLIGATIONS (LM-00900-2009.09.29-A) (AM EB)
	 	 	10	 	 	 	 7	 
	FEDERAL
EXCISE TAX (LM-01000-2008.08.15-A)
	 	 	25	 	 	 	16	 
	FEDERAL
TERRORISM RECOVERY (LM-01100-2008.08.06-A)
	 	 	26	 	 	 	16	 
	GOVERNING LAW (LM-01200-2008.09.18-A)
	 	 	27	 	 	 	17	 
	INDEMNIFICATION AND DEFENSE
	 	 	28	 	 	 	17	 
	INSOLVENCY (LM-01300-2009.09.03-A) (AM)
	 	 	29	 	 	 	17	 
	INTEREST PENALTY (LM-01401-2005.12.21-Q)
	 	 	30	 	 	 	18	 
	LIMIT OF LIABILITY
	 	 	 2	 	 	 	 1	 
	LOSS
ADJUSTMENT AND SETTLEMENT (LM-01502-2005.12.21-O) (AM LMEB)
	 	 	 9	 	 	 	 6	 
	LOSS IN EXCESS OF POLICY LIMITS (LM-01600-2009.09.29-A) (AM Reins. Claims)
	 	 	11	 	 	 	 7	 
	OFFSET (LM-01701-2005.06.02-A)
	 	 	31	 	 	 	18	 
	OTHER PROVISIONS
	 	 	 8	 	 	 	 5	 
	PROFIT SHARING
	 	 	15	 	 	 	 9	 
	REINSURANCE CLAIMS OBLIGATIONS (LM-3100-2008.07.21-A) (AM)
	 	 	32	 	 	 	19	 
	REINSURANCE PREMIUM
	 	 	12	 	 	 	 8	 
	REPORTS AND REMITTANCES
	 	 	14	 	 	 	 8	 
	SERVICE OF SUIT (LM-01900-2009.09.29-A) (AM LMEB)
	 	 	33	 	 	 	19	 
	SEVERABILITY (LM-02000-2005.06.02-A)
	 	 	34	 	 	 	20	 
	SPECIAL ACCEPTANCES
	 	 	 7	 	 	 	 5	 
	SPECIAL CONDITIONS (LM-02100-2009.09.17-A) (AM)
	 	 	35	 	 	 	20	 
	TERRITORY (LM-02200-2005.06.02-A)
	 	 	 3	 	 	 	 2	 
	THIRD PARTIES (LM-02700-2005.09.27-A)
	 	 	36	 	 	 	24	 
	UNAUTHORIZED REINSURANCE (LM-02500-2009.09.29-A) (AM)
	 	 	37	 	 	 	24	 
	SCHEDULE 1
— POLICIES FROM PARIS SYSTEM
	 	 	 	 	 	 	26	 
	SCHEDULE 2 — POLICIES FROM ECLPS+ SYSTEM
	 	 	 	 	 	 	28	 

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

 

 

COMMERCIAL EQUIPMENT BREAKDOWN QUOTA SHARE REINSURANCE CONTRACT

No. 3200195

(hereinafter referred to as the “Contract”)

between

PEERLESS INSURANCE COMPANY

Keene, New Hampshire

(hereinafter referred to as the “Company”)

and

LIBERTY MUTUAL INSURANCE COMPANY

Boston, Massachusetts

(hereinafter referred to as the “Subscribing Reinsurer”)

ARTICLE 1 — BUSINESS COVERED

	A.	 	By this Contract, the Subscribing Reinsurer obligates itself to accept as reinsurance of the
Company and the Company obligates itself to cede to the Subscribing Reinsurer, 100% of the
liability on new and renewal business covered hereunder, written by the Company or ceded
directly or indirectly to the Company by an Affiliate of the Company (hereinafter each
referred to as a “Legal Entity” and, collectively, the “Legal Entities”) for commercial
Equipment Breakdown business identified as belonging to the Agency Markets strategic business
unit of the Liberty Mutual Group. The business covered hereunder is defined in each Schedule
attached hereto. This Contract specifically excludes any and all commercial equipment
breakdown coverage for policies issued by the following Agency Markets platform systems;

	 	1.	 	AQS Mecca or;
	 
	 	2.	 	Comm Line or;
	 
	 	3.	 	PAL.

	B.	 	It is a condition of this Contract that evidence of coverage provided for any commercial
Equipment Breakdown insurance ceded under sub-paragraph A. above (hereinafter “Equipment
Breakdown”) shall be on policies, forms, endorsement or binders, in accordance with forms,
rates and rules mutually acceptable to the Company and the Subscribing Reinsurer.

	C.	 	Only that portion of loss, if any, that is covered solely under the Equipment Breakdown
coverage provided in the Policy shall be reinsured under this Contract. If, however, that
loss (or portion thereof) that is covered solely under the Equipment Breakdown coverage
provided in the Policy would not be covered, in whole or in part, pursuant to the terms and
conditions of the Subscribing Reinsurer’s reinsurance quotation, then the terms and
conditions of the Subscribing Reinsurer’s reinsurance quotation will control irrespective of
the Policy’s Equipment Breakdown coverage.

ARTICLE 2 — LIMIT OF LIABILITY

The Subscribing Reinsurer’s liability under this Contract shall not exceed a limit of liability of
100% of $100,000,000 any one Accident, without prior written agreement of the Subscribing
Reinsurer. It is agreed and understood that for the purposes of this Contract, one Policy
constitutes one Risk.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 1 of 30

 

ARTICLE 3 — TERRITORY (LM-02200-2005.06.02-A)

The territorial limits of this Contract shall be identical with those of the Policies.

ARTICLE 4 — EFFECTIVE DATE AND TERMINATION

	A.	 	This Contract shall become effective at 12:01 a.m., Local Standard Time, January 1, 2010,
and shall remain in force until terminated as provided in this Article.

	B.	 	This Contract may be terminated by the Company or the Subscribing Reinsurer by giving one
hundred eighty (180) days prior notice in writing to the other party. Upon termination of this
Contract, the Subscribing Reinsurer shall continue to be liable, with respect to Policies in
force at the time and date of termination, for claims and losses resulting from occurrences
taking place until the expiration, cancellation, or next anniversary date of each such Policy
of the Company or the Legal Entities, whichever occurs first, but in no event shall it exceed
one year.

	C.	 	Notwithstanding the preceding paragraphs, the Company shall have the option to terminate the
entire liability of the Subscribing Reinsurer concurrently with the time and date of
cancellation of this Contract for all loss or losses resulting from Accidents taking place
subsequent thereto. In such event the Subscribing Reinsurer shall return to the Company the
Subscribing Reinsurer’s portion of the Company’s unearned premium applicable to Policies in
force at such date less any applicable commission.

	D.	 	As soon as notice of termination of this Contract is given to the Subscribing Reinsurer by
the Company, the Subscribing Reinsurer shall provide the Company with information sets
detailing the accounts, locations, Covered Equipment due dates of jurisdictional inspections
which will come due during the twelve month period following the termination date.

ARTICLE 5 — DEFINITIONS

	A.	 	For purposes of this Contract, the term “Accident” shall follow the definition set forth
under the Equipment Breakdown Coverage, Systems Breakdown Coverage or Boiler and Machinery
Coverage as provided in the Policies, except as otherwise excluded or amended in this
Contract, or in the Schedules attached hereto, or pursuant to the Subscribing Reinsurer’s
reinsurance quotation (where applicable). If the Equipment Breakdown Coverage, Systems
Breakdown Coverage or Boiler and Machinery Coverage provided for in the Policies does not use
the term “Accident,” for the purposes of this Contract, “Accident” shall mean the loss
producing event specified in that portion of the Policy that provides Equipment Breakdown
coverage, Systems Breakdown or Boiler and Machinery coverage.

	B.	 	The term “Affiliate” means an entity that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with the Company.

	C.	 	For purposes of this Contract, the term “Equipment Breakdown” shall follow the definition set
forth under the Equipment Breakdown Coverage, Systems Breakdown Coverage or Boiler and
Machinery Coverage as provided in the Policies, except as otherwise excluded or amended in
this Contract, or in the Schedules attached hereto, or pursuant to the Subscribing Reinsurer’s
reinsurance quotation (where applicable). If the Equipment Breakdown Coverage, Systems
Breakdown Coverage or Boiler and Machinery Coverage provided for in the Policies does not use
the term “Equipment Breakdown,” for the purposes of this Contract, “Equipment Breakdown” shall
mean that loss or damage that is solely covered by the addition of the Equipment Breakdown
Coverage, Systems Breakdown Coverage or Boiler and Machinery Coverage contained within the
Policies.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 2 of 30

 

	D.	 	For purposes of this Contract, the term “ Covered Equipment” shall follow the definition
set forth under the Equipment Breakdown Coverage, Systems Breakdown Coverage or Boiler and
Machinery Coverage as provided in the Policies, except as otherwise excluded or amended in
this Contract, or in the Schedules attached hereto, or pursuant to the Subscribing
Reinsurer’s reinsurance quotation (where applicable).

	E.	 	The term “Policies” means the Company’s or Legal Entities’ binders, policies, endorsements
and contracts of insurance reinsured directly or indirectly by the Company as identified in
the Business Covered Article, which provide insurance on the Risks reinsured under this
Contract.

	F.	 	The term “Referral Risks” means any Risk that requires referral to the Subscribing Reinsurer
as set forth in the Referral Guidelines attached to a Schedule or specified in this Contract.

ARTICLE 6 — EXCLUSIONS

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

	 	1.	 	Loss or damage caused by or resulting from any of the following, regardless of any other
cause or event that contributes concurrently or in any sequence to the loss and shall apply
whether or not the loss event results in widespread damage or affects a substantial
area:

	 	a.	 	Fire (including fire resulting from an Accident); or water or
other means used to extinguish a fire.
	 
	 	b.	 	Explosion of gas or unconsumed fuel within the furnace of any
boiler or fired vessel or within the passages from that furnace to the
atmosphere, including any combustion explosion.
	 
	 	c.	 	Any other explosion (except for explosion of steam boilers,
steam piping, steam engines or steam turbines that are not otherwise excluded
by paragraph A.1.b). above.
	 
	 	d.	 	Lightning, including lightning induced surges.
	 
	 	e.	 	Wind or hail; smoke; aircraft or vehicles; riot or civil
commotion; vandalism or malicious mischief; leakage or accidental discharge
from an automatic fire protection system; elevator collision; or collapse.
	 
	 	f.	 	Flood, surface water, waves, tides, tidal waves (including
tsunami), all whether driven by wind or not; or the release of water from, or
the rising, overflowing or breaking of boundaries of rivers, lakes, streams,
ponds or other natural or man-made bodies of water; or water that backs up or
overflows from a sewer, drain or sump, except as specifically covered under the
Equipment Breakdown Coverage form (including the cost of drying out electrical
equipment, as actually provided therein).
	 
	 	g.	 	Any earth movement, including but not limited to earthquake,
subsidence, sinkhole collapse, landslide, mudflow or mudslide, any sinking,
rising or shifting of the earth, or volcanic action.
	 
	 	h.	 	Any interference with or interruption of any public or private utility or any
entity providing electrical, heating, air conditioning, refrigeration,
telecommunication, steam, water, sewer, fuel service, or any other service,
if the failure occurs away from the covered location, unless said
interference or interruption results from an Accident to Covered Equipment of
the type reinsured hereunder, and is covered by the applicable Policy’s
Equipment Breakdown coverage, or if the interference or interruption results
in an Accident to Covered Equipment.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 3 of 30

 

	 	2.	 	Loss or damage caused by or resulting from any of the following causes of loss,
only to the extent that coverage for loss or damage from that cause of loss is
provided by the property Policy or coverage part if Equipment Breakdown coverage had
not been added:

	 	a.	 	Breakage of glass; falling objects; weight of snow, ice or sleet;
freezing (caused by cold weather); collapse; molten material.
	 
	 	b.	 	Water damage (except for water damage resulting from an Accident
that escapes from Covered Equipment).

	 	3.	 	Exclusions A.1 .d., A.1 .e. and A.2.a. in the preceding paragraphs shall not apply if:

	 	a.	 	The excluded peril occurs away from any covered location and
causes an electrical surge or other electrical disturbance; and
	 
	 	b.	 	Such surge or disturbance is transmitted through utility service
transmission lines to the covered location and results in an Accident to Covered
Equipment.

	B.	 	 This Contract does not apply to and specifically excludes loss or damage caused by or resulting
from any of the following, regardless of any other cause or event that contributes to the loss or
damage at the same time or in any other sequence:

	 	1.	 	Any defect, programming error, programming limitation, computer virus,
malicious code, loss of data, loss of access, loss of use, loss of functionality or
other condition within or involving data or media of any kind. However, if an Accident
not otherwise excluded ensues, then reinsurance under this Contract shall cover the
loss or damage caused by the ensuing Accident to Covered Equipment.
	 
	 	2.	 	War risk, bombardment, invasion, insurrection, rebellion, revolution, civil
war, military or usurped power, or confiscation by order of any government or public
authority, as excluded under the original Policies.
	 
	 	3.	 	The Company’s or a Legal Entity’s liability as a voluntary or involuntary
member, subscriber or reinsurer of any pool, syndicate, association or other
combination of insurers or reinsurers formed for the purpose of covering specific
perils, specific classes of business or for the purpose of insuring risks located in
specific geographical areas, except for any intercompany reinsurance transacted among
or between the Company and the Legal Entities..
	 
	 	4.	 	All liability of the Company or a Legal Entity arising by contract, operation
of law, or otherwise, from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. “Insolvency Fund” includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any assessment of or payment
or assumption by the Company or a Legal Entity of part or all of any claim, debt,
charge, fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent, or which is otherwise deemed
unable to meet any claim, debt, charge, fee, or other obligation in whole or in part.
	 
	 	5.	 	Nuclear risk:

	 	a.	 	Nuclear reaction or radiation, or radioactive contamination,
however caused, even though any other cause or event contributes concurrently or
in any sequence to the loss. However, it is agreed that an Accident to Covered
Equipment arising out of the use of radioactive isotopes in any form is not
hereby excluded from any reinsurance protection.
	 
	 	b.	 	Any loss or liability accruing to the Company or a Legal Entity
as a member of, or subscriber to, any association of insurers or reinsurers
formed for the purpose of covering nuclear energy risks or as a direct or
indirect reinsurer of any such member, subscriber or association.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 4 of 30

 

ARTICLE 7 — SPECIAL ACCEPTANCES

	A.	 	Business which is not within the scope of this Contract may be submitted to the Subscribing
Reinsurer for special acceptance hereunder and such business, if accepted by the Subscribing
Reinsurer, shall be subject to all terms, conditions and limitations of this Contract except
as modified by the special acceptance. Any business that is submitted for special acceptance
must be accepted or rejected within the following period of time from the date of receipt by
the Subscribing Reinsurer or such business shall be considered automatically accepted
hereunder;

	 	1.	 	within five (5) working days if no jurisdictional inspection of the Risk is required;
	 
	 	2.	 	within twenty (20) working days for all other Risk submissions.

	B.	 	In the event that the Subscribing Reinsurer declines to accept such business submitted for
special acceptance, the Company or a Legal Entity shall have the option of seeking alternative
reinsurance for each such Risk.

ARTICLE 8 — OTHER PROVISIONS

	A.	 	The Subscribing Reinsurer shall have the right to inspect each Risk reinsured hereunder, and
shall make arrangements for the performance of jurisdictional inspections required by state or
municipal boiler and pressure vessel regulations on said Risks. If any inspection discloses
Covered Equipment which is found to be in, or exposed to, a dangerous condition, the inspector
may suspend coverage on such Covered Equipment in accordance with the provisions of the
Policy. The Subscribing Reinsurer agrees to share the jurisdictional inspection information
gathered in such inspections with the Company.

	B.	 	Referral Risks shall be submitted to the Subscribing Reinsurer and the Subscribing Reinsurer
shall issue a reinsurance quotation to the Company defining specifically the terms and
conditions for Equipment Breakdown coverage and the reinsurance premium for each such Risk.
To the extent that said reinsurance quotation is in conflict with any terms, conditions or
exclusions in this Contract, the terms, conditions or exclusions set forth in the reinsurance
quotation shall apply to such Risk irrespective of the terms and conditions of the Policy’s
Equipment Breakdown coverage; however, all other terms, conditions and exclusions in this
Contract shall remain in full force and effect. The Subscribing Reinsurer shall have the
right to decline to quote any Referral Risk either in whole or in part.

	C.	 	In the event any cession made hereunder becomes unsatisfactory to the Subscribing Reinsurer
due to underwriting reasons, the Subscribing Reinsurer may cancel this reinsurance with
respect to such cession by 30 days written notice to the Company, provided, however, that if
any Policy has provisions for more than 10 days notice of cancellation or nonrenewal or the
applicable state statute or regulation contains longer notice requirements, the Subscribing
Reinsurer shall give the Company 20 days plus the notice required by the Policy or the time
period required by the applicable state statute or regulation, whichever is longer. This
paragraph applies only with respect to Referral Risks.

	D.	 	In the event that the Subscribing Reinsurer declines to quote a Risk as provided for in
paragraph B. of this Article or cancels this reinsurance with respect to a Risk as provided
for in paragraph C. of this Article, the Company shall have the option of seeking alternative
reinsurance for each such Risk.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 5 of 30

 

ARTICLE 9 — LOSS ADJUSTMENT AND SETTLEMENT (LM-01502-2005.12.21-O) (AM LMEB)

	A.	 	The Company will give the Subscribing Reinsurer notice as soon as practicable of any claim or
loss arising under coverages subject to this Contract. The Subscribing Reinsurer shall advise
the Company of its estimate of each such claim or loss, and keep the Company advised of any
change in such estimate.

	B.	 	The Subscribing Reinsurer, at its expense will investigate, negotiate and enter into
settlement agreements or defend all such claims and losses in accordance with the terms of the
coverage subject to this Contract, and shall keep the Company informed of significant
developments likely to affect the cost of any claim or claims hereunder. The Subscribing
Reinsurer shall defend and hold harmless the Company or a Legal Entity against any suit
brought solely under coverages subject to this Contract; provided that the Company or a Legal
Entity may at its own expense participate in any such investigation, negotiation, settlement
or defense.

	C.	 	In the event of a settlement by the Subscribing Reinsurer of a claim or loss arising under
coverages subject to this Contract (hereinafter called “authorized losses”), the Company or a
Legal Entity will, pursuant to said settlement, make payment directly to the Insured, under
the coverages subject to this Contract. Upon making such payment, and when requested by the
Subscribing Reinsurer, the Company or a Legal Entity will secure its subrogation rights under
the terms of the coverage subject to this Contract and will then assign such subrogation
rights to the Subscribing Reinsurer. When requested by the Subscribing Reinsurer and agreed
to by the Company, the Company shall secure a duly executed proof of loss and, where
appropriate, a release, in addition to any other required settlement documents.

	D.	 	In the event of an authorized claim or loss involving coverages subject to this Contract and
coverages not subject to this Contract:

	 	1.	 	The Company or a Legal Entity and the Subscribing Reinsurer shall join in the
investigation, settlement, and defense of all such claims and losses.
	 
	 	2.	 	Court costs, interest on judgments, and the cost of defense, including
attorneys’ fees and declaratory judgment fees and costs, which arise in connection
with any investigation, adjustment, resistance to or negotiations concerning
settlement of such claims or losses, shall be apportioned between the Company and the
Subscribing Reinsurer in proportion to their respective liabilities as finally
determined or as mutually agreed upon.
	 
	 	3.	 	The Company and the Subscribing Reinsurer agree that:

	 	a.	 	Coverage for Water Damage, Spoilage/Perishable Goods, Computer
Equipment and Data Restoration resulting from an Accident as set forth in the
Equipment Breakdown or Boiler and Machinery form will be considered primary to
overlapping coverage under other forms or endorsements in the Company’s or a
Legal Entity’s Policy or other Policies issued by the Company or a Legal Entity
for the same insured.
	 
	 	b.	 	For any overlapping coverage not specified in paragraph a.
above, Equipment Breakdown coverage will not be considered “primary” or
“specific” and that apportionment of such claims shall be in accordance with
industry standard practice or as mutually agreed.
	 
	 	c.	 	In the event that the Company’s or Legal Entity’s Policy
provides coverage for Spoilage/Perishable Goods (or any other ensuing loss) as
the result of a malfunction or breakdown, but the Company’s or Legal Entity’s
Policy does not otherwise provide Equipment Breakdown or Boiler and Machinery
coverage (and no risk or premium has been ceded to the Subscribing Reinsurer
for that Policy), the Company’s or Legal Entity’s Policy shall provide the sole
coverage for such Spoilage/Perishable Goods (or other ensuing loss), which is
not reinsured hereunder.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 6 of 30

 

ARTICLE 10 — EXTRA CONTRACTUAL OBLIGATIONS (LM-00900-2009.09.29-A) (AM EB)

	A.	 	This Contract shall protect the Company within the limits hereof for 100% of Extra
Contractual Obligations. “Extra Contractual Obligations” are defined as any actual or
potential liabilities not covered under any other provision of this Contract, arising from or
relating to any alleged or actual act, error or omission, whether intentional or otherwise, or
from any alleged or actual negligence, tortious conduct, reckless conduct, violations of
statutes or regulations governing the conduct of insurance companies and/or claims adjusters,
or bad faith in connection with: (i) the handling of any claim by the Subscribing Reinsurer
under the Policies covered by this Contract, such liabilities arising because of, but not
limited to, the following: failure by the Company, a Legal Entity or by a third party claims
administrator to settle within the Policy limit provided the Company, a Legal Entity or third
party claims administrator has acted at the direction of the Subscribing Reinsurer, or by
reason of alleged or actual negligence, fraud or bad faith of the Subscribing Reinsurer in
rejecting an offer of settlement, or in defending or prosecuting litigation, including
appeals, arbitration, or any alternative dispute resolution or settlement discussions
involving any claim; or (ii) the providing of or failure to provide any loss control or loss
prevention services by the Subscribing Reinsurer in connection with any Policy hereunder.

	B.	 	The date on which any Extra Contractual Obligation is incurred shall be deemed, in all
circumstances, to be the date of the original occurrence, loss occurrence, accident,
casualty, disaster, or loss, as determined by the Company.

	C.	 	However, this Article shall not apply where the loss has been incurred due to the fraud of a
member of the Board of Directors or a corporate officer of the Company or a Legal Entity
acting individually or collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or settlement of any claim
covered hereunder.

ARTICLE 11 — LOSS IN EXCESS OF POLICY LIMITS (LM-01600-2009.09.29-A) (AM Reins. Claims)

	A.	 	This Contract shall protect the Company within the limits hereof, for 100% of any Loss in
excess of the original Policy limit where Loss in excess of the limit has been incurred
because of a failure by the Company, or a Legal Entity or by a third-party claims
administrator to settle within the Policy limit provided the Company, a Legal Entity or third
party claims administrator has acted at the direction of the Subscribing Reinsurer or by
reason of alleged or actual negligence, fraud, or bad faith by the Subscribing Reinsurer in
rejecting an offer of settlement or in defending or prosecuting litigation, including
appeals, arbitration, or any alternative dispute resolution or settlement discussions
involving any claim.

	B.	 	However, the above paragraph shall not apply where the loss has been incurred due to the
fraud of a member of the Board of Directors or a corporate officer of the Company or a Legal
Entity acting individually, or collectively, or in collusion with any individual or
corporation or any other organization or party, involved in the presentation, defense or
settlement of any claim covered hereunder.

	C.	 	With regard to excess of Policy limits, the word “Loss” shall mean any amounts for which the
Company or a Legal Entity would have been contractually liable to pay had it not been for the
limit of the original Policy. The date on which any Loss in excess of the original Policy
limit is incurred by the Company or a Legal Entity shall be deemed, in all circumstances, to
be the date of the original occurrence, accident, casualty, disaster, loss occurrence or loss,
as determined by the Company.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 7 of 30

 

ARTICLE
12 — REINSURANCE PREMIUM

	A.	 	The Company shall pay to the Subscribing Reinsurer the amount specified as Reinsurance
Premium on each Schedule attached hereto for the Business covered thereunder, for the
duration of time the Schedule or this Contract is in effect.

	B.	 	In the event Special Acceptances are covered hereunder as set forth in the Special
Acceptances Article, the Company shall pay to the Subscribing Reinsurer the reinsurance
premium agreed upon for said Special Acceptances.

ARTICLE 13 — CEDING COMMISSION

	A.	 	The Company shall receive a ceding commission in the amount specified as Ceding Commission on
each Schedule attached hereto for the Business covered thereunder, for the duration of time
the Schedule or this Contract is in effect. Return commission shall be allowed to the
Subscribing Reinsurer on return premiums at the same rates. It is expressly agreed that the
Ceding Commission includes provision for all dividends, commissions, brokerage fees, and
taxes, all board, exchange or bureau assessments and for all other non-claim expenses of the
Company or the Legal Entities.

	B.	 	In the event Special Acceptances are covered hereunder as set forth in the Special
Acceptances Article, the Company shall receive a Ceding Commission in an amount agreed upon
for said Special Acceptance.

ARTICLE 14 — REPORTS AND REMITTANCES

	A.	 	Within 45 days after the close of each month, the Company shall report to the Subscribing
Reinsurer the Reinsurance Premiums written during the month for policies covered hereunder.
The report will be accompanied by a bill or credit memorandum showing gross balance due less
ceding commissions. Payment will be immediately due and payable thereafter by the Company.

	B.	 	Within 45 days after the close of each month, the Subscribing Reinsurer shall report to the
Company all losses authorized during that month by the Subscribing Reinsurer pursuant to the
Loss Adjustment and Settlements Article. All such losses are to be individually listed and
identified. The balance shall become immediately due and payable thereafter by the
Subscribing Reinsurer.

	C.	 	The Subscribing Reinsurer shall provide a loss report and payment to the Company as soon as
reasonably practicable in the event a claim or loss hereunder equals or exceeds $10,000,000
on an incurred basis.

	D.	 	In the event of termination, reports and settlements shall continue to be handled as
required by the Effective Date and Termination Article, hereof until such time as all
policies have expired, or have been cancelled or nonrenewed, at which such time there shall
be final accounting and settlement hereunder. All costs and expenses associated with handling
of such run-off business shall be borne by the Subscribing Reinsurer.

	E.	 	The Company shall periodically furnish the Subscribing Reinsurer such reports and
information relating to the policies reinsured hereunder, as may be reasonably required for
inspection, loss control and loss adjustment activities.

	F.	 	Each party shall furnish the other such figures as may be required for financial statement
purposes.

	 	 	 

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ARTICLE 15 — PROFIT SHARING PLAN

	A.	 	The following Profit Sharing (“Plan”) has been developed to provide additional incentives
for the production of profitable Equipment Breakdown insurance. It is understood and agreed
that the initial “Profit Sharing Plan Period” shall be defined as the period beginning 12:01
a.m., Local Standard Time, January 1, 2010 to 12:01 am., Local Standard Time, January 1, 2011
and thereafter, each Profit Sharing Plan Period shall consist of 12 months to begin
concurrently with the expiration of the previous profit sharing plan period or until such
date as the Contract to which this Plan is attached is terminated, whichever is earlier and
shall apply to Incurred Losses and Premiums Earned for the business covered in the Business
Covered Article of this Contract, for the purpose of the Profit Sharing Calculation herein.

	B.	 	The Subscribing Reinsurer shall pay to the Company a profit sharing commission (“Profit
Sharing Commission”) on business covered under this Plan during the Profit Sharing Plan
Period, if the sum of Incurred Losses for business covered hereunder and Loss Carry Forward,
if any, is less than the Plan Losses, in accordance with the provisions of this contract.

	C.	 	“Incurred Losses” as used herein shall mean ceded losses of the Company or a Legal Entity
paid during the Profit Sharing Plan Period, plus the ceded reserves for losses outstanding at
the end of the Profit Sharing Plan Period, minus the ceded reserves for losses outstanding at
the beginning of the Profit Sharing Plan Period, plus loss adjustment expenses computed at
3.5% of Premiums Earned during the Profit Sharing Plan Period. Said losses shall be
determined according to records from the Subscribing Reinsurer’s claim system. The Company
shall review these numbers, and if there is a material difference between their records and
the Subscribing Reinsurer’s records, the difference will be reconciled, and the reconciled
numbers will be used.

	D.	 	“Plan Losses” as used herein shall mean the amount calculated by multiplying the Premiums
Earned for the Profit Sharing Plan Period by the Plan loss ratio of 40%.

	E.	 	“Premiums Earned” shall mean the Company’s Reinsurance Premiums ceded during the Profit
Sharing Plan Period, plus the unearned Reinsurance Premiums at the beginning of the Profit
Sharing Plan Period, less the unearned Reinsurance Premiums at the end of the Profit Sharing
Plan Period. Said premiums shall be determined according to records from the Subscribing
Reinsurer’s premium system. The Company shall review these numbers, and if there is a
material difference between their records and the Subscribing Reinsurer’s records, the
difference will be reconciled, and the reconciled numbers will be used.

	F.	 	“Incurred Claim Ratio” shall mean the ratio of Incurred Losses, excluding loss adjustment
expenses to Premiums Earned during the Profit Sharing Plan Period.

	G.	 	Profit Sharing Calculation
	 
	 	 	The Profit Sharing Calculation for the Profit Sharing Plan Period shall be as follows:

	 	1.	 	Total of Plan Losses for the Profit Sharing Plan Period; less
	 
	 	2.	 	Total of Incurred Losses for the Profit Sharing Plan Period; less
	 
	 	3.	 	Loss Carry Forward, if any, from any immediately preceding profit sharing plan period.

	 	 	 

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	 	 	If the Profit Sharing Calculation results in a positive balance, (i.e., the Total of
Incurred Losses and Loss Carry Forward is less than the Total of Plan Losses), the Profit
Sharing Commission for the Profit Sharing Plan Period shall be 40% of the positive balance
for the first year of this Contract and 50% for each subsequent year. If the Profit
Sharing Calculation results in a negative balance, (i.e., the Total of Incurred Losses and
Loss Carry Forward is greater than the Total of Plan Losses), no Profit Sharing Commission
shall be payable for the Profit Sharing Plan Period, and the difference shall be carried
forward to the next profit sharing plan period, if any, as the “Loss Carry Forward.”
	 
	H.	 	If, at the end of the Profit Sharing Plan Period, the Incurred Claim Ratio for all business
covered under this Plan is equal to or less than 40%, the Subscribing Reinsurer shall also pay to the
Company a bonus incentive (“Bonus Incentive”) calculated as follows:

	 	1.	 	The Premiums Earned during the Profit Sharing Plan Period multiplied by;
	 
	 	2.	 	The additional Profit Sharing percentage from the following Bonus Incentive Table.

Bonus Incentive Table

	 	 	 	 	 
	 	 	Additional Profit	 	Additional Profit
	Incurred Claim Ratio	 	Sharing — Year 1	 	Sharing — Year 2
	0% - 20.0%
	 	3.00%	 	2.50%
	20.1% - 25.0%
	 	2.5%	 	2.00%
	25.1% - 30.0%
	 	2.00%	 	1.50%
	30.1% - 35.0%
	 	1.80%	 	1.30%
	35.1% - 40.0%
	 	1.50%	 	1.00%
	Greater than 40.0%
	 	0.00%	 	0.00%

	I.	 	The Subscribing Reinsurer shall calculate and remit any Profit Sharing Commission and Bonus
Incentive due to the Company for the Profit Sharing Plan Period within thirty (30) days
following the date agreement is reached between the Subscribing Reinsurer and the Company
for the Earned Premium and the Incurred Losses for the Profit Sharing Plan Period.

ARTICLE 16 — ACCESS TO RECORDS (LM-00102-2008.05.13-O) (AM)

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

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

	 	 	 

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	C.	 	The Company reserves the right to deny the Subscribing Reinsurer access to records or
files concerning any particular claim(s) if the Subscribing Reinsurer has not disputed
liability for payment of such claim(s), and payment of such claim(s) is(are) more than
ninety (90) days overdue according to the Company’s records. The Company shall, however,
prior to an arbitration demand that may be instituted by either party, continue to respond
to reasonable specific requests for information and questions raised by the Subscribing
Reinsurer concerning such claims; and nothing in this Article shall restrict the right or
ability of the Subscribing Reinsurer to seek discovery of relevant information in a
proceeding pursuant to the Arbitration Article of this Contract.

	D.	 	Asa condition precedent to access to records under this Article, each party, its
personnel, and any authorized third party representative of such party shall agree to the
provisions of the Confidentiality Article of this Contract.

	E.	 	The Company reserves the right to withhold any documents from the Subscribing Reinsurer:
(1) concerning Trade Secrets of the Company or its affiliates, (2) subject to the terms of a
third party non disclosure agreement with the Company or its affiliates requiring third party
consent to disclosure, (3) subject to the Work Product Privilege or Attorney-Client Privilege
or (4) concerning individual private information that as a matter of law cannot be disclosed
by the Company or its Affiliates (hereinafter referred to in the Contract as “Privileged
Documents”). The Company shall reasonably try to exempt the Subscribing Reinsurer from any
third party non-disclosure agreement or obtain consent from the third party to disclose to
the Subscribing Reinsurer. If the Company permits Subscribing Reinsurer access to any
Privileged Documents referenced in (1) through (3) of this section, the Subscribing Reinsurer
shall agree to sign the Company’s non-waiver agreement in order to preserve the confidential,
proprietary and/or privileged nature of such Privileged Documents.

	F.	 	Notwithstanding the foregoing, the Company shall permit and not object to the Subscribing
Reinsurer’s access to Privileged Documents falling within (3) above, in connection with the
underlying claim reinsured hereunder following final settlement or final adjudication of the
case or cases involving such claim, with prejudice against all claimants, and all parties to
such adjudications; provided that the Company, may defer release of such Privileged
Documents if there are subrogation, contribution, or other third party actions with respect
to that claim or case, which may jeopardize the Company’s or its Affiliates’ defense by
release of such Privileged Documents. In the event that the Company shall seek to defer
release of such Privileged Documents or to withhold documents concerning Trade Secrets, it
will in consultation with the Subscribing Reinsurer take other steps as reasonably necessary
to provide the Subscribing Reinsurer with the information it reasonably requires to
indemnify the Company without causing a loss of such privileges or protections. The
Subscribing Reinsurer, however, shall not have access to Privileged Documents relating to
any dispute between the Company and the Subscribing Reinsurer.

	G.	 	For purposes of this Article, “Trade Secrets” shall have the meaning provided in Section
1839 of the United States Economic Espionage Act of 1996. “Attorney-Client Privilege” shall
mean communications of a confidential nature between: (1) the Company or its Affiliates, or
anyone retained by or in the control of the Company or its Affiliates, or their in-house or
outside legal counsel, or anyone in the control of such legal counsel, and (2) any in-house
or outside legal counsel which relate to legal advice being sought by the Company or its
Affiliates and/or which contains legal advice being provided to the Company or its
Affiliates. “Work-Product Privilege” shall mean communications, written materials, and
tangible things prepared by or for in-house or outside counsel, or prepared by or for the
Company or its Affiliates, in anticipation of or in connection with litigation, arbitration,
or other dispute resolution proceedings.

ARTICLE 17 — AMENDMENTS

This Contract may be altered or amended in any terms and conditions by mutual consent of the
parties by an endorsement formally signed by an authorized representative of each Party, such an
endorsement shall be considered as part of this Contract.

	 	 	 

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ARTICLE 18 — ARBITRATION (LM-00200-2009.10.26-A) (AM)

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

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

	 	1.	 	Qualifications of the arbitrators and umpires shall be in accordance with
section 6.2 of the Procedures, except that other professionals who have worked for at
least ten (10) years for an insurer or reinsurer shall also be qualified to serve as
an arbitrator or umpire.
	 
	 	2.	 	The Parties hereby designate the umpire list maintained by ARIAS (U.S.) as the
list to be used in the event that section 6.7(a) of the Procedures is invoked. If
ARIAS ceases to maintain a list, each Party shall exchange eight names of qualified
umpire candidates and shall follow section 6.7 of the Procedures for the selection of
the umpire.
	 
	 	3.	 	Unless otherwise mutually agreed, the members of the Panel shall be impartial
and disinterested. The members of the Panel may not be: (1) in the control of any
Party or its parent, affiliate, or agent, (2) a former director or officer of any
Party or its parent, affiliate, or agent, or (3) a likely witness in the arbitration.
The requirement of impartiality means that all members of the Panel shall have the
same obligation to approach the Panel’s duties and decisions with fairness and without
consideration for the fact that Panel members may have been appointed by one of the
Parties. The requirement of impartiality does not mean that any arbitrator can have no
previous knowledge of or experience with respect to issues involved in the dispute or
disputes.
	 
	 	4.	 	The first sentence of section 10.4 of the Procedures shall be replaced by the
following sentence: “The Panel shall require that each Party submit concise written
statements of position, including summaries of the facts and evidence a Party intends
to present, discussion of the applicable law and the basis for the requested Award or
denial of relief sought.”
	 
	 	5.	 	Section 11.1 of the Procedures shall be replaced by the following provision:
“The Parties may propound discovery seeking disclosure of such information and/or
documents relevant to the dispute or necessary for the proper resolution of the
dispute.”
	 
	 	6.	 	Position statements may be amended at any reasonable time, but not later than
the close of discovery, without a showing to the Panel that the amending Party could
not reasonably have raised the new claim or issue at an earlier time.
	 
	 	7.	 	The Panel shall hold an evidentiary hearing, if one is necessary, within one
year of the arbitration demand, unless the Parties otherwise agree. Should a Party
seek a reasonable extension to this time frame for good cause shown, the other Party’s
agreement shall not be unreasonably withheld.
	 
	 	8.	 	To the extent permitted by the law, the Panel shall have the authority to
issue subpoenas and other orders to enforce its decisions.
	 
	 	9.	 	The Panel may award reasonable attorneys’ fees and arbitration costs to the
prevailing Party, as determined by the Panel.

	 	 	 

	Effective: January 1, 2010

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	 	10.	 	Section 14.3 of the Procedures shall be replaced by the following provision: “The
Panel shall make a decision and issue an award with regard to the terms expressed in
this Contract, and the custom and practice of the property and casualty insurance and
reinsurance business. The Panel shall not be obligated to follow the strict rules of
law and evidence.”

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

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

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

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

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

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

	 	3.	 	Same contract, multiple Subscribing Reinsurers. At the Company’s option, if more than one
Subscribing Reinsurer is involved in arbitration relating to this Contract, where
there are common questions of law or fact and a possibility of conflicting awards or
inconsistent results, all such Subscribing Reinsurers shall constitute and act as
one Party for purposes of this Article and communications shall be made by the
Company to each of the Subscribing Reinsurers constituting the one Party; provided,
however, that the Subscribing Reinsurers shall have the right to assert several,
rather than joint defenses or claims, and to be represented by

	 	 	 

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separate counsel. This provision shall not change the liability of each of the
Subscribing Reinsurers under the terms of this Contract from several to joint.

	H.	 	Choice of Law. The law set forth in the Governing Law Article shall apply to this Arbitration
Article.
	 
	I.	 	Option to Litigate. Notwithstanding the foregoing provisions of this Article, to the extent
that either Party has demanded payment of a total amount of at least twenty million dollars
($20,000,000) or the currency equivalent thereof under this Contract, and an arbitration
demand has been served, either Party retains the option to initiate litigation to resolve
any disputes arising from such demand, provided however, that the Party initiating such
option to litigate must file suit within sixty (60) days from the date on which the
arbitration demand was served. The Parties hereby waive their rights to a jury trial in
connection with any such litigation.
	 
	J.	 	Survival of Article. This Article shall survive the termination or expiration of this
Contract.

ARTICLE 19 — ASSIGNMENT, NOVATION, OR TRANSFER (LM-00300-2008.05.13-A)

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

ARTICLE 20 — CONFIDENTIALITY (LM-00401-2008.07.21-O) (AM LMEB)

	A.	 	Confidential Information. The submission materials, and any policy, financial,
underwriting, accounting, and claims information, data statements, representations, and other
materials provided by one Party to this Contract (the “Disclosing Party”) and received by the
other party to this Contract (the “Receiving Party”) in the course of an audit, inspection, or
otherwise, represent confidential or proprietary information (“Confidential Information”).
This Confidential information is intended for the sole use of the Receiving Party (and its
retrocessionaires, respective auditors, accountants, and legal counsel) as may be necessary in
analyzing and/or accepting a participation in and/or executing its responsibilities under or
related to this Contract. Each Party to this Contract acknowledges and agrees that with
respect to any review of Confidential Information by it, and/or discussion of Confidential
Information, the Disclosing Party does not waive and does not intend to waive any available
privilege or protection. The review of Confidential Information by the Receiving Party and/or
discussion of Confidential Information with the Disclosing Party shall not destroy, waive, or
otherwise impair the proprietary and/or protected status of any Confidential Information or
any information revealed in such discussion with the Disclosing Party’s personnel, whether
reviewed by and/or discussed with the Receiving Party intentionally or inadvertently, nor does
the review of the Confidential Information and/or discussion of Confidential Information with
the Disclosing Party constitute an estoppel or waiver of the Disclosing Party’s rights to
assert the attorney client or work product privileges, or any other applicable privilege or
protection, over any documents contained in the Disclosing Party’s files.

	B.	 	The Receiving Party agrees to preserve all confidentiality and privilege pertaining to all
Confidential Information provided by the Disclosing Party and all knowledge and information
gained through its review of Confidential Information or discussions with the Disclosing
Party’s personnel. The Receiving Party further agrees not to disclose any Confidential
Information to any other person or entity except as

	 	 	 

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	 	 	such disclosure may be necessary to its retrocessionaires, accountants, attorneys,
auditors, regulators, actuaries, or third party catastrophe modelers or as otherwise
required by law. The Receiving Party agrees that no Confidential Information is to be
copied and/or removed from the Disclosing Party’s premises without the express permission
of the Disclosing Party.
	 
	C.	 	Third Party Demand. Should the Receiving Party receive a third party demand pursuant
to subpoena, summons, or court or governmental order, to disclose Confidential Information
(including Non-public personally identifiable information) that has been provided by the
Disclosing Party, the Receiving Party shall 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 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.
	 
	D.	 	Confidentiality Obligations Exceptions. The Disclosing Party and the Receiving Party
agree that no confidentiality obligations will apply to Confidential Information to the
extent such Confidential Information (1) is or becomes available to the public, other than as
a result of impermissible disclosure by the Receiving Party, (2) was or became available
lawfully to the Receiving Party from a source, other than the Disclosing Party or its
personnel, that is not subject to a confidentiality obligation, (3) was developed
independently by the Receiving Party prior to disclosure by the Disclosing Party or its
personnel, as demonstrated by the Receiving Party’s records, or (4) is required to be
disclosed by law, regulation, court or regulatory agency action, subject to the Third-Party
Demand paragraph of this Article.
	 
	E.	 	Survival. The parties agree that the obligations contained in this Article shall
survive the termination of this Contract.

ARTICLE 21 — CURRENCY (LM-00500-2009.09.29)

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

ARTICLE 22 — DIVIDENDS AND TAXES (LM-00600-2009.03.10-A)

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

ARTICLE 23 — ENTIRE AGREEMENT (LM-00701-2008.08.15-A)

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

	 	 	 

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ARTICLE 24 — ERRORS AND OMISSIONS (LM-00800-2005.06.02-A)

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

ARTICLE 25 — FEDERAL EXCISE TAX (LM-01000-2008.08.15-A)

	A.	 	This Article is applicable to any Subscribing Reinsurer who is domiciled outside of the
United States of America, except for any Subscribing Reinsurer exempt from Federal Excise Tax.
A Subscribing Reinsurer that claims exempt status from Federal Excise Tax shall provide to the
Company, upon its request, proof that the exempt status adequately satisfies the demands of
the U.S. Internal Revenue Service, Department of the Treasury, or its successor and/or other
applicable U.S. government authority.

	B.	 	Each Subscribing Reinsurer shall allow the applicable percentage of the premium payable
hereon (as imposed under Section 4371 of the Internal Revenue Code) for the purpose of paying
Federal Excise Tax to the extent such premium is subject to such tax.

	C.	 	In the event of any return of premium, the Subscribing Reinsurer shall deduct the aforesaid
percentage from the return premium payable hereon and the Company or its agent shall recover
such tax from the United States Government.

ARTICLE 26 — FEDERAL TERRORISM EXCESS RECOVERY (LM-01100.2008.08.06-A)

	A.	 	Any loss reimbursement the Company receives from the United States Government under the
Terrorism Risk Insurance Act of 2002, as amended by the Terrorism Risk Insurance Extension Act
of 2005 and as further amended by the Terrorism Risk Insurance Program Reauthorization Act of
2007 (“TRIA”) as a result of loss occurrence(s) or occurrence(s) commencing during the term of
this Contract shall apply as follows:

	B.	 	Except as provided below, any loss reimbursement under TRIA shall inure solely to the
benefit of the Company and shall be entirely disregarded in applying all of the provisions of
this Contract.

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

	D.	 	For purposes hereof, if a loss reimbursement received by the Company under TRIA is based on
the Company’s Insured Losses in more than one loss occurrence or occurrence and neither the
Secretary of the Treasury nor his delegatee specifies the amount of loss allocable to each
respective loss occurrence or occurrence, the reimbursement shall be pro-rated in the
proportion that the Company’s Insured Losses in each loss occurrence bears to the Company’s
total Insured Losses resulting from all loss occurrences to which the reimbursement applies.

	E.	 	For purposes of this Article, “Insured Loss(es)” shall have the same meaning as set forth in
Section 102(5) of TRIA.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

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

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

ARTICLE 28 — INDEMNIFICATION AND DEFENSE

To the extent not in conflict with any other articles of this Contract (including the Extra
Contractual Obligations Article and the Loss in Excess of Policy Limits Article), each Party
hereto agrees to indemnify and defend the other Party hereto against any and all claims for loss,
liability or damage arising out of or in connection with the acts or omissions of employees and
servants of such indemnifying Party, when such acts or omissions result from or are incidental to
activities and services conducted solely in connection with Policies issued by the Company or a
Legal Entity and reinsured, in whole or in part, by the Subscribing Reinsurer.

ARTICLE 29 — INSOLVENCY LM-01300-2009.09.03-A) (AM)

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

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

	B.	 	It is agreed, however, that the liquidator, receiver, conservator, or statutory successor of
the insolvent Company shall give written notice to the Subscribing Reinsurer of the pendency
of a claim against the insolvent Company on the Policy or Policies reinsured within a
reasonable time after such claim is filed in the insolvency proceeding and that during the
pendency of such claim the Subscribing Reinsurer may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated, any defense or
defenses which it may deem available to the Company or its liquidator, receiver, conservator,
or statutory successor. The expense thus incurred by the Subscribing Reinsurer shall be
chargeable, subject to court approval, against the insolvent Company as part of the expense
of liquidation to the extent of a proportionate share of the benefit, which may accrue to the
Company solely as a result of the defense undertaken by the Subscribing Reinsurer.

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

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

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ARTICLE 30 — INTEREST PENALTY (LM-01401-2005.12.21-Q)

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

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

	B.	 	Failure by the Subscribing Reinsurer or Company to comply with their respective payment
obligations within the time periods as herein provided shall, as of that date, be subject to
an interest payment computed by multiplying the amount due by a variable rate consisting of
the U.S. Prime Rate as published in the Eastern Edition of The Wall Street Journal on
the first day of the calendar month in which the amount became past due, plus 2%. The variable
rate shall be adjusted monthly thereafter to equal the U.S. Prime Rate as published in the
Eastern Edition of The Wall Street Journal on the first day of each successive month
during which the amount due remains unpaid, plus 2%. The product shall then be multiplied by
1/365 for each day after the due date that the amount due and the interest amount remain
unpaid. Any interest that occurs pursuant to this Article shall be calculated by the Party to
which it is owed.

	C.	 	The validity of any claim or payment may be contested under the provisions of this Contract.
If the debtor Party prevails in arbitration or any other proceeding with respect to the
amounts in dispute, there shall be no interest penalty due. If the creditor Party wholly or
partially prevails on any of the amounts in dispute, the interest penalty shall be awarded as
outlined above. Such interest penalty shall be calculated from the date the monies were due
and owing to the date of resolution of the arbitration or proceeding, and shall be payable as
of the date of resolution of the arbitration or proceeding.

	D.	 	If the Subscribing Reinsurer advances the entire or partial payment of any claim it is
contesting, and wholly or partially prevails in the contest, the Company shall promptly return
the applicable amount of such payment. The arbitrator(s) hearing such dispute shall determine
if interest shall be added to the amount returned by the Company.

	E.	 	Any interest owing pursuant to this Article may be waived by the Party to which it is owed.
Further, any interest calculated pursuant to this Article that is $100 or less shall be
waived. Any waiver of any interest pursuant to this paragraph, however, shall not affect the
waiving Party’s right to claim and/or pursue interest for any other failure by the other Party
to make payment when due under this Article.

ARTICLE 31 — OFFSET (LM-01701-2005.06.02-A)

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

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 18 of 30

 

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

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

ARTICLE 33 — SERVICE OF SUIT (LM-01900-2009.09.29-A) (AM LMEB)

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

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

	B.	 	In the event of the failure of the Subscribing Reinsurer to pay any amount claimed to be due
hereunder, the Subscribing Reinsurer, at the request of the Company, will submit to the
jurisdiction of a Court of competent jurisdiction within the United States. Nothing in this
Article constitutes or should be understood to constitute a waiver of the Subscribing
Reinsurer’s right to commence an action in any Court of competent jurisdiction in the United
States, to remove an action to a United States District Court, or to seek a transfer of a case
to another Court as permitted by the laws of the United States or of any state in the United
States. The Subscribing Reinsurer, once the appropriate Court is selected, whether such court
is the one originally chosen by the Company and accepted by the Subscribing Reinsurer or is
determined by removal, transfer, or otherwise, as provided for above, will comply with all
requirements necessary to give said Court jurisdiction and, in any suit instituted against it
upon this Contract, will abide by the final decision of such Court or of any Appellate Court
in the event of an appeal.

	C.	 	Service of process in such suit may be made upon: Mr. Christopher C. Mansfield, Senior Vice
President and General Counsel, Liberty Mutual Insurance Company (or Liberty Mutual Insurance
Company’s General Counsel at the time of such service of process), 175 Berkeley Street,
Boston, MA 02117.

	D.	 	The above-named are authorized and directed to accept service of process on behalf of the
Subscribing Reinsurer in any such suit. Further, pursuant to any statute of any state,
territory, or district of the United States that makes provision therefore, the Subscribing
Reinsurer hereby designates the Superintendent, Commissioner, or Director of Insurance, or
other officer specified for that purpose in the statute, or their successor(s) in office, as
their true and lawful attorney upon whom may be served any lawful process in any action,
suit, or proceedings instituted by or on behalf of the Company or any beneficiary hereunder
arising out of this Contract, and hereby designate the above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 19 of 30

 

ARTICLE 34 — SEVERABILITY (LM-02000-2005.06.02-A)

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

ARTICLE 35 — SPECIAL CONDITIONS (LM-02100-2009.09.17-A) (AM)

	A.	 	This Article applies only in the event that:

	 	1.	 	A State Insurance Department or other legal authority orders the Subscribing
Reinsurer to cease writing business or has imposed upon it any other restrictions on
or conditions relating to the Subscribing Reinsurer’s license or conduct of business
in any jurisdiction; or
	 
	 	2.	 	The Subscribing Reinsurer has become insolvent or has been placed into
liquidation or receivership (whether voluntary or involuntary), or there have been
instituted against it proceedings for the appointment of a receiver, liquidator,
rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever
name, to take possession of its assets or control of its operations; or
	 
	 	3.	 	The Subscribing Reinsurer’s policyholders’ surplus or equity has been reduced
by 25% or more from the amount on the effective date of this Contract, or has been
reduced by 25% or more in any period of twelve (12) months or less after the effective
date of this Contract. For the purposes of this paragraph 3, a change in
policyholders’ surplus or equity will be deemed to occur on the date the Subscribing
Reinsurer releases its quarterly financial results; or
	 
	 	4.	 	As respects a Subscribing Reinsurer domiciled outside the United States other
than a Lloyd’s syndicate, such Subscribing Reinsurer’s Shareholder Funds, Net Worth or
Capital & Surplus has been reduced by 25% or more from the amount on the effective date
of this Contract, or has been reduced by 25% or more in any period of twelve (12)
months or less after the effective date of this Contract; or
	 
	 	5.	 	As respects a Subscribing Reinsurer who is a Lloyd’s syndicate, such
Subscribing Reinsurer’s Stamp Capacity or Funds at Lloyd’s has been reduced by 25% or
more from the amount on the effective date of this Contract or has been reduced by 25%
or more in any period of twelve (12) months or less after the effective date of this
Contract; or
	 
	 	6.	 	There has been a change in control with respect to the Subscribing Reinsurer.
For the purposes of this Contract, a “change in control” with respect to the
Subscribing Reinsurer shall mean that a Person has entered into an agreement or
understanding to purchase, sell or otherwise obtain (whether by stock or asset
purchase, bulk reinsurance, merger, consolidation or otherwise, in one or a series of
transactions), or has so purchased, sold or otherwise transferred or obtained, a
controlling interest in the Subscribing Reinsurer. Without limiting the foregoing, a
Person shall be deemed to have a controlling interest in the Subscribing Reinsurer if
such Person owns, controls or holds an ownership interest in the Subscribing Reinsurer
of at least ten percent. For the purposes of this paragraph, a “Person” means an
individual, corporation, limited liability company, partnership, association, trust,
unincorporated entity or governmental entity; or
	 
	 	7.	 	The Subscribing Reinsurer’s A.M. Best’s financial strength rating has been
assigned or downgraded below A- or Standard and Poor’s financial strength rating has
been assigned or downgraded below A-; or
	 
	 	8.	 	As respects a Subscribing Reinsurer who is subject to an Authorized Control
Level Risk-Based Capital Requirement, such Subscribing Reinsurer fails to maintain its
surplus at a level of at least 200% of the Subscribing Reinsurer’s Authorized Control
Level Risk-Based Capital; or

	 	 	 

	Effective: January 1, 2010

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	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

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	 	9.	 	The Subscribing Reinsurer announces intentions to cease assumed reinsurance
underwriting operations; or
	 
	 	10.	 	The Subscribing Reinsurer voluntarily ceases assumed reinsurance underwriting
operations; or
	 
	 	11.	 	The Subscribing Reinsurer has reinsured its entire liability under this Contract; or
	 
	 	12.	 	The Subscribing Reinsurer, directly or through the actions of a parent company
or an affiliated entity, has or has attempted to assign, novate or transfer the
Subscribing Reinsurer’s rights and/or obligations under this Contract, including any
attempted transfer of rights and/or obligations under any U.S. or foreign statute,
legislation or jurisprudence, without the Company’s prior written consent; or
	 
	 	13.	 	The Subscribing Reinsurer, directly or through the actions of a parent company
or an affiliated entity, has invoked any U.S. or foreign statute, legislation or
jurisprudence which purports to enable the Subscribing Reinsurer to require the
Company to settle its claims liabilities, including but not limited to any estimated
or undetermined claims liabilities under this Contract, on an accelerated basis. This
does not include any attempt to enforce a settlement of claims liabilities under a
commutation process to which the parties have agreed; or
	 
	 	14.	 	There is a severance or obstruction of free and unfettered communication and/or
normal commercial or financial intercourse between the United States of America and the
country in which the Subscribing Reinsurer is incorporated or has its principal office,
as a result of war, currency regulations or any circumstances arising out of political,
financial or economic uncertainty.

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

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

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

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

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

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	F.	1.	 	If the Company elects to terminate this Contract under this Article, the Company may
also elect to commute this Contract. Such election to commute shall be made either within the
written thirty (30) day notice to the Subscribing Reinsurer of the Company’s
intention to terminate this Contract, or by written notice thereafter. If the
Company elects to commute, the Subscribing Reinsurer has the option to provide
security for its Obligations (as defined herein), as an alternative to commutation.
The Subscribing Reinsurer shall notify the Company of its decision to provide
security for its Obligations under this Contract within fifteen (15) business days
of the receipt of written notice of the Company’s election to commute. If the
Subscribing Reinsurer elects to provide security for its Obligations, the Company
shall provide the Subscribing Reinsurer with a written statement of the Subscribing
Reinsurer’s share of all paid recoverables, case reserves, loss adjustment
expenses, incurred but not reported losses, reserves for unearned premium, and
ceding commissions due under this Contract prior to the effective date and time of
termination (collectively “Obligations”). Within fifteen (15) days of the
Subscribing Reinsurer’s receipt of such statement, the Subscribing Reinsurer shall
collateralize all unfunded Obligations by securing clean, irrevocable, and
unconditional Letters of Credit, payable exclusively to the Company and issued by a
bank acceptable to the Company. At the Company’s request, the Subscribing Reinsurer
shall agree to provide a separate Letter of Credit for each Legal Entity.
	 
	 	2.	 	Any Letters of Credit secured by the Subscribing Reinsurer shall be issued
for a period of not less than one year, and shall be automatically extended for one
year from their dates of expiration or any future expiration dates, unless sixty (60)
days prior to any expiration date the issuing bank shall notify the Company or a
Legal Entity, as applicable, by certified mail that the issuing bank elects not to
extend any Letter of Credit for any additional period.
	 
	 	3.	 	The Subscribing Reinsurer and the Company agree that the Letters of Credit
provided by the Subscribing Reinsurer, pursuant to the provisions of this Article,
may be drawn upon at any time, notwithstanding any other provision of this Contract,
and be utilized by the Company, a Legal Entity or any successor, by operation of
law, of the Company or a Legal Entity, including without limitation, any liquidator,
rehabilitator, receiver, or conservator of the Company or a Legal Entity, without
diminution because of the insolvency of the Company or a Legal Entity, or the
Subscribing Reinsurer for one or more of the following purposes:

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

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

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

	 	c.	 	If the Company has concluded that the issuing bank’s financial
condition is such that the value of the security represented by the Letter of
Credit may be in jeopardy, the

	 	 	 

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	 	 	 	Company or a Legal Entity, as applicable, may require that a
replacement Letter of Credit be issued by a bank acceptable to the Company,
by providing the Subscribing Reinsurer with written notice requesting such
replacement Letter of Credit. If the Subscribing Reinsurer fails to provide
acceptable replacement security within five (5) business days following
receipt of the Company’s notice, the Company or a Legal Entity may draw upon
the existing Letter of Credit in amounts equal to the Subscribing
Reinsurer’s Obligations.
	 
	 	d.	 	If the Company or a Legal Entity draws on the Letter of Credit to obtain a cash
advance, under paragraphs F.3.b or F.3.C, the Company or the Legal Entity,
as applicable, will hold the amount of the cash advance so obtained in trust
in the name of the Company in any qualified United States financial
institution as defined by the Insurance Law of the Company’s or Legal
Entity’s domiciliary state, solely to secure the Obligations and for the use
and purposes enumerated above. The Company or the Legal Entity, as
applicable, will return any balance to the Subscribing Reinsurer upon the
complete and final liquidation and discharge of all of the Subscribing
Reinsurer’s Obligations to the Company under this Contract or in the event
the Subscribing Reinsurer provides alternative or replacement security
consistent with the terms hereof and acceptable to the Company.

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

	 	1.	 	The Company shall submit a statement of valuation showing the Subscribing
Reinsurer’s liability for loss(es), whether reported or unreported, comprising the sum
total of the present value of the ceded: (a) case reserves and allocated loss
adjustment expense, (b) projected ultimate losses, (c) any unearned premium reserve,
and (d) undiscounted outstanding paid claims (hereinafter the “Commutation Losses”),
on Policies covered by this Contract as of the effective date and time of termination.
If the Subscribing Reinsurer agrees with the statement of valuation, the Subscribing
Reinsurer shall pay the amount requested within ten (10) days of receipt of the
statement of valuation.
	 
	 	2.	 	In the event the Company and the Subscribing Reinsurer cannot agree on the
statement of valuation of the Subscribing Reinsurer’s liability under such Policies,
either party may request in writing that the differences be settled by a panel of
three actuaries. Each party shall appoint an actuary to assess such liability within
fifteen (15) days after receipt of the written request for commutation. Upon such
appointment, the two actuaries shall appoint a third actuary. If the two actuaries
fail to agree on the third actuary within thirty (30) days of their appointment, each
of them shall nominate three individuals, of whom the other shall decline two, and the
final decision shall be made by drawing lots.
	 
	 	3.	 	The actuaries shall then investigate and Capitalize such Commutation Loss(es)
within thirty (30) days. As used herein, “Capitalize” shall mean to determine the
present value of Commutation Losses, without regard to the Subscribing Reinsurer’s
ability to pay such losses. The panel shall meet in Boston, Massachusetts, unless the
Company and the Subscribing Reinsurer agree otherwise.
	 
	 	4.	 	All actuaries shall be disinterested in the outcome of the commutation and
shall be Fellows of the Society of Actuaries/Fellows of the Casualty Actuarial
Society. Except as stated below, the expense of the actuaries and of the commutation
shall be equally divided between the parties of the commutation.
	 
	 	5.	 	The decision in writing of the actuaries, when filed with the parties hereto,
shall be final and binding, except that if the Company does not agree with the
Capitalized value of the Commutation Loss(es), the Company shall have no obligation to
commute. In the event the Company does not agree with the Capitalized value of the
Commutation Loss(es) and does not move forward with commutation, the Company will pay
the expense of the actuaries including reasonable expense of the actuary appointed by
the Subscribing Reinsurer.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 23 of 30

 

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

ARTICLE 36 — THIRD PARTIES (LM-02700-2005.09.27-A)

This Contract shall not be deemed to give any right or remedy to any third party whatsoever unless
said right or remedy is specifically granted to such third party by the terms of this Contract.

ARTICLE 37 — UNAUTHORIZED REINSURANCE (LM-02500-2009.09.29-A) (AM)

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

	A.	 	As regards Policies or bonds coming within the scope of this Contract, the Company agrees
that when it shall file with the insurance regulatory authority or set up on its books
reserves for unearned premium and losses covered hereunder which it shall be required by law
to set up, it will forward to the Subscribing Reinsurer a statement showing the proportion of
such reserves which is applicable to the Subscribing Reinsurer. The Subscribing Reinsurer
hereby agrees to fund such reserves in respect of unearned premium, known outstanding losses
that have been reported to the Subscribing Reinsurer and allocated loss adjustment expense
relating thereto, losses and allocated loss adjustment expense paid by the Company or the
Legal Entities but not recovered from the Subscribing Reinsurer, plus reserves for losses
incurred but not reported as determined by the Company, as shown in the statement prepared by
the Company (hereinafter referred to as “ Subscribing Reinsurer’s Obligations”) by Letters of
Credit, unless the Company and the Subscribing Reinsurer agree to another method of funding,
or another method of funding (other than Letters of Credit) is mandated by applicable law,
statute, or regulation.

	B.	 	As regards a Subscribing Reinsurer who, either at the inception of this Contract or at any
time thereafter, is unauthorized in any province or jurisdiction of Canada, such funding
shall be equal to 110% of its proportion of reserves by Letters of Credit for no more than
15% of the total funding required and cash advances for the remaining balance.

	C.	 	When funding by Letters of Credit, the Subscribing Reinsurer agrees to apply for and secure
timely delivery to the Company of clean, irrevocable, and unconditional Letters of Credit
issued by a bank that is a qualified U.S. financial institution acceptable to the Company,
and containing provisions acceptable to the insurance regulatory authorities having
jurisdiction over the Company’s reserves, in an amount equal to the Subscribing Reinsurer’s
proportion of said reserves. At the Company’s request, the Subscribing Reinsurer will agree
to provide a separate Letter of Credit for each Legal Entity. Such Letters of Credit shall be
issued for a period of not less than one year, and shall be automatically extended for one
year from the date of expiration or any future expiration date unless, sixty (60) days prior
to any expiration date, the issuing bank shall notify the Company or a Legal Entity, as
applicable, by certified mail that the issuing bank elects not to consider the Letters of
Credit extended for any additional period.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 24 of 30

 

	D.	 	The Subscribing Reinsurer and the Company agree that the Letters of Credit provided by the
Subscribing Reinsurer pursuant to the provisions of this Contract may be drawn upon at any
time, notwithstanding any other provision of this Contract, and be utilized by the Company or
a Legal Entity or any successors thereto, by operation of law, of the Company or a Legal
Entity, including without limitation, any liquidator, rehabilitator, receiver, or conservator
of the Company, without diminution because of the insolvency of the Company or a Legal Entity
or the Subscribing Reinsurer for one or more of the following purposes:

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

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

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

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

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

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 25 of 30

 

SCHEDULE NO. 1 — POLICIES FROM PARIS SYSTEM

	A.	 	BUSINESS COVERED

	 	1.	 	This Schedule applies to the Equipment Breakdown liability of the Company or a Legal
Entity as respects Accidents occurring under the Policies attaching on or after January 1,
2010 and classified as follows;

	 	a.	 	Businessowners — Equipment Breakdown endorsements to
Commercial Multi-Peril insurance Policies, Equipment Breakdown Coverage
sections, contracts and binders; and
	 
	 	b.	 	CPP — Equipment Breakdown insurance policies written on
risks covered under the Commercial Multi-Peril Program; and
	 
	 	c.	 	Referral Risks — All other Risks as set forth under the
Referral Guidelines of this Schedule.

	B.	 	REINSURANCE PREMIUM

	 	1.	 	Businessowners — As respects Policies classified as such and covered
under this Schedule, the Company shall pay to the Subscribing Reinsurer, a rate of
2.29% of the gross property premium, as defined by the Company, plus additional
property premium, less cancellations and return property premiums.
	 
	 	2.	 	CPP — As respects Policies classified as such and covered under this
Schedule, the Company shall pay to the Subscribing Reinsurer, a rate of $0.012 per
$100 of Total Insured Value for each policy covered hereunder. As used herein, Total
Insured Value means the 100% building, business personal property and time-element
values insured.
	 
	 	3.	 	Referral Risks — As respects Policies classified as such and covered
under this Schedule, the Company shall pay to the Subscribing Reinsurer, the amount
mutually agreed to by both Parties in writing.

	C.	 	CEDING COMMISSION
	 
	 	 	As provided for under the Ceding Commission Article, the Subscribing Reinsurer shall allow a
Ceding Commission of 30.0% of the Reinsurance Premium ceded under this Schedule.

	D.	 	REFERRAL GUIDELINES

	 	1.	 	New Business risks that meet any one of the following criteria must be referred to the
Subscribing Reinsurer for a reinsurance quotation;

	 	a.	 	Limits of Liability greater than $100,000,000.
	 
	 	b.	 	Any manufacturing occupancy location over $5,000,000 in total
values (add Building, contents and business interruption), except $15,000,000
total location value for non-manufacturing locations.
	 
	 	c.	 	Any account that has more than $100,000 in spoilage and/or
ammonia contamination exposure.
	 
	 	d.	 	Any cold storage warehouses with ammonia contamination coverage.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 26 of 30

 

	 	e.	 	Any medical facility with one piece of diagnostic equipment over $100,000 in
value.
	 
	 	f.	 	Any of the following occupancies
regardless of values:

	 	i.	 	Primary electrical generation
	 
	 	ii.	 	Pulp and paper
	 
	 	iii.	 	Chemical manufacturing with reaction
	 
	 	iv.	 	Sawmill/forestry operation
	 
	 	v.	 	Recycling/waste operation
	 
	 	vi.	 	Hydro-electric power generation
	 
	 	vii.	 	Rubber manufacturing
	 
	 	viii.	 	Foundry
	 
	 	ix.	 	Casino
	 
	 	x.	 	Pharmaceutical
	 
	 	xi.	 	Wire drawing
	 
	 	xii.	 	Mining

	2.	 	Renewal referral risks which were previously quoted may be renewed at the expiring premium
unless:

	 	a.	 	It is a referral risk as a result of 1.d. above.
	 
	 	b.	 	The Policy has two (2) or more Equipment Breakdown losses paid in
the last two (2) years.
	 
	 	c.	 	The insured values increased by more than 10 percent.
	 
	 	d.	 	There is an occupancy code change.
	 
	 	e.	 	The Policy was previously quoted by Mutual Boiler Re and the
Company elects to have the Subscribing Reinsurer quote the risk.

	 	i.	 	The Company will work with the Subscribing Reinsurer to
provide documentation on any risk that was previously quoted by Mutual Boiler
Re and not submitted to the Subscribing Reinsurer for a new quote.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 27 of 30

 

SCHEDULE NO. 2 — POLICIES FROM ECLPS+ SYSTEM

	A.	 	BUSINESS COVERED

	 	1.	 	This Schedule applies to the Equipment Breakdown liability of the Company or a Legal
Entity as respects Accidents occurring under the Policies attaching on or after January 1,
2010 and classified as follows;

	 	a.	 	Businessowners — Equipment Breakdown endorsements to Commercial
Multi-Peril insurance Policies, Equipment Breakdown Coverage sections, contracts and
binders; and
	 
	 	b.	 	CPP — Equipment Breakdown insurance policies written on risks covered
under the Commercial Multi-Peril Program; and
	 
	 	c.	 	Referral Risks — All other Risks as set forth under the Referral
Guidelines of this Schedule.

	B.	 	REINSURANCE PREMIUM

	 	1.	 	Businessowners — As respects Policies classified as such and covered under this
Schedule, the Company shall pay to the Subscribing Reinsurer, a rate of 2.29% of the gross
property premium, as defined by the Company, plus additional property premium, less
cancellations and return property premiums.
	 
	 	2.	 	CPP — As respects Policies classified as such and covered under this Schedule,
the Company shall pay to the Subscribing Reinsurer, a rate of $0.012 per $100 of Total Insured
Value for each policy covered hereunder. As used herein, Total Insured Value means
the 100% building, business personal property and time-element values insured.
	 
	 	3.	 	Referral Risks — As respects Policies classified as such and covered under this
Schedule, the Company shall pay to the Subscribing Reinsurer, the amount mutually agreed to by
both Parties in writing.

	C.	 	CEDING COMMISSION
	 
	 	 	As provided for under the Ceding Commission Article, the Subscribing Reinsurer shall allow a
Ceding Commission of 30.0% of the Reinsurance Premium ceded under this Schedule.

	D.	 	REFERRAL GUIDELINES

	 	1.	 	New Business risks that meet any one of the following criteria must be referred to the
Subscribing Reinsurer for a reinsurance quotation;

	 	a.	 	Limits of Liability greater than $100,000,000.
	 
	 	b.	 	Any manufacturing occupancy location over $5,000,000 in total
values (add Building, contents and business interruption), except $15,000,000
total location value for non-manufacturing locations.
	 
	 	c.	 	Any account that has more than $100,000 in spoilage and/or
ammonia contamination exposure.
	 
	 	d.	 	Any cold storage warehouses with ammonia contamination coverage.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 28 of 30

 

	 	e.	 	Any medical facility with one piece of diagnostic equipment over $100,000 in
value.
	 
	 	f.	 	Any of the following occupancies regardless of values:

	 	i.	 	Primary electrical generation
	 
	 	ii.	 	Pulp and paper
	 
	 	iii.	 	Chemical manufacturing with reaction
	 
	 	iv.	 	Sawmill/forestry operation
	 
	 	v.	 	Recycling/waste operation
	 
	 	vi.	 	Hydro-electric power generation
	 
	 	vii.	 	Rubber manufacturing
	 
	 	viii.	 	Foundry
	 
	 	ix.	 	Casino
	 
	 	x.	 	Pharmaceutical
	 
	 	xi.	 	Wire drawing
	 
	 	xii.	 	Mining

	 	2.	 	Renewal referral risks which were previously quoted may be renewed at the expiring premium
unless:

	 	a.	 	It is a referral risk as a result of 1.d. above.
	 
	 	b.	 	The Policy has two (2) or more Equipment Breakdown losses paid in
the last two (2) years.
	 
	 	c.	 	The insured values increased by more than 10 percent.
	 
	 	d.	 	There is an occupancy code change.
	 
	 	e.	 	The Policy was previously quoted by Mutual Boiler Re and the
Company elects to have the Subscribing Reinsurer quote the risk.

	 	i.	 	The Company will work with the Subscribing Reinsurer to
provide documentation on any risk that was previously quoted by Mutual Boiler
Re and not submitted to the Subscribing Reinsurer for a new quote.

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 29 of 30

 

IN WITNESS WHEREOF the parties hereto, by their respective duly authorized officers,
have executed this Contract, in triplicate original, as of the dates set forth below.

At Keene, New Hampshire on this 31st day of March, 2010.

	 	 	 	 	 	 	 

	ATTEST:

	 	 
	 	PEERLESS INSURANCE COMPANY
	 	 
	 
	 	 	 	 	 	 
	/s/ Daniel P. Baker

	 	 	 	/s/ Nancy C. Callender
	 	 
	Signature

	 	 	 	Signature	 	 
	 
	 	 	 	 	 	 
	Daniel P. Baker

	 	 	 	Nancy C. Callender	 	 
	Name

	 	 	 	Name	 	 
	 
	 	 	 	 	 	 
	AM VP — Manager Financial Services

	 	 	 	AM — AVP manager Reins. Mgmt.	 	 
	Title

	 	 	 	Title	 	 
	 
	 	 	 	 	 	 
	At Boston, Massachusetts Island on this 3rd day of May, 2010.
	 
	 	 	 	 	 	 
	ATTEST:

	 	 	 	LIBERTY MUTUAL INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 
	/s/ Lauren H. Covert

	 	 	 	/s/ Elaine Caprio Brady
	 	 
	Signature

	 	 	 	Signature	 	 
	 
	 	 	 	 	 	 
	Lauren H. Covert

	 	 	 	Elaine Caprio Brady	 	 
	Name

	 	 	 	Name	 	 
	 
	 	 	 	 	 	 
	Director of Ceded Reinsurance

	 	 	 	Vice President & Manager of Ceded Reinsurance	 	 
	Title

	 	 	 	Title	 	 

	 	 	 

	Effective: January 1, 2010

	 	LMEB Commercial Equipment
	 

	 	Breakdown Quota Share
	 

	 	Contract No. 3200195

Page 30 of 30

 

ENDORSEMENT NO. 1

to the

COMMERCIAL EQUIPMENT BREAKDOWN

QUOTA SHARE REINSURANCE CONTRACT

NO. 3200195

(hereinafter referred to as the “Contract”)

between

PEERLESS INSURANCE COMPANY

Keene, New Hampshire

(hereinafter referred to as the “Company”)

and

LIBERTY MUTUAL INSURANCE COMPANY

Boston, Massachusetts

(hereinafter referred to as the “Subscribing Reinsurer”)

It is understood and agreed that Endorsement No. 1 to the Commercial Equipment Breakdown Quota
Share Reinsurance Contract is attached hereto and made a part of said Contract.

IN WITNESS WHEREOF the Parties hereto, by their respective duly authorized officers, have
executed this Endorsement, in triplicate original, as of the dates set forth below.

At Keene,
New Hampshire on this 14th day of April, 2010

PEERLESS INSURANCE COMPANY

/s/ Nancy C. Callender

 

Signed By: Nancy C. Callender, Agency Markets AVP — Manager, Reinsurance Management

Daniel P. Baker

 

Attested By: Daniel P. Baker, Agency Markets VP — Manager, Financial Services

At Boston,
Massachusetts on this 3rd day of May, 2010

LIBERTY MUTUAL INSURANCE COMPANY

/s/ Elaine Caprio Brady

 

Signed By:

/s/ Lauren H. Covert

 

Attested By:

	 	 	 	 	 

	Contract Effective Date: January 1, 2010

	 	Endorsement No. 1
	 	Commercial Equipment
	Endorsement Effective Date: April 1, 2010

	 	
	 	Breakdown Quota Share

Reinsurance Contract No.

3200195

Page 1 of 8

 

ENDORSEMENT NO. 1

to the

COMMERCIAL EQUIPMENT BREAKDOWN

QUOTA SHARE REINSURANCE CONTRACT

NO. 3200195

(hereinafter referred to as the “Contract”)

between

PEERLESS INSURANCE COMPANY

Keene, New Hampshire

(hereinafter referred to as the “Company”)

and

LIBERTY MUTUAL INSURANCE COMPANY

Boston, Massachusetts

(hereinafter referred to as the “Subscribing Reinsurer”)

It is understood and agreed that as respects new and renewal policies becoming effective on and
after 12:01 a.m., Local Standard Time, April 1, 2010, this Contract is amended as follows:

1. ARTICLE 1 — BUSINESS COVERED is hereby replaced with:

ARTICLE 1 — BUSINESS COVERED

	A.	 	By this Contract, the Subscribing Reinsurer obligates itself to accept as reinsurance of the
Company and the Company obligates itself to cede to the Subscribing Reinsurer, 100% of the
liability on new and renewal business covered hereunder, written by the Company or ceded
directly or indirectly to the Company by an Affiliate of the Company (hereinafter each
referred to as a “Legal Entity” and, collectively, the “Legal Entities”) for commercial
Equipment Breakdown business identified as belonging to the Agency Markets strategic business
unit of the Liberty Mutual Group. The business covered hereunder is defined in each Schedule
attached hereto. This Contract specifically excludes any and all commercial equipment
breakdown coverage for policies issued by the following Agency Markets platform systems;
	 
	 	 	1.)     AQS Mecca.

	B.	 	It is a condition of this Contract that evidence of coverage provided for any commercial
Equipment Breakdown insurance ceded under sub-paragraph A. above (hereinafter “Equipment
Breakdown”) shall be on policies, forms, endorsement or binders, in accordance with forms,
rates and rules mutually acceptable to the Company and the Subscribing Reinsurer.

	 	 	 	 	 

	Contract Effective Date: January 1, 2010

	 	Endorsement No. 1
	 	Commercial Equipment
	Endorsement Effective Date: April 1, 2010

	 	
	 	Breakdown Quota Share

Reinsurance Contract No.

3200195

Page 2 of 8

 

	C.	 	Only that portion of loss, if any, that is covered solely under the Equipment Breakdown
coverage provided in the Policy shall be reinsured under this Contract. If, however, that
loss (or portion thereof) that is covered solely under the Equipment Breakdown coverage
provided in the Policy would not be covered, in whole or in part, pursuant to the terms and
conditions of the Subscribing Reinsurer’s reinsurance quotation, then the terms and
conditions of the Subscribing Reinsurer’s reinsurance quotation will control irrespective
of the Policy’s Equipment Breakdown coverage.

2. SCHEDULE NO. 3 — COMLINE SYSTEM is hereby added to read:

SCHEDULE NO. 3 — COMLINE SYSTEM

SECTION 1 — BUSINESSOWNERS POLICIES

	A.	 	BUSINESS COVERED

	 	1.	 	This Section applies to Equipment Breakdown liability of the Company or a Legal
Entity under Businessowners Policies which include one of the Covered Equipment
Breakdown forms listed below, as respects Accidents occurring under Policies
incepting on or after April 1, 2010;

	 	•	 	Equipment Breakdown Endorsement, Form No. BP 81 36 07 02
	 
	 	•	 	Equipment Breakdown Endorsement, Form No. BP 81 36 06 02
	 
	 	•	 	Equipment Breakdown Endorsement, Form No. BP 81 37 06 02
	 
	 	•	 	Equipment Breakdown Endorsement, Form No. BP 81 36 01 08

	B.	 	REINSURANCE PREMIUM

	 	1.	 	The Company shall pay to the Subscribing Reinsurer 100% of the gross Equipment
Breakdown premium written, within the limits of this Contract, during the period
this Contract is in effect for Policies covered under this Section.

	 	a.	 	As respects Policies covered under this Section, except for
Policies covering Referral Risks as set forth under the Referral Guidelines
of this Section, the gross Equipment Breakdown premium shall be calculated in
accordance with the rates set forth in the “Comline BOP Portfolio Rates and
Eligibility Guidelines 04-01-10” document.
	 
	 	b.	 	As respects Policies classified as Referral Risks and
covered under this Section, the Company shall pay to the Subscribing
Reinsurer, the amount mutually agreed to by both Parties in writing.

	C.	 	CEDING COMMISSION
	 
	 	 	As provided for under the Ceding Commission Article, the Subscribing Reinsurer shall allow
a Ceding Commission of 30.0% of the Reinsurance Premium ceded under this Section.

	 	 	 	 	 

	Contract Effective Date: January 1, 2010

	 	Endorsement No. 1
	 	Commercial Equipment
	Endorsement Effective Date: April 1, 2010

	 	
	 	Breakdown Quota Share

Reinsurance Contract No.

3200195

Page 3 of 8

 

	D.	 	REFERRAL GUIDELINES
	 
	 	 	Risks that meet the referral criteria outlined in the “Comline BOP Portfolio Rates and
Eligibility Guidelines 04-01-10” document must be referred to the Subscribing Reinsurer
for a reinsurance quotation.

	E.	 	OTHER PROVISIONS

	 	1.	 	Notwithstanding the limit set forth in the LIMIT OF LIABILITY ARTICLE,
the Subscribing Reinsurer’s liability as respects coverages under the section
entitled “Blanket Limit of Insurance” in the Flexible Limit Endorsement, Form No.
BP 81 99 06 06, shall not exceed $250,000, for any one Accident, any one Policy.
	 
	 	2.	 	The rates and eligibility rules applicable to the Policies covered under
this Section are set forth in the “Comline BOP Portfolio Rates and Eligibility
Guidelines 04-01-10” document. Said document may be amended from time to time,
subject to the approval in writing of both parties, and are incorporated into this
Contract by reference as if fully set forth herein.

SECTION 2 — COMMERCIAL MULTIPERIL POLICIES, BOP ACCESS POLICIES & OPTIMUM POLICIES

	A.	 	BUSINESS COVERED
	 
	 	 	This Section applies to the Equipment Breakdown liability of the Company or a Legal
Entity under Commercial Multiperil, BOP Access, and Optimum Policies which include one
of the Covered Equipment Breakdown forms listed below, effective as respects Accidents
occurring under Policies incepting on or after April 1, 2010;

	 	•	 	Equipment Breakdown Endorsement, Form No. CP 75 66 10 01
	 
	 	•	 	Equipment Breakdown Endorsement, Form No. CP 74 16 02 07
	 
	 	•	 	Equipment Breakdown Endorsement, Form No. CP 77 82 01 08

	B.	 	REINSURANCE PREMIUM

	 	1.	 	The Company shall pay to the Subscribing Reinsurer 100% of the gross Equipment
Breakdown premium written, within the limits of this Contract, during the period
this Contract is in effect for Policies covered under this Section.

	 	a.	 	As respects Policies covered under this Section, except
for Policies covering Referral Risks as set forth under the Referral
Guidelines of this Section, the gross Equipment Breakdown premium shall
be calculated in accordance with the rates set forth in the “Comline CMP,
COP, BOP Access, and Optimum Rates and Eligibility Guidelines
04-01-10.xls” document.
	 
	 	b.	 	As respects Policies classified as Referral Risks and
covered under this Section, the Company shall pay to the Subscribing
Reinsurer, the amount mutually agreed to by both Parties in writing.

	 	 	 	 	 

	Contract Effective Date: January 1, 2010

	 	Endorsement No. 1
	 	Commercial Equipment
	Endorsement Effective Date: April 1, 2010

	 	
	 	Breakdown Quota Share

Reinsurance Contract No.

3200195

Page 4 of 8

 

	C.	 	CEDING COMMISSION
	 
	 	 	As provided for under the Ceding Commission Article, the Subscribing Reinsurer shall
allow a Ceding Commission of 30.0% of the Reinsurance Premium ceded under this
Section.

	D.	 	REFERRAL GUIDELINES
	 
	 	 	Risks that meet the referral criteria outlined in the “Comline CMP, COP, BOP Access,
and Optimum Rates and Eligibility Guidelines 04-01-10.xls” document must be referred
to the Subscribing Reinsurer for a reinsurance quotation.

	E.	 	OTHER PROVISIONS

	 	1.	 	Notwithstanding the limit set forth in LIMIT OF LIABILITY ARTICLE,
the Subscribing Reinsurer’s liability as respects coverages under:

	 	a.	 	The section entitled “Flex Coverage — Blanket
Limit of Insurance” in a SAFECO BOP Access property coverage form listed
below shall not exceed $500,000 for any one Accident, any one Policy;

	 	•	 	Form No. CP 74 03 02 07
	 
	 	•	 	Form No. CP 74 06 02 07
	 
	 	•	 	Form No. CP 74 00 02 07

	 	b.	 	The section entitled “Flex Additional Coverage —
Blanket Limit of Insurance” in a SAFECO Optimum property coverage form
listed below shall not exceed $250,000 for any one Accident, any one
Policy.

	 	•	 	Form No. 74 30 03 08
	 
	 	•	 	Form No. 74 38 03 08
	 
	 	•	 	Form No. 74 45 03 08
	 
	 	•	 	Form No. 74 59 03 08
	 
	 	•	 	Form No. 74 52 03 08
	 
	 	•	 	Form No. 74 66 03 08
	 
	 	•	 	Form No. 74 75 03 08
	 
	 	•	 	Form No. 74 83 03 08

	 	2.	 	The rates and eligibility rules applicable to the Policies covered
under this Section are set forth in the “Comline CMP, COP, BOP Access, and
Optimum Rates and Eligibility Guidelines 04-01-10.xls” document. Said document
may be amended from time to time, subject to the approval in writing of both
parties, and are incorporated into this Contract by reference as if fully set
forth herein.

	 	 	 	 	 

	Contract Effective Date: January 1, 2010

	 	Endorsement No. 1
	 	Commercial Equipment
	Endorsement Effective Date: April 1, 2010

	 	
	 	Breakdown Quota Share

Reinsurance Contract No.

3200195

Page 5 of 8

 

SECTION 3 — COMMERCIAL OUTPUT POLICIES

	A.	 	BUSINESS COVERED

	 	1.	 	This Section applies to the Equipment Breakdown liability of the Company or a
Legal Entity under AAIS Commercial Output Policies which include one of the
Covered Equipment Breakdown forms listed below, effective as respects Accidents
occurring under Policies incepting on or after April 1, 2010;

	 	•	 	Equipment Breakdown Coverage Part, Form No. CO 1003 04 02
	 
	 	•	 	Equipment Breakdown Coverage Part, Form No. COP 10 12/EF 5/00

	B.	 	REINSURANCE PREMIUM

	 	1.	 	The Company shall pay to the Subscribing Reinsurer 100% of the gross Equipment
Breakdown premium written, within the limits of this Contract, during the period
this Contract is in effect for Policies covered under this Section.

	 	a.	 	As respects Policies covered under this Section, except for
Policies covering referral risks as set forth under the Referral Guidelines
of this Section, the gross Equipment Breakdown premium shall be calculated in
accordance with the rates set forth in the “Comline CMP, COP, BOP Access, and
Optimum Rates and Eligibility Guidelines 04-01-10.xls” document.
	 
	 	b.	 	As respects Policies classified as Referral Risks and
covered under this Section, the Company shall pay to the Subscribing
Reinsurer, the amount mutually agreed to by both Parties in writing.

	C.	 	CEDING COMMISSION
	 
	 	 	As provided for under the Ceding Commission Article, the Subscribing Reinsurer shall allow
a Ceding Commission of 30.0% of the Reinsurance Premium ceded under this Section.

	D.	 	REFERRAL GUIDELINES
	 
	 	 	Risks that meet the referral criteria outlined in the “Comline CMP, COP, BOP Access, and
Optimum Rates and Eligibility Guidelines 04-01-10.xls” document must be referred to the
Subscribing Reinsurer for a reinsurance quotation.

	E.	 	OTHER PROVISIONS

	 	1.	 	The rates and eligibility rules applicable to the Policies covered under
this Section are set forth in the “Comline CMP, COP, BOP Access, and Optimum Rates
and Eligibility Guidelines 04-01-10.xls” document. Said document may be amended from
time to time, subject to the approval in writing of both parties, and are
incorporated into this Contract by reference as if fully set forth herein.
	 
	 	2.	 	Section A of the EXCLUSIONS ARTICLE shall not apply to the Covered Equipment
Breakdown Forms covered under this Section.

	 	 	 	 	 

	Contract Effective Date: January 1, 2010

	 	Endorsement No. 1
	 	Commercial Equipment
	Endorsement Effective Date: April 1, 2010

	 	
	 	Breakdown Quota Share

Reinsurance Contract No.

3200195

Page 6 of 8

 

	 	3.	 	With respect to the Equipment Breakdown Coverage Part, Form No. CO 1003 04 02,
“Equipment Breakdown” means coverage provided under Commercial Output Program
Policies by the addition of said Equipment Breakdown Coverage Part, and shall also
extend to include:

	 	a.	 	coverage for Spoilage resulting from an Accident, as defined
in Paragraphs 1., 2. and 4. of Perils Covered under the Spoilage Coverage
Part, Form No. CO 1004 04 02 or Form No. CO 1005 04 02, whichever is
applicable, and;
	 
	 	b.	 	coverage for loss or damage to computers resulting from an
Accident under the Commercial Output Program Property Coverage Part, Form CO
1000 10 02.

	 	4.	 	With respect to the Equipment Breakdown Coverage Part, Form No. COP 10 12/EF
5/00, “Equipment Breakdown” means coverage provided under Policies by the addition of
said Equipment Breakdown Coverage Part and shall also extend to include:

	 	a.	 	liability for Computers under the Computer Coverage
Endorsement, Form No. COP 21 36/EF 5/00, if included in the Policy, and;
	 
	 	b.	 	with respect to any Policy that includes the Spoilage
Coverage endorsement, Form No. COP 21 31/EF 5/00, coverage for Spoilage under
said endorsement but only to the extent the coverage would have been provided
under the Additional Coverage for Spoilage in the Equipment Breakdown
Coverage Part if the Spoilage Coverage endorsement had not been included.

SECTION 4 — MINICO PROGRAM

	A.	 	BUSINESS COVERED
	 
	 	 	This Section applies to the Equipment Breakdown liability of the Company or a Legal Entity
under Select Custom Package Policies which include the Systems Protection Coverage
endorsement, Form No. SP 04 50 EF 4/00, effective as respects Accidents occurring under
Policies incepting on or after April 1, 2010.

	B.	 	REINSURANCE PREMIUM

	 	1.	 	The Company shall pay to the Subscribing Reinsurer 100% of the gross Equipment
Breakdown premium written, within the limits of this Contract, during the period
this Contract is in effect for Policies covered under this Section.

	 	a.	 	As respects Policies covered under this Section the gross Equipment
Breakdown premium shall be calculated in accordance with the rates set
forth in the “MiniCo filed rules and rate pages, edition date 06/08”
document.

	C.	 	CEDING COMMISSION
	 
	 	 	As provided for under the Ceding Commission Article, the Subscribing Reinsurer shall allow
a Ceding Commission of 30.0% of the Reinsurance Premium ceded under this Section.

	 	 	 	 	 

	Contract Effective Date: January 1, 2010

	 	Endorsement No. 1
	 	Commercial Equipment
	Endorsement Effective Date: April 1, 2010

	 	
	 	Breakdown Quota Share

Reinsurance Contract No.

3200195

Page 7 of 8

 

	D.	 	OTHER PROVISIONS
	 
	 	 	The rates and eligibility rules applicable to the Policies covered under this Section are
set forth in the “MiniCo filed rules and rate pages, edition date 06/08” document. Said
document may be amended from time to time, subject to the approval in writing of both
parties, and are incorporated into this Contract by reference as if fully set forth
herein.

3. SCHEDULE NO. 4 — PAL SYSTEM is hereby added to read:

SCHEDULE NO. 4 — PAL SYSTEM

	A.	 	BUSINESS COVERED

	 	1.	 	This Schedule applies to the Equipment Breakdown liability of the Company or
a Legal Entity as respects Accidents occurring under the Policies attaching on or
after April 1, 2010 and classified as follows;

	 	a.	 	Equipment Breakdown coverage provided in insurance policies
or binders classified by the Company as multi-peril, businessowners,
commercial property or farm.

	 	b.	 	Referral Risks — All other Risks as set forth under
Referral Guideline of this Schedule.

	B.	 	REINSURANCE PREMIUM

	 	1.	 	As respects Policies classified as multi-peril, businessowners, commercial property
or farm and covered under this Schedule, the Company shall pay to the Subscribing
Reinsurer, 100% of the equipment breakdown premium, calculated in accordance with
the rates set forth in the “Rates and Referral Guidelines for Accounts in PAL”
document, less cancellations and return premium.
	 
	 	2.	 	Referral Risks — As respects Policies classified as such and covered
under this Schedule, the Company shall pay to the Subscribing Reinsurer, the amount
mutually agreed to by both Parties in writing.

	C.	 	CEDING COMMISSION
	 
	 	 	As provided for under the Ceding Commission Article, the Subscribing Reinsurer shall allow
a Ceding Commission of 30.0% of the Reinsurance Premium ceded under this Section.

	D.	 	REFERRAL GUIDELINES
	 
	 	 	Risks that meet the referral criteria outlined in the “Rates and Referral Guidelines for
Accounts in PAL” document must be referred to the Subscribing Reinsurer for a reinsurance
quotation.

ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.

	 	 	 	 	 

	Contract Effective Date: January 1, 2010

	 	Endorsement No. 1
	 	Commercial Equipment
	Endorsement Effective Date: April 1, 2010

	 	
	 	Breakdown Quota Share

Reinsurance Contract No.

3200195

Page 8 of 8exv10w175

EXHIBIT
10.175

WORKERS’ COMPENSATION CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

No. 2010300

EFFECTIVE JANUARY 1, 2010

between

PEERLESS INSURANCE COMPANY

Keene, New Hampshire

and

The reinsurers subscribing to the respective

Interests and Liabilities Agreements attached to

and forming part of this Contract

	 	 	 	 	 

	Effective: January 1, 2010

	 	2010 Agency Markets Workers’

	 

	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

	 	2010300

 

WORKERS’ COMPENSATION CATASTROHE EXCESS OF LOSS REINSURANCE

CONTRACT No. 2010300

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

ATTACHMENTS:

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

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

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

	 	 	 	 	 

	Effective: January 1, 2010

	 	2010 Agency Markets Workers’

	 

	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

	 	2010300

 

WORKERS’ COMPENSATION CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT No. 2010300

(hereinafter referred to as the “Contract”)

The reinsurers subscribing to the respective

Interests and Liabilities Agreements attached to

and forming part of this Contract

(hereinafter referred to as the “Subscribing Reinsurer”)

does hereby indemnify, as herein provided and specified, the

PEERLESS INSURANCE COMPANY

Keene, New Hampshire

(hereinafter referred to as the “Company”).

ARTICLE 1 — BUSINESS COVERED

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

	 	EXHIBIT “A” — 	 	FIRST WORKERS’ COMPENSATION CATASTROPHE
 EXCESS OF LOSS REINSURANCE — ALL PERILS
 ($100,000,000 excess $100,000,000)
	 
	 	EXHIBIT “B” — 	 	SECOND WORKERS’ COMPENSATION CATASTROPHE
 EXCESS OF LOSS REINSURANCE — ALL PERILS
 ($100,000,000 excess $200,000,000)

ARTICLE 2 — COMMENCEMENT AND EXPIRATION

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

	 	 	 	 	 

	Effective: January 1, 2010

	 	2010 Agency Markets Workers’

	 

	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

	 	2010300

Page 1 of 37

 

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

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

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

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

ARTICLE 5 — DEFINITIONS

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

ARTICLE 6 — EXCLUSIONS

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

	 	 	 	 	 

	Effective: January 1, 2010

	 	2010 Agency Markets Workers’

	 

	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

	 	2010300

Page 2 of 37

 

	 	 	Section 1

	 	a.	 	Occupational Disease unless arising from a sudden and accidental event of
not more than forty-eight (48) hours in duration.
	 
	 	b.	 	Cumulative Trauma,
	 
	 	c.	 	Nuclear Accident.
	 
	 	d.	 	All liability of the Company or a Legal Entity arising by contract, operation
of law, or otherwise, from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. “Insolvency fund” includes any
guaranty fund, insolvency fund, plan, pool, association, fund or other
arrangement, however denominated, established or governed, which
provides for any assessment of or payment or assumption by the Company
or a Legal Entity of part or all of any claim, debt, charge, fee or other
obligation of any insurer, or its successors or assigns, which has been
declared by any competent authority to be insolvent, or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in
whole or in part.
	 
	 	e.	 	Reinsurance Assumed except for any Workers’ Compensation business
assumed by the Company or a Legal Entity through inter-company
reinsurance agreements between the members of the Agency Markets
strategic business unit, business classified as reinsurance written by the
Company or a Legal Entity for and on behalf of a direct insured, or business
assumed from OneBeacon insurance Group.
	 
	 	f.	 	War and Terrorism as per the attached War and Terrorism Exclusions
Endorsement (NBCR).

	 	 	Section 2

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

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

	 	 	 	 	 

	Effective: January 1, 2010

	 	2010 Agency Markets Workers’

	 

	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

	 	2010300

Page 3 of 37

 

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

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

ARTICLE 7 — SELF-INSURED OBLIGATIONS

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

	 	 	 	 	 

	Effective: January 1, 2010

	 	2010 Agency Markets Workers’

	 

	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

	 	2010300

Page 4 of 37

 

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

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

	A.	 	“Ultimate Net Loss” as used in this Contract shall mean: (1) all amounts paid or
due and payable by the Company or a Legal Entity in the investigation,
appraisal, adjustment, settlement, litigation, defense or appeal, or payment of
claims or judgments arising from each and every loss, and/or loss occurrence
for which the Company or a Legal Entity is or may be found liable under the
Policies, less salvages and subrogation recoveries and amounts recovered or
recoverable under pooling agreements or other reinsurances, whether
collectible or not. “Ultimate Net Loss” includes, but is not limited to, the
following paid or due and payable amounts: loss adjustment expenses,
defense costs, court costs, supersedeas and appeal bond costs, Post or
Prejudgment Interest or Delayed Damages, Attorneys Fees and Expenses,
Claim-Specific Declaratory Judgment Expenses, a pro rata share of salaries
and expenses of the Company’s or its Affiliates’ field employees according to
the time occupied in adjusting, defending, and settling such loss, and expenses
of all of the Company’s or its Affiliates’ officers and employees incurred in
connection with the loss; (except that salaries of officers and employees
engaged in general management of the Company of its Affiliates and any office
expense of the Company or its Affiliates shall not be included), and all other
costs of investigation or litigation for which the Company or a Legal Entity is or
may be found liable under the Policies, (2) Extra Contractual Obligations (as
defined in the Extra Contractual Obligations Article), and (3) Loss in excess of
original Policy limits (as described in the Loss in Excess of Original Policy
Limits Article).
	 
	B.	 	Nothing herein shall be construed to mean that losses under this Contract are
not recoverable until the Ultimate Net Loss has been ascertained.
	 
	C.	 	“Claim-Specific Declaratory Judgment Expenses” shall mean the fees and
expenses incurred in actions brought to determine whether the Company or a
Legal Entity has a defense and/or indemnification obligation for individual
claims presented against Policies covered under this Contract. Any Claim-Specific Declaratory Judgment Expense shall be deemed to have been fully
incurred on the same date as the insured’s original loss or loss occurrence (if
any) giving rise to the action, unless otherwise provided for within this Contract.
	 
	D.	 	“Attorneys’ Fees and Expenses” as used above, shall mean all fees and
expenses of attorneys, including but not limited to the fees and expenses of the
Company’s or its Affiliates’ in-house attorneys providing legal advice on
coverage questions and/or defending the Company or a Legal Entity in
coverage litigation, and fees and expenses of staff counsel in the defense of

	 	 	 	 	 

	Effective: January 1, 2010

	 	2010 Agency Markets Workers’

	 

	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

	 	2010300

Page 5 of 37

 

	 	 	policyholder claims. Such Attorneys’ Fees and Expenses for in-house attorneys and staff
counsel shall be calculated at the rate for such attorneys plus the expenses incurred
by such attorneys, but excluding office expenses of the Company and its Affiliates and
salaries and expenses of their other employees.
	 
	E.	 	“Post or Prejudgment Interest or Delayed Damages” shall mean interest or damages added to a
settlement, verdict, award, or judgment based on the period of time prior to or after the
settlement, verdict, award, or judgment whether or not expressly identified as such.

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

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

ARTICLE 10 — DEFINITION OF LOSS OCCURRENCE

	A.	 	The term “Loss Occurrence”, as used in this Contract, shall mean any one
accident or occurrence or series of accidents or occurrences arising out of one
event. All losses that are attributable directly or indirectly to one cause or one
series of similar causes shall be deemed to constitute one event.
	 
	B.	 	As regards an act of Terrorism, multiple incidents which occur within one hundred
sixty-eight (168) hour period and appear to be carried out in concert or to have a
related purpose or common leadership shall be considered one “Loss
Occurrence”.

	 	 	 	 	 

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	C.	 	An act of terrorism means any activity that (1) involves a violent act or the unlawful use
of force or an unlawful act dangerous to human life, tangible or intangible property or
infrastructure, or threat thereof; and (2) appears to be intended to (i) intimidate or coerce
a civilian population, or any segment thereof, or (ii) disrupt any segment of the economy of
a government de jure or de facto, state, or country; or (iii) overthrow, influence, or affect
the conduct or policy of any government de jure or de facto by intimidation or coercion; or
(iv) affect the conduct of a government de jure or de facto by mass destruction,
assassination, kidnapping or hostage-taking.
	 
	D.	 	However, with respect to Natural Disasters the term “Loss Occurrence” shall mean any one
or more occurrences, disasters or casualties arising out of or caused by the perils
described below (a natural Act of God) during any continuous period of one hundred
sixty-eight (168) hours.

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

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

ARTICLE
11 — EXTRA CONTRACTUAL OBLIGATIONS
(Lm-00900-2009.09.29-a) (Am)

	A.	 	This Contract shall protect the Company within the limits hereof for 100% of Extra
Contractual Obligations. “Extra Contractual Obligations” are defined as any actual or
potential liabilities not covered under any other provision of this Contract, arising from or
relating to any alleged or actual act, error or omission, whether intentional or otherwise,
or from any alleged or actual negligence, tortious conduct, reckless conduct, violations of
statutes or regulations governing the conduct of insurance companies and/or claims adjusters,
or bad faith in connection with: (i) the handling of any claim under the Policies, such
liabilities arising because of, but not limited to, the following: failure by the Company, a
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		 	or by reason of alleged or actual negligence, fraud or bad faith of the Company, a Legal
Entity or by a third party claims administrator in rejecting an offer of settlement, or in
defending or prosecuting litigation, including appeals, arbitration, or any alternative
dispute resolution or settlement discussions involving any claim; or (ii) the providing of
or failure to provide any loss control or loss prevention services in connection with any
Policy hereunder.

	B.	 	The date on which any Extra Contractual Obligation is incurred shall be deemed, in all
circumstances, to be the date of the original occurrence, Loss Occurrence, accident,
casualty, disaster, or loss, as determined by the Company.

	C.	 	However, this Article shall not apply where the loss has been incurred due to the fraud
of a member of the Board of Directors or a corporate officer of the Company or a Legal
Entity acting individually or collectively or in collusion with any individual or
corporation or any other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.

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

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

ARTICLE
13 — COMMUTATION (Lm-02602-2009.11.20-w)

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

	 	 	 	 	 

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

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

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

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

	 	 	 	 	 

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

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

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

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

	 	 	 	 	 

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	B.	 	Amounts recovered from salvage and/or subrogation and the expense of any
salvage and/or subrogation proceedings brought by the Company or the
Subscribing Reinsurer to enforce such rights shall be apportioned between the
Company and the Subscribing Reinsurer in the ratio of their respective interests in
the total salvage and/or subrogation recovery, and shall be in addition to the limits
hereon. In the event there is a failure to obtain a salvage and/or subrogation
recovery, the expense of the proceedings shall be apportioned between the
Company and the Subscribing Reinsurer in the ratio of their respective interests in
the total loss.
	 
	C.	 	All salvage and/or subrogation recoveries obtained by either party, subsequent to
payments made by the Subscribing Reinsurer under this Contract, shall be applied
as if obtained prior to said payments and all necessary adjustments shall be made
between the Company and the Subscribing Reinsurer as soon as practicable after
said salvage and/or subrogation recovery is obtained.
	 
	D.	 	The Company or a Legal Entity shall have the right, before the happening of the
loss, to waive its right of subrogation as to that loss.

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

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

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

	A.	 	Except as otherwise provided in this Article, the Subscribing Reinsurer, or its duly
authorized representative, may upon reasonable prior written notice to the
Company, at the Subscribing Reinsurer’s own expense, examine at the offices of
the Company or its Affiliates, during normal office hours, the Policy, accounting,
underwriting, or claim records and files, or any such additional relevant records
and files, as they exist in the Company’s or its Affiliates’ possession or reasonable
control, relating to business ceded under this Contract. The Subscribing
Reinsurer’s notice shall reasonably describe the nature of the inspection that it
wishes to conduct, the persons conducting the inspection and, upon notice of
available files from the Company, the files that it wishes to review. Subject to the
limitations expressed in this Article, this right of inspection shall
survive
termination or expiration of this Contract and shall continue as long as either party
has any rights or obligations under this Contract.
	 
	B.	 	The Company reserves the right to deny the Subscribing Reinsurer access to
records or files concerning any particular claim(s) if the Subscribing Reinsurer has
not disputed liability for payment of such claim(s), and payment of such claim(s)
is(are) more than ninety (90) days overdue according to the Company’s records.
The Company shall, however, prior to an arbitration demand that may be instituted

	 	 	 	 	 

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	 	 	by either party, continue to respond to reasonable specific requests for information and
questions raised by the Subscribing Reinsurer concerning such claims; and nothing in this
Article shall restrict the right or ability of the Subscribing Reinsurer to seek discovery
of relevant information in a proceeding pursuant to the Arbitration Article of this
Contract.
	 
	C.	 	As a condition precedent to access to records under this Article, the Subscribing
Reinsurer, its personnel, and any authorized third party representative of the
Subscribing Reinsurer shall agree to the provisions of the Confidentiality Article of
this Contract.
	 
	D.	 	The Company reserves the right to withhold any documents from the Subscribing
Reinsurer: (1) concerning Trade Secrets of the Company or its Affiliates,
(2) subject to the terms of a third party non-disclosure agreement with the
Company or its Affiliates requiring third party consent to disclosure, (3) subject to
the Work-Product Privilege or Attorney-Client Privilege, or (4) concerning
individual private information that, as a matter of law, cannot be disclosed by the
Company or its Affiliates (hereinafter referred to in the Contract as “Privileged
Documents”). The Company shall reasonably try to exempt the Subscribing
Reinsurer from any third party non-disclosure agreement or obtain consent from
the third party to disclose to the Subscribing Reinsurer.
	 
	E.	 	Notwithstanding the foregoing, the Company shall permit and not object to the
Subscribing Reinsurer’s access to Privileged Documents falling within D.(3) above,
in connection with the underlying claim reinsured hereunder following final
settlement or final adjudication of the case or cases involving such claim, with
prejudice against all claimants, and all parties to such adjudications; provided that
the Company, may defer release of such Privileged Documents if there are
subrogation, contribution, or other third party actions with respect to that claim or
case, which may jeopardize the Company’s or its Affiliates’ defense by release of
such Privileged Documents. In the event that the Company shall seek to defer
release of such Privileged Documents or to withhold documents concerning Trade
Secrets, it will in consultation with the Subscribing Reinsurer take other steps as
reasonably necessary to provide the Subscribing Reinsurer with the information it
reasonably requires to indemnify the Company without causing a loss of such
privileges or protections. The Subscribing Reinsurer, however, shall not have
access to Privileged Documents relating to any dispute between the Company
and the Subscribing Reinsurer.
	 
	F.	 	For purposes of this Article, “Trade Secrets” shall have the meaning provided in
Section 1839 of the United States Economic Espionage Act of
1996. “Attorney—Client Privilege” shall mean communications of a confidential nature between:
(1) the Company or its Affiliates, or anyone retained by or in the control of the
Company or its Affiliates, or their in-house or outside legal counsel, or anyone in
the control of such legal counsel, and (2) any in-house or outside legal counsel
which relate to legal advice being sought by the Company or its Affiliates and/or
which contains legal advice being provided to the Company or its Affiliates.
“Work-Product Privilege” shall mean communications, written materials, and

	 	 	 	 	 

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

ARTICLE
17 — ERRORS AND OMISSIONS (Lm-00800-2005.06.02-a)

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

ARTICLE
18 — INSOLVENCY
(Lm-01300-2009.09.03-a-Wc)

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

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

	 	 	 	 	 

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	 	 	shall be chargeable, subject to court approval, against the insolvent Company as part of
the expense of liquidation to the extent of a proportionate share of the benefit, which may
accrue to the Company solely as a result of the defense undertaken by the Subscribing
Reinsurer.
	 
	C.	 	Where two or more Subscribing Reinsurers are involved in the same claim and a majority in
interest elects to interpose defense to such claim, the expense shall be apportioned in
accordance with the terms of this Contract as though such expense had been incurred by the
insolvent Company.

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

	A.	 	Disputes to be Arbitrated. With the exception of any dispute resolution
procedures that are otherwise contained in this Contract, any and all disputes
between the Company and any Subscribing Reinsurer or Subscribing Reinsurers
(“Party” individually or “Parties” collectively) arising out of, relating to,
or
concerning this Contract, whether sounding in contract or tort and whether arising
during or after this Contract’s formation, or after its termination, including disputes
as to whether the Contract was validly formed or is voidable, shall be submitted to
the decision of an arbitration panel (“Panel”). The Panel shall consist of an
umpire and two party-appointed arbitrators unless a Party meets the requirements
of paragraph C. of this Article and demands arbitration pursuant thereto, in which
case the Panel would consist of an umpire only.
	 
	B.	 	Procedures. Except as provided herein, any arbitration shall be based upon the
Procedures for the Resolution of U.S. insurance arid Reinsurance Disputes;
Regular Panel Version, dated April 2004 (the “Procedures”), developed by the
insurance and Reinsurance Dispute Resolution Task Force, subject to the
following modifications:

	 	1.	 	Qualifications of the arbitrators and umpires shall be in accordance with
section 6.2 of the Procedures, except that other professionals who have
worked for at least ten (10) years for an insurer or reinsurer shall also be
qualified to serve as an arbitrator or umpire.
	 
	 	2.	 	The Parties hereby designate the umpire list maintained by ARIAS (U.S.)
as the list to be used in the event that section 6.7(a) of the Procedures is
invoked. If ARIAS ceases to maintain a list, each Party shall exchange
eight names of qualified umpire candidates and shall follow section 6.7 of
the Procedures for the selection of the umpire.
	 
	 	3.	 	Unless otherwise mutually agreed, the members of the Panel shall be
impartial and disinterested. The members of the Panel may not be: (1) in
the control of any Party or its parent, affiliate, or agent, (2) a former director
or officer of any Party or its parent, affiliate, or agent, or (3) a likely witness
in the arbitration. The requirement of impartiality means that all members
of the Panel shall have the same obligation to approach the Panel’s duties
and decisions with fairness and without consideration for the fact that Panel
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	 	 	 	requirement of impartiality does not mean that any arbitrator can have no previous
knowledge of or experience with respect to issues involved in the dispute or
disputes.
	 
	 	4.	 	The first sentence of section 10.4 of the Procedures shall be replaced by
the following sentence: “The Panel shall require that each Party submit
concise written statements of position, including summaries of the facts and
evidence a Party intends to present, discussion of the applicable law and
the basis for the requested Award or denial of relief sought,”
	 
	 	5.	 	Section 11.1 of the Procedures shall be replaced by the following provision:
“The Parties may propound discovery seeking disclosure of such
information and/or documents relevant to the dispute or necessary for the
proper resolution of the dispute.”
	 
	 	6.	 	Position statements may be amended at any reasonable time, but not later
than the close of discovery, without a showing to the Panel that the
amending Party could not reasonably have raised the new claim or issue at
an earlier time.
	 
	 	7.	 	The Panel shall hold an evidentiary hearing, if one is necessary, within one
year of the arbitration demand, unless the Parties otherwise agree. Should
a Party seek a reasonable extension to this time frame for good cause
shown, the other Party’s agreement shall not be unreasonably withheld.
	 
	 	8.	 	To the extent permitted by the law, the Panel shall have the authority to
issue subpoenas and other orders to enforce its decisions.
	 
	 	9.	 	The Panel may award reasonable attorneys’ fees and arbitration costs to
the prevailing Party, as determined by the Panel.
	 
	 	10.	 	Section 14.3 of the Procedures shall be replaced by the following provision:
“The Panel shall make a decision and issue an award with regard to the
terms expressed in this Contract, and the custom and practice of the
property and casualty insurance and reinsurance business. The Panel
shall not be obligated to follow the strict rules of law and evidence.”

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

	 	 	 	 	 

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	E.	 	Confirmation. Either Party may apply to a court of competent jurisdiction for an
order confirming any award of the Panel; a judgment of that court shall thereupon be entered
on any award. If the application for confirmation is contested and a judgment is issued
confirming the award, then the Party against whom confirmation is sought shall pay the
attorneys’ fees incurred by the Party who applied for the confirmation and all court costs of
any such proceeding.
	 
	F.	 	Equitable Relief from a Court of Law. Nothing herein shall be construed to
prevent any participating Party from applying to a court of competent jurisdiction to
issue a restraining order or other equitable relief to maintain the “status quo” of
the Parties participating in the arbitration pending the decision and award by the
Panel.
	 
	G.	 	Consolidated Proceedings.

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

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

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

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

	 	 	 	 	 

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

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

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

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

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

	 	 	 	 	 

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

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

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

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

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

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

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

	 	 	 	 	 

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

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

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

	A.	 	This Article will not be read to conflict with or override the obligations of the parties
to arbitrate their disputes as provided for in the Arbitration Article. This Article is
intended as an aid to compelling arbitration or enforcing such arbitration or arbitral
award, not as an alternative to the Arbitration Article for resolving disputes arising
out of this Contract.
	 
	B.	 	In the event of the failure of the Subscribing Reinsurer to pay any amount claimed
to be due hereunder, the Subscribing Reinsurer, at the request of the Company,
will submit to the jurisdiction of a Court of competent jurisdiction within the United
States. Nothing in this Article constitutes or should be understood to constitute a
waiver of the Subscribing Reinsurer’s right to commence an action in any Court of
competent jurisdiction in the United States, to remove an action to a United States
District Court, or to seek a transfer of a case to another Court as permitted by the
laws of the United States or of any state in the United States. The Subscribing
Reinsurer, once the appropriate Court is selected, whether such court is the one
originally chosen by the Company and accepted by the Subscribing Reinsurer or
is determined by removal, transfer, or otherwise, as provided for above, will
comply with all requirements necessary to give said Court jurisdiction and, in any
suit instituted against it upon this Contract, will abide by the final decision of such
Court or of any Appellate Court in the event of an appeal.
	 
	C.	 	Service of process in such suit may be made upon: Mendes & Mount, LLP, 750
Seventh Avenue, New York, NY 10019-6829.
	 
	D.	 	The above-named are authorized and directed to accept service of process on
behalf of the Subscribing Reinsurer in any such suit. Further, pursuant to any
statute of any state, territory, or district of the United States that makes provision
therefore, the Subscribing Reinsurer hereby designates the Superintendent,
Commissioner, or Director of Insurance, or other officer specified for that purpose
in the statute, or their successor(s) in office, as their true and lawful attorney upon
whom may be served any lawful process in any action, suit, or proceedings
instituted by or on behalf of the Company or any beneficiary hereunder arising out
of this Contract, and hereby designate the above-named as the person to whom
the said officer is authorized to mail such process or a true copy thereof.

	 	 	 	 	 

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

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

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

	 	 	 	 	 

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

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

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

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

	 	 	 	 	 

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

	F.	 	The Subscribing Reinsurer will take any other reasonable steps that may be
required for the Company to take full credit on its statutory financial statements for
the reinsurance provided by this Contract.
	 
	G.	 	Any and all disputes between the Company and any Subscribing Reinsurer or
Reinsurers (“Party”, individually, or “Parties”, collectively) arising out of, relating to,
or concerning this Article shall be resolved pursuant to the ARIAS-U.S. Newer
Arbitrator Program. Unless the Parties otherwise agree, the ARIAS-U.S. Newer
Arbitrator Program expedited proceeding with a single Newer Arbitrator shall be
used to resolve any such disputes.

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

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

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

	 	 	 	 	 

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	 	 	Confidential Information, the Subscribing Reinsurer will comply with the reasonable
requests of the Company in connection with the Company’s efforts to resist release of the
Confidential Information. The Company shall bear the cost of resisting the release of the
Confidential Information.
	 
	F.	 	Survival. The Parties agree that the obligations contained in this Article
shall survive the expiration or termination of this Contract.

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

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

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

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

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

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

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

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

	 	 	 	 	 

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	C.	 	If one or more Loss Occurrences commencing during the term of this Contract
result(s) in reinsurance recoveries to the Company under this Contract and
reimbursement under TRIA, and such amounts, together with any other
reinsurance recoveries to the Company for said loss occurrence(s), exceed the
total amount of “Insured Losses” to the Company, any amount in excess thereof
shall be held by the Company. The Company shall then reimburse the
Subscribing Reinsurer a portion of such excess recovery in an amount equal to the
proportion that the Subscribing Reinsurer’s payment under this Contract bears to
the total treaty reinsurance recoveries to the Company for Insured Losses for said
Loss Occurrence(s). Provided, however, that in no event shall such
reimbursement exceed the amount paid by the Subscribing Reinsurer to the
Company under this Contract.
	 
	D.	 	For purposes hereof, if a loss reimbursement received by the Company under
TRIA is based on the Company’s Insured Losses in more than one Loss
Occurrence and neither the Secretary of the Treasury nor his delegatee specifies
the amount of loss allocable to each respective Loss Occurrence, the
reimbursement shall be pro-rated in the proportion that the Company’s Insured
Losses in each Loss Occurrence bears to the Company’s total Insured Losses
resulting from all Loss Occurrences to which the reimbursement applies.
	 
	E.	 	For purposes of this Article, “Insured Loss(es)” shall have the same meaning as
set forth in Section 102(5) of TRIA.

ARTICLE 31 — SPECIAL CONDITIONS
(LM-02103.2009.12.09-W) (AM)

	A.	 	This Article applies only in the event that:

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

	 	 	 	 	 

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

	 	 	 	 	 

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	 	13.	 	The Subscribing Reinsurer, directly or through the actions of a
parent
company or an affiliated entity, has invoked any U.S. or foreign statute,
legislation or jurisprudence which purports to enable the Subscribing
Reinsurer to require the Company to settle its claims liabilities, Including but
not limited to any estimated or undetermined claims liabilities under this
Contract, on an accelerated basis. This does not include any attempt to
enforce a settlement of claims liabilities under a commutation process to
which the parties have agreed; or
	 
	 	14.	 	There is a severance or obstruction of free and unfettered
communication
and/or normal commercial or financial intercourse between the United
States of America and the country in which the Subscribing Reinsurer is
incorporated or has its principal office, as a result of war, currency
regulations or any circumstances arising out of political, financial or
economic uncertainty.

	B.	 	If one or more of the circumstances in paragraphs A.1 through A.14 occur (a
“Trigger Event”), the Subscribing Reinsurer shall provide the Company with written
notice within five (5) business days from the happening of a Trigger Event.
Following the earlier of (1) the Company’s receipt of notice of a Trigger Event from
the Subscribing Reinsurer and (2) the occurrence of a Trigger Event, the
Company may terminate this Contract, upon thirty (30) days written notice to the
Subscribing Reinsurer, except in connection with a Trigger Event described in
paragraph A.1, A.2 or A.14, in which case the Company may terminate
immediately.
	 
	C.	 	Irrespective of the Subscribing Reinsurer’s failure to provide the Company with
timely written notice of the happening of a Trigger Event, upon occurrence of a
Trigger Event, the Company may terminate this Contract at any time, upon thirty
(30) days written notice to the Subscribing Reinsurer, except in connection with a
Trigger Event described in paragraph A.1, A.2 or A.14, in which case the
Company may terminate immediately. No failure or delay by the Company in
exercising its option under this paragraph will operate as a waiver thereof.
	 
	D.	 	Termination under this Article can be made after the date of expiration of this
Contract.
	 
	E.	 	If this Contract is terminated under this Article, this Contract shall remain in
full
force and effect as respects the Company’s and the Subscribing Reinsurer’s
respective rights and obligations, prior to the effective date and time
of
termination. The coverage afforded by this Contract shall cease as of the date
and time of termination and the Subscribing Reinsurer shall return the unearned
premium, if any, within fifteen (15) days of the termination date, and the minimum
premium, if any, shall be prorated. If coverage hereunder terminates while a claim
covered by this Contract is in progress, the Subscribing Reinsurer shall be liable,
subject to all conditions hereof, for its proportion of the entire claim, provided the
event giving rise to the claim started before such termination.

	 	 	 	 	 

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

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

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

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

	 	 	 	 	 

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

	 	b.	 	Where the Letters of Credit will expire without renewal or be
reduced or replaced by Letters of Credit for a reduced amount and
where the Subscribing Reinsurer’s Obligations under this Contract
remain unliquidated and undischarged ten (10) days prior to the
expiration of the Letter of Credit, to withdraw amounts equal to the
Subscribing Reinsurer’s Obligations, to the extent that the liabilities
have not yet been funded by the Subscribing Reinsurer and
exceed the amount of any reduced or replacement Letters of
Credit.
	 
	 	c.	 	If the Company has concluded that the issuing bank’s financial
condition is such that the value of the security represented by the
Letter of Credit may be in jeopardy, the Company or a Legal Entity,
as applicable, may require that a replacement Letter of Credit be
issued by a bank acceptable to the Company, by providing the
Subscribing Reinsurer with written notice requesting such
replacement Letter of Credit. If the Subscribing Reinsurer fails to
provide acceptable replacement security within ten (10) business
days following receipt of the Company’s notice, the Company or a
Legal Entity may draw upon the existing Letter of Credit in amounts
equal to the Subscribing Reinsurer’s Obligations.
	 
	 	d.	 	If the Company or a Legal Entity draws on the Letter of Credit
to
obtain a cash advance, under paragraphs F.3.b or F.3.c, the
Company or the Legal Entity, as applicable, will hold the amount of
the cash advance so obtained in trust in the name of the Company
in any qualified United States financial institution as defined by the
Insurance Law of the Company’s or Legal Entity’s domiciliary state,
solely to secure the Obligations and for the use and purposes
enumerated above. The Company or the Legal Entity, as
applicable, will return any balance to the Subscribing Reinsurer
upon the complete and final liquidation and discharge of all of the
Subscribing Reinsurer’s Obligations to the Company under this
Contract or in the event the Subscribing Reinsurer provides
alternative or replacement security consistent with the terms hereof
and acceptable to the Company.

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

	 	 	 	 	 

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	 	1.	 	The Company shall submit a statement of valuation showing the
Subscribing Reinsurer’s liability for loss(es), whether reported or
unreported, comprising the sum total of the present value of the ceded:
(a) case reserves and allocated loss adjustment expense, (b) projected
ultimate losses, (c) any unearned premium reserve, and (d) undiscounted
outstanding paid claims (hereinafter the “Commutation Losses”), on
Policies covered by this Contract as of the effective date and time of
termination. If the Subscribing Reinsurer agrees with the statement of
valuation, the Subscribing Reinsurer shall pay the amount requested
within ten (10) days of receipt of the statement of valuation.
	 
	 	2.	 	In determining the commutation value, the Company and the Subscribing
Reinsurer shall utilize the assumptions and methodologies set forth in the
Commutation Article of this Contract. In the event the Company and the
Subscribing Reinsurer cannot agree on the statement of valuation of the
Subscribing Reinsurer’s liability under such Policies, either party may
request in writing that the differences be settled by a panel of three
actuaries. Each party shall appoint an actuary to assess such liability
within fifteen (15) days after receipt of the written request for
commutation. Upon such appointment, the two actuaries shall appoint a
third actuary. If the two actuaries fail to agree on the third actuary within
thirty (30) days of their appointment, each of them shall nominate three
individuals, of whom the other shall decline two, and the final decision
shall be made by drawing lots.
	 
	 	3.	 	The actuaries shall then investigate and Capitalize such Commutation
Loss(es) within thirty (30) days. As used herein, “Capitalize” shall mean
to determine the present value of Commutation Losses, without regard to
the Subscribing Reinsurer’s ability to pay such losses. In making this
determination, the actuaries shall utilize the assumptions and
methodologies set forth in the Commutation Article of this Contract. The
panel shall meet in Boston, Massachusetts, unless the Company and the
Subscribing Reinsurer agree otherwise.
	 
	 	4.	 	All actuaries shall be disinterested in the outcome of the commutation and
shall be Fellows of the Society of Actuaries/Fellows of the Casualty
Actuarial Society. Except as stated below, the expense of the actuaries
and of the commutation shall be equally divided between the parties of
the commutation.
	 
	 	5.	 	The decision in writing of the actuaries, when filed with the parties hereto,
shall be final and binding, except that if the Company does not agree with
the Capitalized value of the Commutation Loss(es), the Company shall
have no obligation to commute. In the event the Company does not
agree with the Capitalized value of the Commutation Loss(es) and does
not move forward with commutation, the Company will pay the expense of
the actuaries including reasonable expense of the actuary appointed by
the Subscribing Reinsurer.

	 	 	 	 	 

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	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

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

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

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

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

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

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

	 	 	 	 	 

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	 	 	Subscribing Reinsurer for any reason to make payments under this Contract, all in
accordance with section 11691 and section 11693 of the California Insurance Code (“Security
Deposit”).
	 
	B.	 	The Commissioner shall provide the Subscribing Reinsurer a minimum of thirty
(30) days prior notice of its intent to draw upon the Security Deposit of the
Subscribing Reinsurer to pay claims and obligations owed to claimants under the
Policies covered hereunder. Prior to drawing upon the Subscribing Reinsurer’s
Security Deposit, the Commissioner shall provide the Subscribing Reinsurer with
an explanation of the procedures the Subscribing Reinsurer may use to explain
why the use of the Subscribing Reinsurer’s Security Deposit may not be
appropriate under this Contract.
	 
	C.	 	This Article shall be read in conjunction with the provisions of the Insolvency
Article.
	 
	D.	 	The Company shall keep the Subscribing Reinsurer reasonably apprised of the
amount of loss and loss adjustment expense reserves ceded under this Contract
arising from injuries (including death) to California employees of risks insured for
Workers Compensation business covered under this Contract.

	 	 	 	 	 

	Effective: January 1, 2010

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	 	Reinsurance Contract No.

	 

	 	2010300

Page 32 of 37

 

EXHIBIT A

FIRST WORKERS’ COMPENSATION

CATASTROPHE EXCESS OF LOSS REINSURANCE

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

SECTION 1 — LIMIT AND RETENTION

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

SECTION 2 — PREMIUM, REPORTS AND REMITTANCE

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

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

SECTION 3 — REINSTATEMENT

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

	 	 	 	 	 

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	 	 	deposit premium under this Exhibit, multiplied by the percentage of the original
$100,000,000 limits being reinstated.

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

	 	 	 	 	 

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EXHIBIT B

SECOND WORKERS’ COMPENSATION

CATASTROPHE EXCESS OF LOSS REINSURANCE

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

SECTION 1 — LIMIT AND RETENTION

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

SECTION 2 — PREMIUM, REPORTS AND REMITTANCE

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

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

SECTION 3 — REINSTATEMENT

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

	 	 	 	 	 

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

	 	 	 

	Effective: January 1, 2010

	 	2010 Agency Markets Workers’
	 

	 	Compensation Catastrophe
	 

	 	Reinsurance Contract No. 
2010300

Page 36 of 37

 

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

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

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

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

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

	 	 	 	 	 

	Effective: January 1, 2010

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	 	Compensation Catastrophe

	 

	 	Reinsurance Contract No.

	 

	 	2010300

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INTERESTS AND LIABILITIES AGREEMENT

(hereinafter referred to as the “Agreement”)

to the

WORKERS’ COMPENSATION CATASTROPHE EXCESS OF LOSS REINSURANCE

CONTRACT No. 2010300

(hereinafter referred to as the “Contract”)

between

PEERLESS INSURANCE COMPANY

(hereinafter referred to as the “Company”)

and

LIBERTY MUTUAL INSURANCE COMPANY

(hereinafter referred to as the “Subscribing Reinsurer”)

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

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

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

	 	 	 

	Effective: 01/01/2010

	 	Workers’ Compensation Catastrophe
	 

	 	Excess Of Loss Reinsurance
	 

	 	Agreement attaching to the
	 

	 	Reinsurance Contract No. 2010300 — January 1, 2010

Page 1 of 2

 

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

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

	 	 	 	 	 

	ATTEST:

	 	PEERLESS INSURANCE COMPANY
	 	 
	 
	 	 	 	 
	/s/ Daniel P. Baker

	 	/s/ Nancy C. Callender	 	 
	Signature

	 	Signature	 	 
	 
	 	 	 	 
	Daniel P. Baker

	 	Nancy C. Callender	 	 
	Name

	 	Name	 	 
	 
	 	 	 	 
	AM VP — Mgr. Financial Services

	 	AM VP — Mgr. Reinsurance Mgmt.	 	 
	Title

	 	Title	 	 

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

	 	 	 	 	 

	ATTEST:

	 	LIBERTY MUTUAL INSURANCE COMPANY
	 	 
	 
	 	 	 	 
	/s/ Lauren H. Covert

	 	/s/ Elaine Caprio Brady	 	 
	 

	 	 	 	 
	Signature

	 	Signature	 	 
	 
	 	 	 	 
	Lauren H. Covert

	 	Elaine Caprio Brady	 	 
	Name

	 	Name	 	 
	 
	 	 	 	 
	Director of Ceded Reinsurance

	 	VP & Manager of Ceded Reinsurance	 	 
	Title

	 	Title	 	 

	 	 	 

	Effective: 01/01/2010

	 	Workers’ Compensation Catastrophe
	 

	 	Excess Of Loss Reinsurance
	 

	 	Agreement attaching to the
	 

	 	Reinsurance Contract No. 2010300 — January 1, 2010

Page 2 of 2

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