Document:

exv10w15

Exhibit 10.15

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

(hereinafter called the “Company”)

by

THE UNDERWRITERS AT LLOYD’S 

who are signatories hereto, each for the

proportion underwritten and not one for another

(hereinafter called the “Reinsurers”)

Under the terms of this Contract the above Reinsurers agree to
assume

	 	 	 
	EXHIBIT “I” — FIRST EXCESS:
	 	a 00.00% share
	EXHIBIT “II” — SECOND EXCESS:
	 	a 40.00% share
	EXHIBIT “III” – THIRD EXCESS
	 	a 30.00% share

of the liability described in the attached Contract and, as
consideration, the above Reinsurers shall receive the same
proportionate share of the premium named therein.

Signed in London, England, this           day of           , 2009.

The share attaching to this Contract is subscribed by the Underwriters, Members of the Syndicates
the definitive numbers of which and the proportions reinsured are contained in the schedule
attached.

 

 

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

between

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

by

ARCH REINSURANCE COMPANY 

NEBRASKA

(hereinafter called, with other participants, the “Reinsurers”)

Under the terms of this Contract the above Reinsurers agree to assume
severally and not jointly with other participants

	 	 	 
	EXHIBIT “I” — FIRST EXCESS:
	 	a 00.00% share
	EXHIBIT “II” — SECOND EXCESS:
	 	a 00.00% share
	EXHIBIT “II” — THIRD EXCESS
	 	a 10.00% share

of the liability described in the attached Contract and, as
consideration, the above Reinsurers shall receive the same
proportionate share of the premium named therein.

Signed in Philadelphia, Pennsylvania, this           day of           , 2009,

	 	 	 	 	 
	 	 	ARCH REINSURANCE COMPANY
	 
	 	 	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

between

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

by

EMPLOYERS MUTUAL CASUALTY COMPANY 

IOWA

(hereinafter called, with other participants, the “Reinsurers”)

Under the terms of this Contract the above Reinsurers agree to assume
severally and not jointly with other participants

	 	 	 
	EXHIBIT “I” — FIRST EXCESS:
	 	a 07.50% share
	EXHIBIT “II” — SECOND EXCESS:
	 	a 07.50% share
	EXHIBIT “II” — THIRD EXCESS
	 	a 07.50% share

of the liability described in the attached Contract and, as
consideration, the above Reinsurers shall receive the same
proportionate share of the premium named therein.

Signed in Des Moines, Iowa, this      day of      , 2009,

	 	 	 	 	 
	 	 	EMPLOYERS MUTUAL CASUALTY COMPANY
	 
	 	 	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

between

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

by

PARTNER REINSURANCE COMPANY OF THE U.S. 

NEW YORK

(hereinafter called, with other participants, the “Reinsurers”)

Under the terms of this Contract the above Reinsurers agree to assume
severally and not jointly with other participants

	 	 	 
	EXHIBIT “I” — FIRST EXCESS:
	 	a 12.50% share
	EXHIBIT “II” — SECOND EXCESS:
	 	a 07.50% share
	EXHIBIT “II” — THIRD EXCESS
	 	a 00.00% share

of the liability described in the attached Contract and, as
consideration, the above Reinsurers shall receive the same
proportionate share of the premium named therein.

Signed in Greenwich, Connecticut, this      day of      , 2009,

	 	 	 	 	 
	 	 	PARTNER REINSURANCE COMPANY OF THE U.S.
	 
	 	 	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

between

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

by

SWISS REINSURANCE AMERICA CORPORATION 

NEW YORK

(hereinafter called, with other participants, the “Reinsurers”)

Under the terms of this Contract the above Reinsurers agree to assume
severally and not jointly with other participants

	 	 	 
	EXHIBIT “I” — FIRST EXCESS:
	 	a 05.00% share
	EXHIBIT “II” — SECOND EXCESS:
	 	a 00.00% share
	EXHIBIT “II” — THIRD EXCESS
	 	a 00.00% share

of the liability described in the attached Contract and, as
consideration, the above Reinsurers shall receive the same
proportionate share of the premium named therein.

Signed in Schaumburg, Illinois, this      day of      , 2009,

	 	 	 	 	 
	 	 	SWISS REINSURANCE AMERICA
	 	 	CORPORATION BY: Swiss Re 
	 
	 	 	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

between

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

by

TRANSATLANTIC REINSURANCE COMPANY

NEW YORK

(hereinafter called, with other participants, the “Reinsurers”)

Under the terms of this Contract the above Reinsurers agree to assume
severally and not jointly with other participants

	 	 	 
	EXHIBIT “I” — FIRST EXCESS:
	 	a 05.00% share
	EXHIBIT “II” — SECOND EXCESS:
	 	a 05.00% share
	EXHIBIT “II” — THIRD EXCESS
	 	a 07.50% share

of the liability described in the attached Contract and, as
consideration, the above Reinsurers shall receive the same
proportionate share of the premium named therein.

Signed in New York, New York, this      day of      , 2009,

	 	 	 	 	 
	 	 	TRANSATLANTIC REINSURANCE COMPANY
	 
	 	 	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

between

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

by

HANNOVER RUCKVERSICHERUNG AG 

HANNOVER, GERMANY 

(hereinafter called, with other participants, the “Reinsurers”)

Under the terms of this Contract the above Reinsurers agree to assume
severally and not jointly with other participants

	 	 	 
	EXHIBIT “I” — FIRST EXCESS:
	 	a 40.00% share
	EXHIBIT “II” — SECOND EXCESS:
	 	a 20.00% share
	EXHIBIT “II” — THIRD EXCESS
	 	a 25.00% share

of the liability described in the attached Contract and, as
consideration, the above Reinsurers shall receive the same
proportionate share of the premium named therein.

Signed in Hannover, Germany, this      day of      , 2009,

	 	 	 	 	 
	 	 	HANNOVER RUCKVERSICHERUNG AG
	 
	 	 	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

between

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

by

R + V VERSICHERUNG AG 

WIESBADEN, GERMANY 

(hereinafter called, with other participants, the “Reinsurers”)

Under the terms of this Contract the above Reinsurers agree to assume
severally and not jointly with other participants

	 	 	 
	EXHIBIT “I” — FIRST EXCESS:
	 	a 30.00% share
	EXHIBIT “II” — SECOND EXCESS:
	 	a 20.00% share
	EXHIBIT “II” — THIRD EXCESS
	 	a 20.00% share

of the liability described in the attached Contract and, as
consideration, the above Reinsurers shall receive the same
proportionate share of the premium named therein.

Signed in
Wiesbaden, Germany, this      day of     , 2009,

	 	 	 	 	 
	 	 	R + V VERSICHERUNG AG
	 
	 	 	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

      and signed in Wilkes-Barre, Pennsylvania, this      day of      ,2009.

	 	 	 	 	 
	 	 	PENN MILLERS INSURANCE COMPANY
	 	 	AMERICAN MILLERS INSURANCE COMPANY
	 
	 	 	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

issued to

PENN MILLER INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY

 

 

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

INDEX 

	 	 	 	 	 	 	 
	ARTICLE	 	SUBJECT	 	PAGE
	ARTICLE 1

	 	BUSINESS COVERED
	 	 	1	 
	ARTICLE 2

	 	COMMENCEMENT AND TERMINATION
	 	 	1	 
	ARTICLE 3

	 	SPECIAL TERMINATION
	 	 	2	 
	ARTICLE 4

	 	EXCLUSIONS
	 	 	4	 
	ARTICLE 5

	 	RETENTION AND LIMIT
	 	 	7	 
	ARTICLE 6

	 	REINSTATEMENT
	 	 	7	 
	ARTICLE 7

	 	PREMIUM
	 	 	7	 
	ARTICLE 8

	 	DEFINITION OF LOSS OCCURRENCE
	 	 	7	 
	ARTICLE 9

	 	NET LOSS
	 	 	9	 
	ARTICLE 10

	 	EXTRA CONTRACTUAL OBLIGATIONS/

     LOSS EXCESS OF POLICY LIMITS
	 	 	10	 
	ARTICLE 11

	 	TERRORISM RECOVERY
	 	 	11	 
	ARTICLE 12

	 	NET RETAINED LINE
	 	 	12	 
	ARTICLE 13

	 	NOTICE OF LOSS AND LOSS SETTLEMENT
	 	 	13	 
	ARTICLE 14

	 	ERRORS AND OMISSIONS
	 	 	13	 
	ARTICLE 15

	 	OFFSET
	 	 	14	 
	ARTICLE 16

	 	CURRENCY
	 	 	14	 
	ARTICLE 17

	 	FEDERAL EXCISE TAX AND OTHER TAXES
	 	 	14	 
	ARTICLE 18

	 	ACCESS TO RECORDS
	 	 	15	 
	ARTICLE 19

	 	INSOLVENCY
	 	 	16	 
	ARTICLE 20

	 	ARBITRATION
	 	 	17	 
	ARTICLE 21

	 	SERVICE OF SUIT
	 	 	20	 
	ARTICLE 22

	 	CONFIDENTIALITY
	 	 	21	 
	ARTICLE 23

	 	PRIVACY
	 	 	22	 
	ARTICLE 24

	 	RESERVES
	 	 	23	 
	ARTICLE 25

	 	LATE PAYMENTS
	 	 	26	 
	ARTICLE 26

	 	MODE OF EXECUTION
	 	 	28	 
	ARTICLE 27

	 	VARIOUS OTHER TERMS
	 	 	28	 
	ARTICLE 28

	 	INTERMEDIARY
	 	 	31	 

ATTACHMENTS:

NUCLEAR INCIDENT EXCLUSION CLAUSE — PHYSICAL DAMAGE —

 

 

REINSURANCE (BRMA 35B)

INFORMATION TECHNOLOGY HAZARDS CLARIFICATION CLAUSE (NMA2912) 

EXHIBIT I — PROPERTY FIRST EXCESS
OF LOSS REINSURANCE

EXHIBIT II — PROPERTY SECOND EXCESS OF LOSS REINSURANCE 

EXHIBIT III — PROPERTY THIRD

EXCESS OF LOSS REINSURANCE

 

1.

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY 

PROPERTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

ARTICLE 1

BUSINESS COVERED

A. This Contract applies to all Loss Occurrences that occur with a date of loss
during the term of this Contract and arising from those Policies, except as hereinafter excluded,
classified by the Company as Property, that are in force at the inception of the term of this
Contract or written with a Policy period (new or renewal) effective during the term of this
Contract, including renewals (“Business Covered”).

B. The term “Policies”, whenever used herein, shall mean all binders, policies,
contracts, certificates and other obligations, whether oral or written, of insurance or
reinsurance that are Business Covered.

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

ARTICLE 2

COMMENCEMENT AND TERMINATION 

A. This Contract shall incept at 12:01 a.m., Eastern Standard Time, January 1,
2009, and shall remain in force until 12:01 a.m., Eastern Standard Time, January 1, 2010.

B. Should this Contract terminate while a Loss Occurrence is in progress,
Reinsurers shall remain liable for all losses resulting from such Loss Occurrence as if the entire
loss had occurred during the term of this Contract

 

2.

ARTICLE 3

SPECIAL TERMINATION 

A. The Company or the Reinsurer may terminate, or commute obligations
arising under this Contract in accordance with Paragraph C. below, upon the happening of any one
of the following circumstances at any time by the giving of thirty (30) days prior written notice
to the other party:

1. A party ceases active underwriting operations or a State Insurance
Department or other legal authority orders the Reinsurer to cease writing business in all
jurisdictions; or

2. The Reinsurer has filed a plan to enter into a Scheme of
Arrangement or similar procedure. “Scheme of Arrangement” is defined as a legislative or
regulatory process that provides a solvent Reinsurer the opportunity to settle its
obligations with the Company either (i) without the Company’s unrestrained consent or
(ii) prior to the Company having the ability to determine, with exact certainty, the
actual amount of the obligations still outstanding and ultimately due to the Company. or

3. A party has: a) become insolvent, b) been placed under supervision
(voluntarily or involuntarily), c) been placed into liquidation or receivership, or d)
had instituted against it proceedings for the appointment of a supervisor, receiver,
liquidator, rehabilitator, conservator or trustee in bankruptcy, or other agent known by
whatever name, to take possession of its assets or control of its operations; or

4. A reduction in the Reinsurer’s surplus, risk based capital or financial
strength rating occurs:

a. As respects Reinsurers domiciled in the United States of
America, (i) the Reinsurer’s policyholders’ surplus (“PHS”) has been reduced by,
whichever is greater, thirty percent (30%) of the amount of PHS at the inception
of this Contract or thirty percent (30%) of the amount of PHS stated in its last
filed quarterly or annual statutory statement with its state of domicile; or (ii)
the Reinsurer’s total adjusted capital is less than two hundred percent (200%) of
its authorized control level risk-based capital; or (iii) the Reinsurer’s AM
Best’s Insurer financial strength rating becomes less than “A-”.

b. As respects Reinsurers domiciled outside the United States of
America, other than Lloyd’s Syndicates (i) the Reinsurer’s Capital & Surplus
(“C&S”) has been involuntarily reduced by, whichever is

 

3.

greater, thirty percent (30%) of the published currency amount of C&S at the inception of this Contract
or thirty percent (30%) of the published currency amount of C&S stated in its
last filed financial statement with its local regulatory authority; or (ii) as
respects Lloyd’s Syndicates, the Reinsurer’s total stamp capacity has been
reduced by more than thirty percent (30%) of the amount of total stamp capacity
which stood at the inception of this Contract. (This provision does not apply to
any Lloyd’s Syndicate that voluntarily reduces its total stamp capacity.) or
(iii) the Reinsurer’s AM Best’s insurer financial strength rating becomes less
than “A-” or the Reinsurer’s Standard & Poor’s Insurance Rating becomes less than
“BBB”. or

5. A party has entered into a definitive agreement to (a) become
merged with, acquired or controlled by any company, corporation or individual(s) not
controlling or affiliated with the party’s operations previously; or (b) directly or
indirectly assign all or essentially all of its entire liability for obligations under
this Contract to another party without the other party’s prior written consent; or

6. There is either:

a. 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 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; or

b. a severance (of any kind) of any two (2) or more of the
following executives of the Reinsurer from active employment of the Reinsurer
during the most recent forty five (45) day period: chief underwriting officer,
chief actuary, chief executive officer or chief financial officer. This condition
does not apply whenever the severance in employment is for the publicly announced
purpose of the individual’s assuming within thirty (30) days a known position
with another identified firm in the (re)insurance industry or related field.

B. In the event the Company elects to terminate, the Company shall, with the
notice of termination, specify that termination will be on a Cut-Off basis, in which event the
Company shall relieve the Reinsurer for losses occurring subsequent to the specified Termination
Date, and that Reinsurer shall not receive deposit premium installments beyond the date at which
termination of the Reinsurer is effected. The Reinsurer shall within fifteen (15) days of the
Termination Date return a

 

4.

pro-rata portion of any ceded deposit premium paid hereunder, calculated
as of the Termination Date, and cash in that amount (less applicable ceding commission, if any,
allowed thereon) and the minimum premium provisions, if any, shall be waived. (The fraction of the
deposit premium to be returned to the Company shall equal the number of days from the Termination
Date until the original expiration date of the Contract period divided by the number of days in
the original Contract period) Upon final determination of the adjusted premium for the Contract
period, the Reinsurer shall be credited with a portion of premium for this Contract, in the amount
equal to the fraction of the number of days the terminated Reinsurer participated in the Contract
period divided by the number of days in the Contract period multiplied by the reinsurance premium
for the Contract period.

C. If both parties agree to commute, then within sixty (60) days after such
agreement, the Company shall submit a statement of valuation of the total of the net present value
(“capitalized”) of the ceded (1) Net Loss Reserves, (2) Loss Adjustment Expense Reserves, and (3)
unearned premium reserve, after deduction for any ceding commission allowed thereon, (the
“Valuation Statement”). If agreement cannot be reached, the effort can be abandoned or alternately
the Company and the Reinsurers may mutually appoint an actuary or appraiser to investigate,
determine the capitalized value of the reserves to be returned to the Company. Such actuary shall
be an independent and neutral actuary, Casualty Actuarial Society, experienced in such matters and
the mutually agreed actuary shall render a decision. In the event that the Company and the
Reinsurer are unable to agree upon a single actuary within thirty (30) days, the parties shall ask
the then current President of the Casualty Actuarial Society to appoint an actuary with those
qualifications within another thirty (30) days. The decision of the actuary will be final and
binding on both parties. The Company and the Reinsurer shall share equally the fees and expenses
of the actuary. Upon payment of the amount so
agreed or determined by the actuary to the Company, the Reinsurer and the Company shall each be
completely released from all liability to each other under this Contract.

ARTICLE 4

EXCLUSIONS

A. This Contract shall not cover:

1. Reinsurance treaty business, including pro rata and excess of loss, assumed by the
Company but not to include business from affiliated companies.

2. Business written on a co-indemnity basis not controlled by the Company.

 

5.

3. Damage to growing and standing crops, not to include nursery stock for wholesale or
retail, and not to include crops, including mushrooms, growing in a building.

4. Policies of Excess of Loss Reinsurance.

5. Financial Guarantee and Insolvency.

6. Liability assumed by the Company as a member of a Syndicate, Pool or Underwriting
Association; however, this does not apply to participation in assigned risk plans;

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

8. Policies classified as Personal Accident, Health, Workers’
Compensation, Bodily Injury Liability (including Medical Payments), Property Damage
Liability, Fidelity, Surety, Boiler and Machinery, Plate Glass and similar classes of
insurance or reinsurance customarily written by casualty insurance companies, except for
such perils as may be included under the Property Section of Multiple Peril Policies.

9. Flood, except under Transportation or other Inland Marine or Multiple Peril Policies or
under Automobile Physical Damage Policies or written as a part of the General Property
Form or the Special Property Form.

10. Loss or liability excluded by the provisions of the “Nuclear Incident Exclusion Clause
 — Physical Damage — Reinsurance (BRMA 35A)” attached to and
forming part of this Contract.

11. Seepage and/or Pollution as per original Policies. Furthermore,
Reinsurers agree that this exclusion does not apply to overspraying of anhydrous ammonia,
fertilizers and agricultural chemicals.

12. Transmission and Distribution Lines and their supporting structures other than those
on or within one thousand (1,000) feet of the insured premises.

 

6.

13. Information Technology Hazards Clarification Clause (NMA 2912).

14. Loss resulting from an act of certified or non-certified terrorism, as defined in the
Article entitled RETENTION AND LIMIT of this Contract, that involves the use,
release, or escape of nuclear materials, or directly or indirectly results in nuclear
reaction or radiation or radioactive contamination; or that is carried out by means of the
dispersal or application of pathogenic or poisonous biological or chemical materials that
are released.

15. Regarding interests which at time of loss or damage are on shore, any
loss or damage which is occasioned by war, invasion, hostilities, acts of foreign enemies,
civil war, rebellion, insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority.

     This War Exclusion Clause shall not, however, apply to interests which at time of
loss or damage are within the territorial limits of the United States of America
(comprising the fifty States of the Union and the District of Columbia and including
Bridges between the U.S.A. and Mexico, provided they are under United States ownership),
Canada, St. Pierre and Miquelon, provided such interests are insured under Policies,
endorsements, or binders containing a standard war or hostilities or warlike operations
exclusion clause.

B. As respects Paragraph A. above, if the Company, without the knowledge and consent of its Home
Office, is bound on a risk excluded above (other than Exclusions A(5) Financial Guarantee and
Insolvency, A(6) Syndicates, Pools or Underwriting Associations, A(7) Insolvency Funds Exclusion,
A(9) Flood, A(10) Nuclear Incident Exclusion Clause, A(11) Seepage and/or Pollution Exclusion
Clause, A(13) Transmission and Distribution Lines, A(14) Information Technology Hazards
Clarification Clause (NMA 2912) A(15) NBC Terrorism, and A(16) War) such risk shall be covered
hereunder until the Company receives knowledge thereof.

     The Company agrees to use due diligence in canceling such risk immediately after knowledge
thereof is received by its Home Office. However, if any state regulatory authority or the laws or
regulations of any state prohibit the Company from canceling a risk for any reason, such risk shall
remain covered hereunder until the Company is permitted to cancel the risk by the regulatory
authority or the applicable laws or regulations. However, not to exceed eighteen (18) months.

C. Any exclusion listed above (other than exclusions A(5), A(6), A(7), A(9),
A(10), A(11), A(13), A(14), A(15) and A(16)), shall be automatically waived as respects a Policy
issued by the Company on a risk with respect to which only a minor or
incidental part of the operations covered involves the exclusion. An incidental part

 

7.

of an insured’s regular operations shall mean not greater than ten percent (10%) of the insured’s
regular operations.

ARTICLE 5

RETENTION AND LIMIT 

See Exhibits I, II and III attached to and forming part of this
Contract.

ARTICLE 6

REINSTATEMENT 

See Exhibits I, II and III attached to and forming part of this
Contract.

ARTICLE 7

PREMIUM 

See Exhibits I, II and III attached to and forming part of this
Contract.

ARTICLE 8

DEFINITION OF LOSS OCCURRENCE 

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

1. As regards windstorm, hail, tornado, hurricane, cyclone, including
ensuing collapse and water damage, all individual losses sustained by the Company
occurring during any period of seventy two (72) consecutive hours arising out of and
directly occasioned by the same event. However, the event need not be limited to one
state or province or states or provinces contiguous thereto.

2. As regards riot, riot attending a strike, civil commotion, vandalism
and malicious mischief, all individual losses sustained by the Company

 

8.

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

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

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

5. As regards firestorms, brush fires and any other fires or series of
fires, irrespective of origin (except as provided in A(2) and A(3) above), which spread
through trees, grassland or other vegetation, all individual losses sustained by the
Company which commence during any period of one hundred sixty eight (168) consecutive
hours within a one hundred (100) mile radius of any fixed point selected by the Company
where a claim has actually been made may be included in the Company’s “Loss Occurrence.”
However, an individual loss subject to this subparagraph cannot be included in more than
one Loss Occurrence.

B. For all “Loss Occurrences”, other than those referred to in A(2) of this
Article, the Company may choose the date and time when any such period of consecutive hours
commences provided that it is not earlier than the date and time of the occurrence of the first
recorded individual loss sustained by the Company arising out of that disaster, accident or loss
and provided that only one such period of one hundred sixty eight (168) consecutive hours shall
apply with respect to one event except for any “Loss Occurrences” referred to in A(1) of this
Article where only one such period of seventy two (72) consecutive hours shall apply with respect
to one event.

C. As respects those “Loss Occurrences” referred to in A(2) of this Article, if the
disaster, accident or loss occasioned by the event is of greater duration than seventy two (72)
consecutive hours, then the Company may divide that disaster,

 

9.

accident or loss into two (2) or more “Loss Occurrences” provided no two (2) periods overlap and no individual loss is included in
more than one such period and provided that no period commences earlier than the date and time of
the occurrence of the first recorded individual loss sustained by the Company arising out of that
disaster, accident or loss.

D. No individual losses occasioned by an event that would be covered by
seventy two (72) hours clauses may be included in any “Loss Occurrence” claimed under the one
hundred sixty eight (168) hours provision.

ARTICLE 9

NET LOSS

A. The term “Net Loss” shall mean the actual loss incurred by the Company
from Business Covered hereunder including (i) sums paid in settlement of claims
and suits and in satisfaction of judgments, (ii) prejudgment interest when added to a judgment,
(iii) ninety percent (90%) of any Extra-Contractual Obligations (iv) ninety percent (90%) of any
Losses Excess of Policy Limits, and (v) any interest on judgments other than prejudgment interest
when added to a judgment. In the event that the Company’s original policies and/or specific
coverage parts of their original policies are issued on a cost inclusive basis, such loss
adjustment expenses shall be included within the Company’s Net Loss for the purposes of recovery
hereunder.

B. All salvages, recoveries, payments and reversals or reductions of verdicts or
judgments whether recovered, received or obtained prior or subsequent to loss settlement under
this Contract, including amounts recoverable under other reinsurance whether collected or not,
shall be applied as if recovered, received or obtained prior to the aforesaid settlement and shall
be deducted from the actual losses sustained to arrive at the amount of the Net Loss. Nothing in
this Article shall be construed to mean losses are not recoverable until the Net Loss to the
Company finally has been ascertained.

C. All Loss Adjustment Expenses paid by the Company as a result of Net
Losses covered hereunder shall be divided between the Company and the Reinsurers, without regard
to the limit of this Contract, in proportion to their share of the Net Loss. “Loss Adjustment
Expenses” shall mean and include but not be limited to: (i) expenses sustained in connection with
adjustment, defense, settlement and litigation of claims and suits, satisfaction of judgments,
resistance to or negotiations concerning a loss (which shall include the expenses and the pro rata
share of the salaries of the Company’s field employees according to the time occupied in adjusting
such loss and the expenses of the Company’s employees while diverted from their normal duties to
the service of field adjustment but shall not include any salaries of officers or normal overhead
expenses of the Company), (ii) legal expenses and costs incurred in connection with coverage
questions regarding

 

10.

specific claims and legal actions, including Declaratory Judgment Expenses,
connected thereto, (iii) all interest on judgments other than prejudgment interest when added to a
judgment except when included in Net Loss, and (iv) expenses sustained to obtain recoveries,
salvages or other reimbursements, or to secure the reverse or reduction of a verdict or judgment.

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

E. In the event there are any recoveries, salvages, or reimbursements
recovered subsequent to a loss settlement, or in the event a verdict or judgment is reversed or
reduced, Loss Adjustment Expenses incurred in obtaining the recovery, salvage or reimbursement or
in securing the reduction or reversal shall be divided between the Company and the Reinsurers in
proportion to their share of the benefit therefrom, with the expenses incurred up to the time of
the loss settlement or the original verdict or judgment being divided in proportion to the share
of the Company and the Reinsurers in the original loss settlement or verdict or judgment.

ARTICLE 10

EXTRA CONTRACTUAL OBLIGATIONS/LOSS EXCESS OF POLICY LIMITS

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

B. “Loss Excess of Policy Limits” means any amount of loss, together with any
legal costs and expenses incurred in connection therewith, paid as damages or in settlement by the
Company in excess of its Policy Limits, but otherwise within the coverage terms of the Policy,
arising from an allegation or claim of its insured, its insured’s assignee, or other third party,
which alleges negligence, gross negligence, bad faith or other tortious conduct on the part of the
Company in the handling of a claim under a Policy or bond that is the Business Covered, in
rejecting a settlement within the Policy Limits, in discharging a duty to defend or prepare the
defense in the trial of an action against its insured, or in discharging its

 

11.

duty to prepare or prosecute an appeal consequent upon such an action. For the avoidance of doubt, the decision by
the Company to settle a claim for an amount within the coverage of the Policy but not within the
Policy Limit when the Company has reasonable basis to believe that it may have legal liability to
its insured or assignee or other third party on the claim will be deemed a Loss Excess of Policy
Limits. The Company will provide Reinsurers an explanation relating to the Company’s motivation
for settlement and use its best efforts to obtain the Reinsurers’ prior counsel and concurrence in
the Company’s action. A reasonable basis shall mean it is more likely than not a trial would
result in a verdict excess of the Policy Limits, in the opinion of counsel assigned to defend the
insured or otherwise retained by the Company.

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

D. Neither an Extra-Contractual Obligation nor a Loss Excess of Policy Limits
shall include a loss incurred by the Company as the result of any fraudulent or criminal act
directed against the Company by any officer or director of the Company acting individually or
collectively or in collusion with any other organization or party involved in the presentation,
defense, or settlement of any claim under this Contract.

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

F. The Company shall be indemnified in accordance with this Article to the
extent permitted by applicable law.

ARTICLE 11

TERRORISM RECOVERY

A. As respects the Insured Losses of the Company for each Program Year, to
the extent the Company’s total reinsurance recoverables for Insured Losses, whether collected or
not, when combined with the financial assistance available to the Company under the Act exceeds
the aggregate amount of Insured Losses paid by the Company, less any other recoveries or
reimbursements, (the “Excess

 

12.

Recovery”), a share of the Excess Recovery shall be allocated to the
Company and the Reinsurer. The Company’s share of the Excess Recovery shall be deemed to be an
amount equal to the proportion that the Company’s Insured Losses bear to the Insurer’s total
Insured Losses for each Program Year. The Reinsurer’s share of the Excess Recovery shall be deemed
to be an amount equal to the proportion that the Reinsurer’s payment of Insured Losses under this
Contract bears to the Company’s total collected reinsurance recoverables for Insured Losses. The
Company shall provide the Reinsurer with all necessary data respecting the transactions covered
under this Article.

B. The method set forth herein for determining an Excess Recovery is intended
to be consistent with the United States Treasury Department’s construction and application of
Section 103 (g)(2) of the Act. To the extent it is inconsistent, it shall be amended to conform
with such construction and application, nevertheless the Company shall be the sole judge as to the
allocation of TRIA Recoveries to this or to other reinsurance Contracts.

C. “Act” as used herein shall mean the Terrorism Risk Insurance Act of 2002,
the Terrorism Risk Insurance Extension Act of 2005, and the Terrorism Risk Insurance Program
Reauthorization Act of 2007 (“TRIPRA”) and any subsequent amendment thereof or any regulations
promulgated thereunder. “Company” shall have the same meaning as “Insurer” under the Act and
“Insured Losses”, and “Program Year” shall follow the definitions as provided in the Act.

ARTICLE 12

NET RETAINED LINE

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

B. It is agreed, however, that the amount of the Reinsurers’ liability hereunder
in respect of any loss or losses shall not be increased by reason of the inability of the Company
to collect from any other Reinsurers, whether specific or general, any amounts which may have
become due from them, whether such inability arises from the insolvency of such other Reinsurers
or otherwise.

C. Inter-company reinsurance among the companies collectively called the
“Company” shall be entirely disregarded for all purposes of this Contract.

D. Permission is hereby granted the Company to carry (i) underlying

 

13.

reinsurance and (ii) layers of catastrophe reinsurance both below and above this layer of coverage
and recoveries made on the latter shall be disregarded for all purposes of this Contract and shall
inure to the sole benefit of the Company.

ARTICLE 13

NOTICE OF LOSS AND LOSS SETTLEMENT

A. The Company shall advise the Reinsurers promptly of all Loss Occurrences
which, in the opinion of the Company, may result in a claim hereunder and of all subsequent
developments thereto which, in the opinion of the Company, may materially affect the position of
the Reinsurers. Inadvertent omission or oversight in giving such notice shall in no way affect the
liability of the Reinsurers. However, the Reinsurers shall be informed of such omission or
oversight promptly upon its discovery.

B. Prompt notice shall be given to the Reinsurers by the Company on any Loss
Occurrence wherein the Company’s reserve exceeds fifty percent (50%) of the Company’s loss
retention.

C. The Company shall have the right to settle all claims under its Policies. All
loss settlements made by the Company, whether under strict policy conditions or by way of
compromise, that are the Business Covered and that are not an ex-gratia settlement shall be final
and binding subject to the liability of the Company and the terms and conditions of this Contract.
The Reinsurer shall follow the liability of the Company (to the extent provided in this Contract)
and shall pay or allow, as the case may be, its share of each such settlement in accordance with
this Contract all amounts for which it is obligated as soon as possible, but not later than ten
(10) business days, of being furnished by the Company with reasonable evidence of the amount due.
Reasonable evidence of the amount due shall consist of a certification by the Company, accompanied
by proof of loss documentation the Company customarily presents with its claims payment requests,
that the amount requested to be paid and submitted by the certification, is, upon information and
belief, due and payable to the Company by the Reinsurers under the terms and conditions of this
Contract.

ARTICLE 14

ERRORS AND OMISSIONS

     Inadvertent delays, errors or omissions made by the Company in connection with this Contract
shall not relieve the Reinsurer from any liability which would have attached had such error or
omission not occurred, provided always that such error or omission shall be rectified as soon as
possible, provided that the liability of the

 

14.

Reinsurer shall not extend beyond the coverage provided by this Contract nor to extend coverage to Policies that are not the Business Covered
hereunder. This Article shall not apply to a sunset provision, if any in this Contract, nor to a
commutation made in connection with this Contract.

ARTICLE 15

OFFSET

     The Company and the Reinsurer shall have the right to offset any balance or amounts due from
one party to the other under the terms of this Contract. The party asserting the right of offset
may exercise such right any time whether the balances due are on account of premiums or losses or
otherwise and immediately inform the Intermediary accordingly. In the event of the insolvency of
any party, offset shall be as permitted by applicable law.

ARTICLE 16

CURRENCY

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

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

ARTICLE 17

FEDERAL EXCISE TAX AND OTHER TAXES

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

 

15.

B. In consideration of the terms under which this Contract is issued, the
Company undertakes not to claim any deduction of the premium hereon when making Canadian Tax
returns or when making tax returns, other than Income or Profits Tax returns, to any State or
Territory of the United States of America or to the District of Columbia.

ARTICLE 18

ACCESS TO RECORDS

A. The Company shall place at the disposal of the Reinsurer at all reasonable
times, and the Reinsurer shall have the right to inspect (and make reasonable copies) through its
designated representatives during the term of this Contract and thereafter, all non-privileged
books, records and papers of the Company directly related to any reinsurance hereunder, or the
subject matter hereof, provided that if the Reinsurer has ceased active market operations, this
right of access shall be subject to that Reinsurer being current in all payments owed the Company
that are not currently the subject of a formal dispute (such as the initiation of an Arbitration
or Mediation). For the purposes of this Article, “non-privileged” refers to books, records and
papers that are not subject to the Attorney-client privilege and Attorney-work product doctrine.

B. “Attorney-client privilege” and “Attorney-work product” shall have the
meanings ascribed to each by statute and/or the court of final adjudication in the jurisdiction
whose laws govern the substantive law of a claim arising under a Policy reinsured under this
Contract.

C. Notwithstanding anything to the contrary in this Contract, for any claim or
loss under a Policy reinsured under this Contract, should the Reinsurer assert, pursuant to the
Common Interest Doctrine (“Doctrine”), that it has the right to examine any document that the
Company alleges is subject to the Attorney-client privilege or the Attorney-work product
privilege, upon the Reinsurer providing to the Company substantiation of any law which reasonably
supports the basis for the Reinsurer’s conclusion that the Doctrine applies and the Doctrine will
be upheld as applying between the Company and the Reinsurer as against third parties pursuant to
the substantive law(s) which govern the claim or loss, the Company shall give the Reinsurer access
to such document.

D. Notwithstanding any other provision to the contrary, once a claim and all
directly related claims are finally settled by the Company, the Reinsurer shall be entitled to
review all reasonable and applicable claims records that support a Company request for payment of
a claim hereunder for Net Loss for Business Covered hereunder. In the event that the Reinsurer
shall have paid an amount for

 

16.

Net Loss to the Company and the records do not support the obligation of the Reinsurer to have paid the claim, the Company shall promptly return any payment
made in error.

ARTICLE 19

INSOLVENCY

(This Article shall be deemed to read as required to meet the statutory insolvency clause
requirements of the Company.)

A. In the event of insolvency or the appointment of a conservator, liquidator, or
statutory successor of the Company, the portion of any risk or obligation assumed by the Reinsurer
shall be payable to the conservator, liquidator, or statutory successor on the basis of claims
allowed against the insolvent Company by any court of competent jurisdiction or by any
conservator, liquidator, or statutory successor of the Company having authority to allow such
claims, without diminution because of that insolvency, or because the conservator, liquidator, or
statutory successor has failed to pay all or a portion of any claims.

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

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

D. Where two (2) or more Reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim, the expense shall be apportioned in
accordance with the terms of this Contract as though such expense had been incurred by the
Company.

 

17.

ARTICLE 20

ARBITRATION 

A. Any and all disputes between the Company and the Reinsurer arising out of,
relating to, or concerning this Contract, whether sounding in contract or tort and whether arising
during or after termination of this Contract, shall be submitted to the decision of a Board of
arbitration composed of two (2) arbitrators and an umpire (“Board”) meeting at a site in the city
in which the principal headquarters of the Company are located. The arbitration shall be conducted
under the Federal Arbitration Act and shall proceed as set forth below.

B. A notice requesting arbitration, or any other notice made in connection
therewith, shall be in writing and be sent certified or registered mail, return receipt requested
to the affected parties. The notice requesting arbitration shall state in particulars all issues
to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant
and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90)
days and no later than one hundred fifty (150) days from the date that the notice requesting
arbitration is mailed. Within thirty (30) days of receipt of claimant’s notice, the respondent
shall notify claimant of any additional issues to be resolved in the arbitration and of the name
of its appointed arbitrator.

C. The members of the Board shall be impartial, disinterested and not currently
representing any party participating in the arbitration, and shall be current or former senior
officers of insurance or reinsurance concerns, experienced in the line(s) of business that are the
subject of this Contract. The Company and the Reinsurer as aforesaid shall each appoint an
arbitrator and the two (2) arbitrators shall choose
an umpire before instituting the hearing. As time is of the essence, if the respondent fails to
appoint its arbitrator within thirty (30) days after having received claimant’s written request
for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two
(2) arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after
notification of the appointment of the second arbitrator, within ten (10) days thereof, the two
(2) arbitrators shall request ARIAS U.S. (“ARIAS”) to apply its procedures to appoint an umpire
for the arbitration with the qualifications set forth above in this Article. If the use of ARIAS
procedures fails to name an umpire, either party may apply to a court of competent jurisdiction to
appoint an umpire with the above required qualifications. The umpire shall promptly notify in
writing all parties to the arbitration of his selection and of the scheduled date for the hearing.
Upon resignation or death of any member of the Board, a replacement shall be appointed in the same
fashion as the resigning or deceased member was appointed.

D. The claimant and respondent shall each submit initial briefs to the Board
outlining the facts, the issues in dispute and the basis, authority, and reasons for

 

18.

their respective positions within thirty (30) days of the date of notice of appointment of the
umpire. The claimant and the respondent may submit a reply brief to the Board within ten (10) days
after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting
party at any time, but not later than ten (10) days prior to the date of commencement of the
arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new
material contained in any amendments filed to the briefs but not previously responded to.

E. The Board shall make a decision and award with regard to the terms
expressed in this Contract, the original intentions of the parties to the extent reasonably
ascertainable, and the custom and usage of the insurance and reinsurance business that is the
subject of this Contract. Notwithstanding any other provision of this Contract, the Board shall
have the right and obligation to consider Underwriting and submission-related documents in any
dispute between the parties.

F. The Board shall be relieved of all judicial formalities and the decision and
award shall be based upon a hearing in which evidence shall be allowed though the formal rules of
evidence shall not strictly apply. Cross examination and rebuttal shall be allowed. The Board may
request a post-hearing brief to be submitted within twenty (20) days of the close of the hearing.

G. The Board shall render its decision and award in writing within thirty (30)
days following the close of the hearing or the submission of post-hearing briefs, whichever is
later, unless the parties consent to an extension. Every decision by the Board shall be by a
majority of the members of the Board and each decision and award by the majority of the members of
the Board shall be final and binding upon all parties to the proceeding. Such decision shall be a
condition precedent to any right of legal action arising out of the arbitrated dispute which
either party may have against the other. However, the Board is not authorized to award punitive,
exemplary or enhanced compensatory damages.

H. The Board may award (i) interest at a rate not in excess of that set forth in
the Article entitled LATE PAYMENTS, calculated from the date the Board determines that any
amounts due the prevailing party should have been paid to the prevailing party, and (ii)
applicable Attorneys’ fees and costs.

I. Either party may apply to a court of competent jurisdiction for an order
confirming any decision and the award; a judgment of that Court shall thereupon be entered on any
decision or award. If such an order is issued, the Attorneys’ fees of the party so applying and
court costs will be paid by the party against whom confirmation is sought.

J. Except in the event of a consolidated arbitration, each party shall bear the

 

19.

expense of the one arbitrator appointed by or for it and shall jointly and equally bear with the
other party the expense of any stenographer requested, and of the umpire. The remaining costs of
the arbitration proceedings shall be finally allocated by the Board.

K. Subject to customary and recognized legal rules of privilege, each party
participating in the arbitration shall have the obligation to produce those documents and as
witnesses at the arbitration those of its employees, and those of its affiliates as
any other participating party reasonably requests, providing always that the same witnesses and
documents be obtainable and relevant to the issues before the arbitration and not be unduly
burdensome or excessive in the opinion of the Board.

L. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and
in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted
as the Board shall determine in its sole discretion to be in the interest of fairness, full
disclosure, and a prompt hearing, decision and award by the Board.

M. The Board shall be the final judge of the procedures of the Board, the
conduct of the arbitration, of the rules of evidence, the rules of privilege, discovery and
production and of excessiveness and relevancy of any witnesses and documents upon the petition of
any participating party. To the extent permitted by law, the Board shall have the authority to
issue subpoenas and other orders to enforce their decisions. The Board shall also have the
authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a
prompt and orderly hearing and decision and award by the Board.

N. Upon request made to the Board not later than ten (10) days after the
umpire’s appointment, the Board may order a consolidated hearing as respects common issues between
the Company and all affected Reinsurers participating in this Contract if the Board is satisfied
in its discretion that the issues in dispute affect more than one Reinsurer and a consolidated
hearing would be in the interest of fairness, and a prompt and cost effective resolution of the
issues in dispute.

O. If the parties mutually agree to or the Board orders a consolidated hearing,
all other affected participating Reinsurers shall join and participate in the arbitration under
time frames established by the Board and will be bound by the Board’s decision and award unless
excused by the Board in its discretion. A consolidated hearing shall not result in any change or
modification of any Reinsurer’s liability for its participation, that is several, but not joint
shall remain the same.

P. Any Reinsurer may decline to actively participate in a consolidated
arbitration if in advance of the hearing, that Reinsurer shall file with the Board a written
agreement in form satisfactory to the Board to be bound by the decision and

 

20.

award of the Board in
the same fashion and to the same degree as if it actively participated in the arbitration.

Q. In the event of an order of consolidation by the Board, the arbitrator
appointed by the original Reinsurer shall be subject to being, and may be, replaced within thirty
(30) days of the decision to have a consolidated arbitration by an arbitrator named collectively
by the Reinsurers or in the absence of agreement, by the Lead Reinsurer, or if there is no Lead
Reinsurer involved in the dispute, the Reinsurer with the largest participation in this Contract
affected by the dispute. In the event two (2) or more Reinsurers affected by the dispute each have
the same largest participation, they shall agree among themselves as to the replacement
arbitrator, if any, to be appointed. The umpire shall be the final determiner in the event of any
dispute over replacement of that arbitrator. All other aspects of the arbitration shall be
conducted as provided for in this Article provided that (1) each party actively participating in
the consolidated arbitration will have the right to its own attorney, position, and related claims
and defenses; (2) each party will not, in presenting its
position, be prevented from presenting its position by the position set forth by any other party;
and (3) the cost and expense of the arbitration, exclusive of Attorneys’ fees (which will be borne
exclusively by the respective retaining party unless otherwise determined by the Board) but
including the expense of any stenographer which shall be borne by each party actively
participating in the consolidated arbitration or as the Board shall determine to be fair and
appropriate under the circumstances.

ARTICLE 21

SERVICE OF SUIT

A. This Article only applies to a Reinsurer domiciled outside of the United
States and/or unauthorized in any state, territory or district of the United States having
jurisdiction over the Company. Furthermore, this Article will not be read to conflict with or
override any obligations of the parties to arbitrate their disputes under this Contract. This
Article is intended as an aid to compelling arbitration if called for by this Contract or
enforcing any such arbitration or arbitral award, not as an alternative to any Arbitration
provision in this Contract that is applicable for resolving disputes arising out of this Contract.

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

 

21.

C. The Reinsurer, once the appropriate court is selected, whether such court is
the one originally chosen by the Company and accepted by the Reinsurer or is determined by
removal, transfer, or otherwise, as provided above, will comply with all requirements necessary to
give said court jurisdiction and, in any suit instituted against any of them upon this Contract,
will abide by the final decision of such court or any Appellate Court in the event of an appeal.

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

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

F. Further, as required by and pursuant to any statute of any state, territory or
district of the United States which makes provision therefore, the Reinsurer hereby designates the
Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose
in the statute, or his successor or successors in
office, as their true and lawful attorney upon whom may be served any lawful process in any
action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder
arising out of this Contract, and hereby designates the above-named as the person to whom the said
officer is authorized to mail such process or a true copy thereof.

ARTICLE 22

CONFIDENTIALITY

A. The information, data, statements, representations and other materials
provided by the Company or the Reinsurer to the other arising from consideration and participation
in this Contract whether contained in the reinsurance submission, this Contract, or in materials
or discussions arising from or related to this Contract, may contain confidential or proprietary
information as expressly indicated by the disclosing party (“Disclosing Party”) in writing from
time to time to the other party of the respective parties (“Confidential Information”). This
Confidential Information is intended for the sole use of the parties to this Contract (and their
affiliates involved in management or operation of assumed reinsurance business, retrocessionaires,
prospective retrocessionaires, intermediaries involved in such placements, respective auditors and
legal counsel) as may be necessary in analyzing and/or accepting a

 

22.

participation in and/or
executing their respective responsibilities under or related to this Contract. Disclosing or using
Confidential Information relating to this Contract, without the prior written consent of the
Disclosing Party, for any purpose beyond (i) the scope of this Contract, (ii) the reasonable
extent necessary to perform rights and responsibilities expressly provided for under this
Contract, (iii) the reasonable extent necessary to administer, report to and effect recoveries
from retrocessional Reinsurers, (iv) the reporting to regulatory or other governmental authorities
as may be legally required or (v) persons with a need to know the information, (all of the
preceding persons or entities who are legally obligated by either written agreement or otherwise
to maintain the confidentiality of the Confidential Information) is expressly forbidden. Copying,
duplicating, disclosing, or using Confidential Information for any purpose beyond this expressed
purpose is forbidden without the prior written consent of the Disclosing Party.

B. Should a party (“Receiving Party”) receive a third party demand pursuant to
subpoena, summons, or court or governmental order, to disclose Confidential Information that has
been provided by another party to this Contract, the Receiving Party shall make commercially
reasonable efforts to provide the Disclosing Party with written notice of any subpoena, summons,
or court or governmental order, at least ten (10) days prior to such release or disclosure. Unless
the Disclosing Party has given its prior permission to release or disclose the Confidential
Information, the Receiving Party shall not comply with the subpoena prior to the actual date
required by the subpoena. If a protective order or appropriate remedy is not obtained, the
Receiving Party may disclose only that portion of the Confidential Information that it is legally
obligated to disclose. However, notwithstanding anything to the contrary in this Contract, in no
event, to the extent permitted by law, shall this Article require the Receiving Party not to
comply with the subpoena, summons, or court or governmental order.

ARTICLE 23

PRIVACY

A. Privacy Awareness. The Company and the Reinsurer are aware of and in
compliance with their responsibilities and obligations under:

1. The Gramm-Leach-Bliley Act of 1999 (the “Act”) and applicable
Federal and State laws and regulations implementing the Act. The Company and the
Reinsurer will only use Non-Public Personal Information as permitted by law; and

2. The applicable provisions of the Health Insurance Portability and
Accountability Act (“HIPAA”) and the related requirements of any regulations promulgated
thereunder including without limitation the Federal Privacy Regulations as contained in
45 CFR Part 160 and 164 (the “Federal Privacy

 

23.

Regulations”). The Company and the
Reinsurer will only use protected health information as permitted by law.

B. Non-Disclosure. To the extent required or prohibited by applicable law or
regulation, the Reinsurer shall not disclose any (a) Non-Public Personal Information or (b)
protected health information (as defined in 45 CFR 164.501) it receives from the Company to anyone
other than: 

1. The Reinsurer, the Reinsurer’s affiliates, legal counsel, auditors,
consultants, regulators, rating agencies and any other persons or entities to whom such
disclosure is required to effect, administer, or enforce a reinsurance contract; or any
retrocessional reinsurance contract applicable to the losses that are the subject of this
Contract, or

2. Persons or entities to whom disclosure is required by applicable law
or regulation.

C. Non-Public Personal Information. “Non-Public Personal Information” shall
for the purpose of this Contract mean financial or health information that personally identifies
an individual, including claimants under Policies reinsured under this Contract, and which
information is not otherwise available to the public.

ARTICLE 24

RESERVES

A. If, at any time during the period of this Contract and thereafter the
reinsurance provided by a Reinsurer participating in this Contract does not qualify for full
statutory accounting credit for reinsurance by regulatory authorities having jurisdiction over the
Company (whether by reason of lack of license, accreditation or otherwise) such that a financial
penalty to the Company would result on any statutory statement or report the Company is required
to make or file with insurance regulatory authorities (or a court of law in the event of
insolvency), the Reinsurer shall secure the Reinsurer’s share of Obligations for which such full
statutory credit is not granted by those authorities in a manner, form, and amount acceptable to
the Company and to all applicable insurance regulatory authorities in accordance with this
Article.

B. The Reinsurer shall secure such Obligations, within thirty (30) days after the
receipt of the Company’s written request regarding the Reinsurer’s share of
Obligations under this Contract (but not later than December 31) of each year by either:

1. Clean, irrevocable, and unconditional evergreen letter(s) of credit

 

24.

issued and confirmed, if confirmation is required by the applicable insurance regulatory
authorities, by a qualified United States financial institution as defined under the
Insurance Law of the Company’s domiciliary state and acceptable to the Company and to
insurance regulatory authorities;

2. A trust account meeting at least the standards of New York’s
Insurance Regulation 114 and the Insurance Law of the Company’s domiciliary state; or

3. Cash advances or funds withheld or a combination of both, which will
be under the exclusive control of the Company (“Funds Deposit”).

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

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

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

3. amount of ceded reserves for Net Losses and Loss Adjustment
Expenses for which the Reinsurer is responsible to the Company;

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

D. The Company, or its successors in interest, may draw, at any time and from
time to time, upon the:

1. Established letter of credit (or subsequent cash deposit);

2. Established trust account (or subsequent cash deposit); or

3. Funds Deposit;

     without diminution or restriction because of the insolvency of either the Company or the
Reinsurer for one or more of the following purposes set forth below.

E. Draws shall be made only for the following purposes:

1. To make payment to and reimburse the Company for the Reinsurer’s
share of Net Loss and Loss Adjustment Expense and other amounts paid by the Company under
its Policies and for which the Reinsurer is responsible under this Contract that is due
to the Company but unpaid by the Reinsurer

 

25.

including but not limited to the Reinsurer’s
share of premium refunds and returns; and

2. To obtain a cash advance of the entire amount of the remaining
balance under any letter of credit in the event that the Company:

a. has received notice of non-renewal or expiration of the letter
of credit or trust account;

b. has not received assurances satisfactory to the Company of any required
increase in the amount of the letter of credit or trust account, or its
replacement or other continuation of the letter of credit or trust account at
least thirty (30) days before its stated expiration date;

c. has been made aware that others may attempt to attach or
otherwise place in jeopardy the security represented by the letter of credit or
trust account; or

d. has concluded that the trustee or issuing (or confirming)
bank’s financial condition is such that the value of the security represented by
the letter of credit or trust account may be in jeopardy; and under any of those
circumstances where the Reinsurer’s entire Obligations, or part thereof, under
this Contract remain unliquidated and undischarged at least thirty (30) days
prior to the stated expiration date or at the time the Company learns of the
possible jeopardy to the security represented by the letter of credit or trust
account.

F. If the Company draws on the letter of credit or trust account to obtain a cash
advance, the Company will hold the amount of the cash advance so obtained in the name of the
Company in any qualified United States financial institution as defined under the Insurance Law of
the Company’s domiciliary state in trust solely to secure the Obligations referred to above and
for the use and purposes enumerated above and to return any balance thereof to the Reinsurer:

1. Upon the complete and final liquidation and discharge of all of the
Reinsurer’s Obligations to the Company under this Contract; or

2. In the event the Reinsurer subsequently provides alternate or
replacement security consistent with the terms hereof and acceptable to the Company.

G. The Company will prepare and forward at annual intervals or more
frequently as determined by the Company, but not more frequently than quarterly to

 

26.

the Reinsurer a
statement for the purposes of this Article, showing the Reinsurer’s share of Obligations as set
forth above. If the Reinsurer’s share thereof exceeds the then existing balance of the security
provided, the Reinsurer will, within fifteen (15) days of receipt of the Company’s statement, but
never later than December 31 of any year, increase the amount of the letter of credit, (or
subsequent cash deposit), trust account or Funds Deposit to the required amount of the Reinsurer’s
share of Obligations set forth in the Company’s statement, but never later than December 31 of any
year. If the Reinsurer’s share thereof is less than the then existing balance of the security
provided, the Company will release the excess thereof to the Reinsurer upon the Reinsurer’s
written request. The Reinsurer will not attempt to prevent the Company from holding the security
provided or Funds Deposit so long as the Company is acting in accordance with this Article. The
Company shall pay interest
earned on the deposited amounts to the Reinsurers as the parties shall have agreed at the time of
the deposit.

H. Any assets deposited to a trust account will be valued according to their
current fair market value and will consist only of cash (U.S. legal tender), certificates of
deposit issued by a qualified United States financial institution as defined under the Insurance
Law of the Company’s domiciliary state and payable in cash, and investments of the types no less
conservative than those specified in Section 1404 (a)(1)(2)(3)(8) and (10) of the New York
Insurance Law and which are admitted assets under the Insurance Law of the Company’s domiciliary
state. Investments issued by the parent, subsidiary, or affiliate of either the Company or the
Reinsurer will not be eligible investments. All assets so deposited will be accompanied by all
necessary assignments, endorsements in blank, or transfer of legal title to the trustee in order
that the Company may negotiate any such assets without the requirement of consent or signature
from the Reinsurer or any other entity.

I. All settlements of account between the Company and the Reinsurer will be
made in cash or its equivalent. All income earned and received by the amount held in an
established trust account will be added to the principal.

J. The Company’s “successors in interest” will include those by operation of
law, including without limitation, any liquidator, rehabilitator, receiver, or conservator.

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

ARTICLE 25

LATE PAYMENTS

 

27.

A. Payments from the Reinsurer to the Company for coverage providing pro
rata forms of reinsurance shall have a due date as expressed in the Article entitled NOTICE OF
LOSS AND LOSS SETTLEMENT. Payments from the Reinsurer to the Company for coverage providing
excess of loss reinsurance shall have as a due date the date on which the proof of loss or demand
for payment is received by the Reinsurer. Payment not received within sixty (60) days of the due
date shall be deemed overdue (the “Overdue Date”). Payments due from the Reinsurer to the Company
will not be considered overdue if the Reinsurer requests, in writing, that such payment be made by
drawing on a letter of credit or other similar method of funding that has been established for
this Contract, provided that there is an adequate balance in place, and further provided that such
advice to draw is received by the Company within the sixty (60) day deadline set forth above.
Payments from the Company to the Reinsurer will have a due date as the date specified in this
Contract and will be overdue sixty (60) days thereafter. Premium adjustments will be overdue sixty
(60) days from the Contract due date or one hundred twenty (120) days after the expiration or
renewal date, whichever is greater.

B. In the event that this Contract provides excess of loss reinsurance, the
Company will provide the Reinsurer with a reasonable proof of loss and a copy of the
claim adjuster’s report(s) or any other reasonable evidence of indemnification. If subsequent to
receipt of this evidence, the information contained therein is unreasonably insufficient or not in
substantial accordance with the contractual conditions of this Contract, then the payment due date
as specified above will be deemed to be the date upon which the Reinsurer received the additional
information necessary to approve payment of the claim and the claim is presented in a reasonably
acceptable manner. This paragraph is only for the purpose of establishing when a claim payment is
overdue, and will not alter the provisions of the Article entitled NOTICE OF LOSS AND LOSS
SETTLEMENT or other pertinent contractual stipulations of this Contract.

C. If payment is made of overdue amounts within thirty (30) days of the
Overdue Date, overdue amounts will bear simple interest from the Overdue Date at a rate determined
by the annualized one month London Interbank Offered Rate for the first business day of the
calendar month in which the amount becomes overdue, as published in The Wall Street
Journal, plus two hundred (200) basis points to be calculated weekly. If payment is made of
overdue amounts more than thirty (30) days after the Overdue Date, overdue amounts will bear
simple interest from the Overdue Date at a rate determined by the annualized one month London
Interbank Offered Rate for the first business day of the calendar month in which the amount
becomes overdue, as published in The Wall Street Journal, plus four hundred (400) basis
points to be calculated on a weekly basis, but in no event less than eight percent (8%) simple
interest. If the sum of the compensating additional amount computed in respect of any overdue
payment is less than one quarter of one percent (0.25%) of the amount

 

28.

overdue, or one thousand
dollars ($1,000), whichever is greater, and/or the overdue period is one week or less, then the
interest amount shall be waived. The basis point standards referred to above shall be doubled if
the late payment is due from a Reinsurer who is no longer an active reinsurance market. Interest
shall cease to accrue upon the party’s payment of an overdue amount to the Intermediary.

ARTICLE 26

MODE OF EXECUTION 

A. This Contract may be executed by:

1. an original written ink signature of paper documents;

2. an exchange of facsimile copies showing the original written ink
signature of paper documents;

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

B. The use of any one or a combination of these methods of execution shall
constitute a legally binding and valid signing of this Contract.

ARTICLE 27

VARIOUS OTHER TERMS

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

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

C. This Contract shall constitute the entire agreement between the parties with
respect to the Business Covered hereunder. There are no understandings between

 

29.

the parties other
than as expressed in this Contract. Any change or modification of this Contract shall be null and
void unless made by amendment to the Contract and signed by both parties.

D. Except as may be provided in the Article entitled ARBITRATION, this
Contract shall be governed by and construed according to the laws of the Commonwealth of
Pennsylvania, exclusive of that state’s rules with respect to conflicts of law.

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

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

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

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

I. Each party shall be excused for any reasonable failure or delay in
performing any of its respective obligations under this Contract, if such failure or delay is
caused by Force Majeure. “Force Majeure” shall mean any act of God, strike, lockout, act of public
enemy, any accident, explosion, fire, storm, earthquake, flood, drought, peril of sea, riot,
embargo, war or foreign, federal, state or municipal order or directive issued by a court or other
authorized official, seizure, requisition or allocation, any failure or delay of transportation,
shortage of or inability to obtain supplies, equipment, fuel or labor or any other circumstance or
event beyond the reasonable control of the party relying upon such circumstance or event;
provided, however, that no such Force Majeure circumstance or event shall
excuse any failure or delay beyond a period exceeding thirty (30) days from the date such
performance would have been due but for such circumstance or event.

J. All Articles of this Contract shall survive the termination of this Contract until
all obligations between the parties have been finally settled.

K. This Contract may be executed by the parties hereto in any number of
counterparts, and by each of the parties hereto in separate counterparts, each of

 

30.

which
counterparts, when so executed and delivered, shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

L. Whenever the word “Company” is used in this Contract, such term shall
mean each and all affiliated companies which are or may hereafter be under common control provided
notice be given to the Reinsurers of any newly affiliated companies which may hereafter come under
common control as soon as practicable, with full particulars as to how such affiliation is likely
to affect this Contract. In the event that either party maintains that such affiliation calls for
altering the terms of this Contract and an agreement for alteration not being arrived at, then the
Business Covered of such newly affiliated company is covered at existing terms for a period not to
exceed (90) ninety days after notice by either party that it does not wish to cover the business
of the newly affiliated company at the existing terms.

M. The term “Reinsurer” shall refer to each Reinsurer participating severally
and not jointly in this Contract. The subscribing (Re)insurers’ obligations under contracts of
(re)insurance to which they subscribe are several and not joint and are limited solely to the
extent of their individual subscriptions. The subscribing (Re)insurers are not responsible for the
subscription of any co-subscribing (Re)insurer who for any reason does not satisfy all or part of
its obligations.

N. For purposes of sending and receiving notices and payments required by
this Contract other than in respect of the Articles entitled SERVICE OF SUIT and
RESERVES herein, the reinsured company that is set forth first in the definition of
“Company” is deemed the agent of all other reinsured companies referenced herein. In no event,
however, shall any reinsured company be deemed the agent of another with respect to the terms of
the Article entitled INSOLVENCY.

O. Whenever the content of this Contract requires, the gender of all words shall
include the masculine, feminine and neuter, and the number of all words shall include the singular
and the plural. This Contract shall be construed without regard to any presumption or other rule
requiring construction against the party causing this Contract to be drafted.

P. The Company shall furnish the Reinsurer, in accordance with regulatory
requirements, periodic reporting of premiums and losses that relate to the Business Covered in
this Contract as may be needed for Reinsurers’ completion of financial statements to regulatory
authorities.

Q. When so requested in writing, the Company shall afford the Reinsurer or its
representatives an opportunity to be associated with the Company, at the expense of the Reinsurer,
in the defense of any claim, suit or proceeding involving this

 

31.

reinsurance, and the Company and the Reinsurer shall cooperate in every respect in the defense of
such claim, suit or proceeding, provided the Company shall have the right to make any decision in
the event of disagreement over any matter of defense or settlement.

ARTICLE 28

INTERMEDIARY

     A. Towers Perrin Forster & Crosby, Inc. (“Towers Perrin”) is hereby
recognized as the Intermediary negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements, premium, return premium,
commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurers through Towers Perrin, Centre Square
East, 1500 Market Street, Philadelphia, Pennsylvania, 19102-4790. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the Reinsurers. Payments by the Reinsurers
to the Intermediary shall be deemed to constitute payment to the Company only to the extent that
such payments are actually received by the Company.

     B. Whenever notice is required within this Contract, such notice may be
given by certified mail, registered mail, or overnight express mail. Notice shall be deemed to be
given on the date received by the receiving party.

 

 

NUCLEAR INCIDENT EXCLUSION CLAUSE — PHYSICAL DAMAGE —

REINSURANCE

(BRMA 35B)

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

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

	 	I.	 	Nuclear reactor power plants including all auxiliary property on the site,
or
	 
	 	II.	 	Any other nuclear reactor installation, including laboratories handling
radioactive materials in connection with reactor installations and “critical
facilities” as such, or
	 
	 	III.	 	Installations for fabricating complete fuel elements or for processing
substantial quantities of “special nuclear material” and for reprocessing,
salvaging, chemically separating, storing or disposing of “spent” nuclear fuel or
waste materials, or
	 
	 	IV.	 	Installations other than those listed in paragraph (2) III above using
substantial quantities of radioactive isotopes or other products of nuclear fission.

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

	 	(a)	 	where Company does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
	 
	 	(b)	 	where said insurance contains a provision excluding
coverage for damage to property caused by or resulting from radioactive
contamination, however caused. However, on and after 1st January 1960, this
sub-paragraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the Governmental
Authority having jurisdiction thereof.

4. Without in any way restricting the operations of paragraphs (1), (2) and

 

 

(3) hereof, this

5. reinsurance does not cover any loss or liability by radioactive contamination accruing to the
Company, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive
contamination is a named hazard specifically insured against.

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

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

7. Company to be sole judge of what constitutes:

	 	(a)	 	substantial quantities, and
	 
	 	(b)	 	the extent of installation, plant or site.

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

	 	(a)	 	All Policies issued by the Company on or before 31st December 1957 shall be
free from
the application of the other provisions of this Clause until expiry date or 31st
December 1960 whichever first occurs whereupon all the provisions of this Clause
shall apply.
	 
	 	(b)	 	With respect to any risk located in Canada Policies issued by the Company
on or before 31st December 1958 shall be free from the application of the other
provisions of this Clause until expiry date or 31st December 1960 whichever first
occurs whereupon all the provisions of this Clause shall apply.

 

 

INFORMATION TECHNOLOGY HAZARDS CLARIFICATION CLAUSE

Losses arising directly or indirectly, out of:

	 	(i)	 	loss of, alteration of, or damage to

or

(ii) a reduction in the functionality, availability or operation of
a computer system, hardware, program, software, data, information repository,
microchip, integrated circuit or similar device in computer equipment or
non-computer equipment, whether the property of the policyholder of the reinsured
or not, do not in and of themselves constitute an event unless arising out of one
or more of the following perils:

fire, lightning, explosion, aircraft or vehicle impact, falling objects,
windstorm, hail, tornado, cyclone, hurricane, earthquake, volcano,
tsunami, flood, freeze or weight of snow.

 

 

EXHIBIT I — Page 1.

EXHIBIT I 

PROPERTY FIRST EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY 

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for
each and every Risk, in each and every Loss Occurrence for one hundred percent (100%) of the
excess Net Loss above an initial Net Loss to the Company of one million dollars ($1,000,000) but
the Reinsurers shall not be liable for more than four million dollars ($4,000,000) of Net Loss in
each and every Risk, in each and every Loss Occurrence, nor shall Reinsurers be liable for more
than eight million dollars ($8,000,000) of Net Loss in excess loss from any one Loss Occurrence.

B. The Reinsurers shall be liable to, indemnify and reinsure the Company for
each and every Risk, each and every Loss Occurrence, involving a certified or non certified Act of
Terrorism, irrespective of the number and kinds of perils involved, for one hundred percent (100%)
of the excess Net Loss above an initial Net Loss to the Company of one million dollars
($1,000,000) each and every Risk; but the Reinsurers shall not be liable for more than four
million dollars ($4,000,000) of Net Loss for each and every Risk, and not more than four million
dollars ($4,000,000) of Net Loss during the term of this Contract.

C. Coverage for loss caused by Mold, as defined within the terms of the
Company’s Policy, shall be limited to an annual amount not to exceed eight hundred thousand
dollars ($800,000), namely twenty percent (20%) of the layer limit.

D. The Company shall be the sole judge of what constitutes “one risk” and the
Probable Maximum Loss applicable to such risk.

E. An “Act of Terrorism” shall mean any act, including both Certified Acts of
Terrorism in accordance with the Terrorism Risk Insurance Act of 2002 (“TRIA” ), the Terrorism
Risk Insurance Extension Act of 2005 (“TRIEA”) and the Terrorism Risk Insurance Program
Reauthorization Act of 2007 (“TRIPRA”) and any

 

 

EXHIBIT I — Page 2.

subsequent extension and those not so certified, or
preparation in respect of action, or threat of action designed to influence the government de jure
or de facto of any nation or any political division thereof, or in pursuit of any political,
religious, ideological, or similar purpose to intimidate the public or a section of the public of
any nation by any person or group(s) of persons whether acting alone or on behalf of or in
connection with any organization(s) or government(s) de jure or de facto, and which:

1. involves violence against one or more persons; or

2. involves damage to property; or

3. endangers life other than that of the person committing the action; or

4.
creates a risk to health or safety of the public or a section of the public;

5. is designed to interfere with or to disrupt an electronic system; or

6. involves loss, damage, cost, or expense directly or indirectly caused
by, contributed to by, resulting from, or arising out of or in connection with any action
in controlling, preventing, suppressing, retaliating against, or responding to any Act of
Terrorism.

Loss or damage occasioned by riot, strikes, civil commotion, vandalism or malicious mischief as
those terms have been interpreted by United States Courts to apply to insurance Policies shall not
be construed to be an “Act of Terrorism”.

ARTICLE 6

REINSTATEMENT

A. Each claim hereunder shall reduce the amount of the Reinsurers’ limit of
liability from the time of the occurrence of the loss by the sum paid, but the sum so exhausted
shall be reinstated immediately from the time of the occurrence of the Loss.

B. For the first four million dollars ($4,000,000) so reinstated, there shall be no
additional premium. For the next four million dollars ($4,000,000) so reinstated thereafter, there
shall be no additional premium. For the next four million dollars ($4,000,000) so reinstated
thereafter, the Company agrees to pay an additional premium calculated by multiplying 100% of the
annual reinsurance premium hereon by the product of the percentage that the amount reinstated
bears to the limit (i.e., four million dollars ($4,000,000)) of this Contract. Nevertheless, the
liability of the Reinsurers shall never be more than four million dollars ($4,000,000) in respect
of any one Loss, eight million dollars ($8,000,000) in respect of any one Loss Occurrence, nor
more than sixteen million dollars ($16,000,000) in all in respect of all losses occurring during
the Contract period.

C. A provisional statement of reinstatement premium due the Reinsurers shall be

 

 

EXHIBIT I — Page 3.

prepared by the Company and submitted to the Reinsurers as soon as practicable after payment of a
claim hereunder. The provisional reinstatement premium shall be based on one hundred percent
(100%) of the estimated annual reinsurance premium hereunder. The amount of reinstatement premium
due Reinsurers shall be offset against the loss payment due the Company with only the net amount
due to be remitted by the debtor party.

D. As promptly as possible after the annual reinsurance premium hereunder has
been finally determined, the Company shall prepare and submit to the Reinsurers a final statement
of reinstatement premium due. Any reinstatement premium shown to be due the Reinsurers (less prior
payments, if any) shall be remitted by the Company with its statement. Any return reinstatement
premium shown to be due the Company shall be remitted by the Reinsurers as promptly as possible
after receipt of the Company’s final statement.

E. In the event there are any mid-term terminations in the participation of any
Reinsurer in this Contract, payment of any such reinstatement premium in full shall be paid to the
Reinsurer who incurred the loss that generates the reinstatement premium.

ARTICLE 7

PREMIUM 

A. The premium payable to Reinsurers shall be calculated by applying a rate of
eight point five zero percent (8.50%) to the Company’s Subject Matter Premium Income.

B. The term “Subject Matter Premium Income” shall mean the Company’s
gross net premiums earned on the Business Covered hereunder less premiums paid on reinsurance, if
any, recoveries under which would reduce the Net Loss to this Contract.

C. The Company shall pay the Reinsurers a deposit premium of three million
three hundred eighty three thousand one hundred seventy five dollars ($3,383,175) shall be paid to
Reinsurers in four (4) equal installments of eight hundred forty five thousand seven hundred
ninety three dollars and seventy five cents ($845,793.75) each on January 1, April 1, July 1 and
October 1, 2009. As promptly as possible after the termination of this Contract, however no longer
than sixty (60) days, the Company shall render a report to the Reinsurers showing the actual
reinsurance premium due hereunder, calculated as provided in Paragraph A. of this Article; and, if
the premium so calculated is greater than the previously paid deposit premium, the balance shall
be remitted by the Company with its report. However, in no event shall the premium to the
Reinsurers for the Contract be less than two million seven hundred six

 

 

EXHIBIT I — Page 4.

thousand five hundred forty
dollars ($2,706,540).

 

 

EXHIBIT II — Page 1.

EXHIBIT II 

PROPERTY SECOND EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY 

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for
each and every Risk, in each and every Loss Occurrence for one hundred percent (100%) of the
excess Net Loss above an initial Net Loss to the Company of five million dollars ($5,000,000) but
the Reinsurers shall not be liable for more than five million dollars ($5,000,000) of Net Loss in
each and every Risk in each and every Loss Occurrence, nor shall Reinsurers be liable for more
than ten million dollars ($10,000,000) of Net Loss in excess loss from any one Loss Occurrence.

B. The Reinsurers shall be liable to, indemnify and reinsure the Company for
the Company’s Net Loss, each and every Risk, involving a certified or non certified Act of
Terrorism, irrespective of the number and kinds of perils involved, for one hundred percent (100%)
of the excess Net Loss above an initial Net Loss to the Company of five million dollars
($5,000,000) of Net Loss each and every Risk; but the Reinsurers shall not be liable for more than
five million dollars ($5,000,000) of Net Loss for each and every Risk, and not more than five
million dollars ($5,000,000) of Net Loss during the term of this Contract.

C. Coverage for loss caused by Mold, as defined within the terms of the
Company’s Policy, shall be limited to an annual amount not to exceed one million dollars
($1,000,000), namely twenty percent (20%) of the layer limit.

D. The Company shall be the sole judge of what constitutes “one risk” and the
Probable Maximum Loss applicable to such risk.

E. An “Act of Terrorism” shall mean any act, including both Certified Acts of
Terrorism in accordance with the Terrorism Risk Insurance Act of 2002 (“TRIA” ), the Terrorism
Risk Insurance Extension Act of 2005 (“TRIEA”) and Terrorism Risk Insurance Program
Reauthorization Act of 2007 (“TRIPRA”) and the and any subsequent extension and those not so
certified, or preparation in respect of action, or

 

 

EXHIBIT II — Page 2.

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

1. involves violence against one or more persons; or

2. involves damage to property; or

3. endangers life other than that of the person committing the action; or

4.
creates a risk to health or safety of the public or a section of the public;

5. is designed to interfere with or to disrupt an electronic system; or

6. involves loss, damage, cost, or expense directly or indirectly caused
by, contributed to by, resulting from, or arising out of or in connection with any action
in controlling, preventing, suppressing, retaliating against, or responding to any Act of
Terrorism.

Loss or damage occasioned by riot, strikes, civil commotion, vandalism or malicious mischief as
those terms have been interpreted by United States Courts to apply to insurance Policies shall not
be construed to be an “Act of Terrorism”.

ARTICLE 6

REINSTATEMENT

A. Each claim hereunder shall reduce the amount of the Reinsurers’ limit of
liability from the time of the Occurrence of the loss by the sum paid, but the sum so exhausted
shall immediately be reinstated from the time of the occurrence of the loss.

B. For the first five million dollars ($5,000,000) so reinstated, the Company
agrees to pay an additional premium calculated by multiplying fifty percent (50%) of the annual
reinsurance premium hereon by the product of the percentage that the amount reinstated bears to
the limit (i.e., five million dollars ($5,000,000)) of this Contract. For the next five million
dollars ($5,000,000) so reinstated thereafter, the Company agrees to pay an additional premium
calculated by multiplying one hundred percent (100%) of the annual reinsurance premium hereon by
the product of the percentage that the amount reinstated bears to the limit (i.e., five million
dollars ($5,000,000)) of this Contract. Nevertheless, the liability of the Reinsurers shall never
be more than five million dollars ($5,000,000) in respect of any one loss, ten million dollars
($10,000,000) in respect of any one Loss Occurrence, nor more than fifteen million dollars
($15,000,000) in all in respect of all losses occurring during the Contract period.

C. A provisional reinstatement premium shall be paid by the Company at the
time the Reinsurers pay the loss giving rise to the reinstatement premium through an

 

 

EXHIBIT II — Page 3.

offset of the
provisional reinstatement premium due the Reinsurers against the loss payment due the Company,
with only the net amount due to be remitted by the debtor party. The amount of this provisional
reinstatement premium shall be based on one hundred percent (100%) of the estimated annual
reinsurance premium hereunder.

D. As promptly as possible after the loss has been paid by the Reinsurers and
the annual reinsurance premium hereunder has been finally determined, the Company shall prepare
and submit to the Reinsurers a final statement of reinstatement premium due. Any reinstatement
premium shown to be due the Reinsurers (less prior payments, if any) shall be remitted by the
Company with its statement. Any return reinstatement premium shown to be due the Company shall be
remitted by the Reinsurers as promptly as possible after receipt of the Company’s final statement.

E. In the event there are any mid-term terminations in the participation of any
Reinsurer in this Contract, payment of any such reinstatement premium in full shall be paid to the
Reinsurer who incurred the loss that generates the reinstatement premium.

ARTICLE 7

PREMIUM 

A. The premium payable to Reinsurers shall be calculated by applying a rate of
one point seven zero percent (1.70%) to the Company’s Subject Matter Premium Income.

B. The term “Subject Matter Premium Income” shall mean the Company’s
gross net premiums earned on the business covered hereunder less premiums paid on reinsurance, if
any, recoveries under which would reduce the Net Loss to this Contract.

C. The Company shall pay the Reinsurers a deposit premium of six hundred
seventy six thousand six hundred thirty five dollars ($676,635) shall be paid to Reinsurers in
four (4) equal installments of one hundred sixty nine thousand one hundred fifty eight dollars and
seventy five cents ($169,158.75) each on January 1, April 1, July 1 and October 1, 2009. As
promptly as possible after the termination of this Contract, however no longer than sixty (60)
days, the Company shall render a report to the Reinsurers showing the actual reinsurance premium
due hereunder, calculated as provided in Paragraph A. of this Article; and, if the premium so
calculated is greater than the previously paid deposit premium, the balance shall be remitted by
the Company with its report. However, in no event shall the premium to the Reinsurers for the
Contract be less than five hundred forty one thousand three hundred dollars ($541,300).

 

 

EXHIBIT III — Page 1.

EXHIBIT III 

PROPERTY THIRD EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY 

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for
each and every risk, in each and every Loss Occurrence, for one hundred percent (100%) of the
excess Net Loss above an initial Net Loss to the Company of ten million dollars ($10,000,000) each
and every risk, each and every Loss Occurrence; but the Reinsurers shall not be liable for more
than ten million dollars ($10,000,000) of Net Loss for each and every risk, for each and every
such Loss Occurrence, nor shall Reinsurers be liable for more than ten million dollars
($10,000,000) in all as respects all Net Loss on Business Covered hereunder as a result of all
Loss Occurrences taking place during the Contract period.

B. The Reinsurers shall be liable to, indemnify and reinsure the Company for
each and every Risk, each and every Loss Occurrence, involving a Certified or Non Certified Act of
Terrorism, irrespective of the number of kinds of perils involved, for one hundred percent (100%)
of the excess Net Loss above an initial Net Loss to the Company of ten million dollars
($10,000,000) of Net Loss each and every Risk; but the Reinsurers shall not be liable for more
than ten million dollars ($10,000,000) of Net Loss for each and every Risk, and not more than ten
million dollars ($10,000,000) of Net Loss during the term of this Contract.

C. Coverage for loss caused by Mold, as defined within the terms of the
Company’s Policy, shall be limited to an annual amount not to exceed two million dollars
($2,000,000), namely twenty percent (20%) of the layer limit.

D. The Company shall be the sole judge of what constitutes “one risk” and the
Probable Maximum Loss applicable to such risk.

E. An “Act of Terrorism” shall mean any act, including both Certified Acts of
Terrorism in accordance with the Terrorism Risk Insurance Act of 2002 (“TRIA” ),

 

 

EXHIBIT III — Page 2.

the Terrorism
Risk Insurance Extension Act of 2005 (“TRIEA”) and the Terrorism Risk Insurance Program
Reauthorization Act of 2007 (“TRIPRA”) and any subsequent extension and those not so certified, or
preparation in respect of action, or threat of action designed to influence the government de jure
or de facto of any nation or any political division thereof, or in pursuit of any political,
religious, ideological, or similar purpose to intimidate the public or a section of the public of
any nation by any person or group(s) of persons whether acting alone or on behalf of or in
connection with any organization(s) or government(s) de jure or de facto, and which:

1. involves violence against one or more persons; or

2. involves damage to property; or

3. endangers life other than that of the person committing the action; or

4. creates a risk to health or safety of the public or a section of the
public; or

5. is designed to interfere with or to disrupt an electronic system; or

6. involves loss, damage, cost, or expense directly or indirectly caused
by, contributed to by, resulting from, or arising out of or in connection with any action
in controlling, preventing, suppressing, retaliating against, or responding to any Act of
Terrorism.

Loss or damage occasioned by riot, strikes, civil commotion, vandalism or malicious mischief as
those terms have been interpreted by United States Courts to apply to insurance Policies shall not
be construed to be an “Act of Terrorism”.

ARTICLE 6

REINSTATEMENT

A. Each claim hereunder shall reduce the amount of the Reinsurers’ limit of
liability from the time of the occurrence of the loss by the sum paid, but the sum so exhausted
shall be reinstated immediately from the time of the occurrence of the loss.

B. For each amount so reinstated, the Company shall pay an additional premium
calculated by multiplying one hundred percent (100%) of the reinsurance premium earned by the
Reinsurer hereon by the percentage that the amount reinstated bears to the limit (i.e., ten
million dollars ($10,000,000)) of this Contract. Nevertheless, the liability of the Reinsurers
shall never be more than ten million dollars ($10,000,000) of Net Loss in respect of any one Loss
Occurrence, nor more than twenty million dollars ($20,000,000) in Net Loss in all in respect of
all losses occurring during the Contract period.

C. A provisional statement of reinstatement premium due the Reinsurers shall be
prepared by the Company and submitted to the Reinsurers as soon as practicable after

 

 

EXHIBIT III — Page 3.

payment of a
claim hereunder. The provisional reinstatement premium shall be based on one hundred percent
(100%) of the estimated annual reinsurance premium earned by the Reinsurer hereunder. The amount
of reinstatement premium due Reinsurers shall be offset against the loss payment due the Company
with only the net amount due to be remitted by the debtor party.

D. As promptly as possible after the annual reinsurance premium earned
hereunder has been finally determined, the Company shall prepare and submit to the Reinsurers a
final statement of reinstatement premium due. Any reinstatement premium shown to be due the
Reinsurers (less prior payments, if any) shall be remitted by the Company with its statement. Any
return reinstatement premium shown to be due the Company shall be remitted by the Reinsurers as
promptly as possible after receipt of the Company’s final statement.

E. In the event there are any mid-term terminations in the participation of any
Reinsurer in this Contract, payment of any such reinstatement premium in full shall be
paid to the Reinsurer who incurred the loss that generates the reinstatement premium.

ARTICLE 7

PREMIUM 

A. The premium payable to Reinsurers shall be calculated by applying a rate of
one point three eight two percent (1.382%) to the Company’s Subject Matter Premium Income.

B. The term “Subject Matter Premium Income” shall mean the Company’s
gross net premiums earned on the Business Covered hereunder less premiums paid on reinsurance, if
any, recoveries under which would reduce the Net Loss to this Contract.

C. The Company shall pay the Reinsurers a deposit premium of five hundred
fifty thousand dollars ($550,000) shall be paid to Reinsurers in four (4) equal installments of
one hundred thirty seven thousand five hundred dollars ($137,500) each on January 1, April 1, July
1 and October 1, 2009. As promptly as possible after the termination of this Contract, however no
longer than sixty (60) days, the Company shall render a report to the Reinsurers showing the
actual reinsurance premium due hereunder, calculated as provided in Paragraph A. of this Article;
and, if the premium so calculated is greater than the previously paid deposit premium, the balance
shall be remitted by the Company with its report. However, in no event shall the premium to the
Reinsurers for the Contract be less than five hundred fifty thousand dollars ($550,000).REGAL BELOIT
CORPORATION 

TARGET (SUPPLEMENTAL)
RETIREMENT PLAN 

As Amended and
Restated Effective April 27, 2009 

 

	I.	PURPOSE
	II.	DEFINITIONS
	III.	ELIGIBILITY; PARTICIPATION
	IV.	BENEFITS
	V.	CLAIM FOR BENEFITS PROCEDURE
	VI.	ADMINISTRATION
	VII.	AMENDMENT AND TERMINATION
	VIII.	MISCELLANEOUS

REGAL BELOIT
CORPORATION 

TARGET (SUPPLEMENTAL)
RETIREMENT PLAN 

	I.  	PURPOSE 

        Regal
Beloit Corporation desires to provide Plan Participants with a retirement benefit which is
adequate and competitive, when compared to peer company employers. The Plan is intended to
provide a mechanism to provide supplemental retirement benefits to existing and newly
hired employees of the Company who become eligible to participate, and to supplement
retirement benefits payable from the Company’s qualified retirement plan(s) to
executives who are hired mid-career. By providing such benefits, the Company will remain
able to attract and retain exceptional senior management personnel, and provide for
orderly management succession. 

	II.  	DEFINITIONS 

        2.01
“Actuarial Equivalent”means a form of benefit differing in time, period, or
manner of payment, but having the same value as the form of benefit payment expected to
be paid to a Participant over his or her remaining lifetime, commencing on the first day
of the month coincident with or next following his or her Normal Retirement Date. An
Actuarial Equivalent determined hereunder shall be based on the mortality table, assumed
rate of interest, and other factors utilized by the Pension Benefit Guaranty Corporation
(PBGC), and in effect at the time a benefit payment amount is determined. PBGC factors to
be utilized in determining the value of a benefit will be those factors used by the PBGC
to value annuities for a single employer, trusteed plan terminating as of the first day
of the month that includes the date in which the Participant attains (or would have
attained) his or her Normal Retirement Date.  

        2.02
“Administrative Committee” and “Committee” mean the Committee
appointed pursuant to Article VI to administer the Plan.  

        2.03
“Affiliate” means each entity that is required to be aggregated with the
Company pursuant to Code Section 414(b) or (c); provided that for purposes of determining
if a Participant has incurred a Separation from Service, the phrase “at least 50
percent” shall be used in place of the phrase “at least 80 percent” each
place it appears therein or in the regulations thereunder.  

        2.04
“Agreement” means the Regal Beloit Corporation Target (Supplemental) Retirement
Plan Agreement between a Participant and the Company, whereby a Participant agrees to the
terms and provisions of the Plan, and the Company agrees to pay benefits in accordance
with the Plan. An Agreement shall be executed by and between the Company when a
Participant first becomes eligible to participate in the Plan.  

        2.05
“Change of Control”means that a “Change in Control of the Company” has
been deemed to occur pursuant to a Change in Control Agreement in effect between the
Company and its Chief Executive Officer. If the Company is not a party to such a Change
in Control Agreement, “Change of Control” means the purchase or other
acquisition by any person, entity or group of persons, within the meaning of Sections
13(d) or 14(d) of the Securities Exchange Act of 1934 or any comparable successor
provision, or a beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Act) of 30% or more of either the outstanding shares of common stock or the combined
voting power of Company’s then outstanding voting securities entitled to vote
generally, or the approval by the stockholders of Company of a reorganization, merger, or
consolidation, in each case, with respect to which persons who were stockholders of the
Company immediately prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or consolidated Company’s
then outstanding securities, or a liquidation or dissolution of Company or of disposition
by the sale of all or substantially all of the Company’s assets.  

1 

        2.06
“Company” means Regal Beloit Corporation, a Wisconsin Corporation, its
successors and assigns, and any Affiliate which grants participation hereunder to an
employee with the Company’s consent. References to “Company” in the Plan
refer to the Company or, if appropriate, the participating Affiliate of the Company which
employs the Participant.  

        2.07
“Early Retirement Date” and “Early Retirement” mean the date of
Termination of Service of a Participant for reasons other than death before age
sixty-five (65), but at or after age fifty-eight (58) with fifteen (15) Years of Service,
or a Separation from Service under circumstances which the Company, in its sole
discretion and prior to the first day of the seventh (7th) month following the month in
which the Separation from Service occurs, elects to treat as an Early Retirement under
the Plan.  

        2.08
“ERISA Funded” means that the Plan is prevented from meeting the “unfunded” criterion
of the exceptions to the application of Parts 2 through 4 of Subtitle B of Title I of the
Employee Retirement Income Security Act of 1974, as amended (ERISA).  

        2.09
“Final Average Compensation” means the average result produced by dividing the
total Salary of a Participant during the sixty (60) consecutive month period immediately
preceding the earlier of his or her Termination of Service with the Company or Separation
from Service, by the lesser of:  

            (a)              sixty
(60), or  

            (b)              the
actual number of months of the Participant’s service with the Company,           as
determined pursuant to the Participant’s Agreement to participate in the
          Plan.  

        2.10
    “IRC” means the Internal Revenue Code of 1986, as amended. 

        2.11
“Normal Retirement Date” and “Normal Retirement” mean the date of
Separation from Service of the Participant coincident with or following the date he or
she attains age sixty-five (65).  

2 

        2.12
“Other Retirement Plans”, “Other Retirement Plans’ Benefit” mean
the aggregate of the retirement benefit which is attributable to the Hypothetical
Investment Account, or its Actuarial Equivalent, to which a Participant would be entitled
if monthly payments were made to him in the form of a single life annuity commencing on
the first day of the month immediately following the Participant’s Normal Retirement
Date. For purposes of the Plan, the “Hypothetical Investment Account” shall
consist of an amount equal to the hypothetical value of the Participant’s Profit
Sharing Plan Account, as hereinafter described. A Participant’s Hypothetical Account
shall consist of the beginning balance of Participant’s Profit Sharing Plan Account
as of the Profit Sharing Plan’s most recent valuation date immediately preceding the
Participant’s date of eligibility for participation in this Plan, as specified in
the Participant’s Agreement. The beginning balance of each Participant’s
Hypothetical Investment Account shall be increased by Hypothetical Company Contributions,
if any, and by Hypothetical Investment Earnings. “Hypothetical Company Contributions” shall
be calculated and determined assuming an annual increase in Salary of one percentage
point higher than the cost-of-living adjustments applied under IRC Section 415(b)(1)(A),
and Company contributions determined as follows: (a) For periods prior to the date the
Regal Beloit Corporation Profit Sharing Plan was merged with the predecessor plan to form
the Regal Beloit 401(k) Plan, a four percent (4%) Profit Sharing Plan contribution; (b)
For periods on and after the date the Regal Beloit Corporation Profit Sharing Plan was
merged with the predecessor plan to form the Regal Beloit 401(k) Plan and ending December
31, 2008, a Company matching contribution equal to 1.5% of a Participant’s Salary
plus a Company base contribution of 2% of a Participant’s Salary; and (c) For
periods beginning January 1, 2009 and later, a Company matching contribution equal to
3.5% of a Participant’s Salary plus, if the Participant is eligible for a Company
base contribution under the Regal Beloit 401(k) plan, a Company base contribution of 2%
or 1% of the Participant’s Salary (as specified for the Participant under the Regal
Beloit 401(k) Plan); provided, however, that the hypothetical base contribution shall not
be credited unless the Participant is employed on the last day of the Plan Year; and (c)
Any other Company contributions to a qualified retirement plan in which the employee has
been a Participant if specified in the Participant’s Agreement. “Hypothetical
Investment Earnings” shall be calculated and determined assuming investment earnings
equal to the most recent 12-month average yield on corporate bonds. Hypothetical Company
Contributions and Hypothetical Investment Earnings shall be credited to a Participant’s
Hypothetical Investment Account at the same time and in the same manner as prescribed by
the Profit Sharing Plan. For purposes of this Section, the “average yield on
corporate bonds” means the composite average yield for the preceding calendar year
of industrial and public utility bonds, rated Aaa through Baa, as determined from “Moody’s
Bond Record” published monthly by Moody’s Investor’s Service, Inc. (or any
successor thereto), or, if such yield is no longer available, a substantially similar
average selected by the Administrative Committee.  

        2.13
“Participant” means an employee of the Company who is designated to be eligible
pursuant to Section 3.01 hereof and who signs and delivers an Agreement to the Company.  

        2.14
“Plan” means the Regal Beloit Corporation Target (Supplemental) Retirement
Plan, as amended from time to time.  

        2.15
“Plan Year” means the Company’s fiscal year, which, unless and until
changed, is January 1 to December 31.  

        2.16
“Profit Sharing Plan”means either the Regal Beloit Corporation Profit Sharing
Plan, as amended from time to time, or the Regal Beloit 401(k) Plan and its predecessor,
as amended from time to time. Unless the context requires otherwise, definitions as used
herein shall have the same meaning as in the Profit Sharing Plan when applied to said
Plan.  

3 

        2.17
    “Retirement Date” means a Participant’s Early Retirement Date or
Normal Retirement Date. 

        2.18
“Salary” for purposes of the Plan shall be the total of the Participant’s
base yearly salary paid by the Company during a Plan Year, and considered “wages” for
FICA and federal income tax withholding, plus the amount of any target Company bonus
opportunity for the Plan Year (whether or not earned or paid for such Plan Year) and any
amounts deferred by the Participant under an unfunded, nonqualified plan maintained by
the Company. Notwithstanding the foregoing, with respect to Participants who retired
prior to January 1, 2008, the actual Company bonus earned for the Plan Year (even if not
paid in such Plan Year) in lieu of the target bonus opportunity was used to determined
Salary. For purposes of this Section, Salary amounts considered shall exclude
reimbursements or other expense allowances (whether or not includable in gross income,
and including but not limited to car allowances), (cash or non-cash) fringe benefits
(including but not limited to contest prizes), moving expenses, welfare benefits
(including but not limited to imputed income on life insurance coverage, unused and/or
accrued vacation pay and severance pay), and any distribution of stock (excluding
proceeds from any stock options, stock appreciation rights, or any other stock or equity
based management incentive plan. Salary amounts considered shall include (a) any amounts
by which the Participant’s Salary is reduced by a salary reduction or similar
arrangement under any qualified plan described in IRC Section 401(a) or any
cafeteria plan (as described in IRC Section 125) maintained by the Company, and (b) any
amounts by which the Participant’s Salary is reduced by a voluntary waiver by such
Participant, even though such amounts are not paid and are not considered wages for FICA
and federal income tax withholding purposes..  

        2.19
“Separation from Service” means a Participant’s termination of employment
from the Company and all Affiliates within the meaning of Code Section 409A, including
the following rules:  

            (a)              If
a Participant takes a leave of absence from the Company or an Affiliate for
          purposes of military leave, sick leave or other bona fide leave of absence, the
          Participant’s employment will be deemed to continue for the first six (6)
          months of the leave of absence, or if longer, for so long as the
          Participant’s right to reemployment is provided either by statute or by
          contract; provided that if the leave of absence is due to the Participant’s
          medically determinable physical or mental impairment that can be expected to
          result in death or can be expected to last for a continuous period of six
months           or more, and such impairment causes the Participant to be unable to
perform the           duties of his position with the Company or an Affiliate or a
substantially           similar position of employment, then the leave period may be
extended for up to           a total of 29 months.  

            (b)              A
Participant shall be presumed to incur a Separation from Service when the           level
of bona fide services provided by the Participant to the Company and its
          Affiliates permanently decreases to a level of twenty percent (20%) or less of
          the level of services rendered by such individual, on average, during the
          immediately preceding 36 months.  

4 

            (c)              A
Participant shall be presumed to not incur a Separation from Service when the
          level of bona fide services provided by the Participant to the Company and its
          Affiliates continues at a rate that is at least fifty percent (50%) of the
level           of services rendered by such individual, on average, during the
immediately           preceding 36 months.  

        2.20
“Social Security Retirement Benefit” means the monthly amount of the primary
Social Security benefit payable, or projected to be payable, to a Participant (regardless
of whether such Social Security benefit is or has been applied for) at his or her Normal
Retirement Date. The Social Security Retirement Benefit shall include a benefit payable
to the Participant under any other similar retirement program sponsored by the United
States government to which the Company contributed (at least in part) or which the
Company funded (in whole or in part) by tax or similar levy.  

        2.21
“Surviving Spouse”means the spouse of a Participant on his or her Retirement
Date, who is entitled to receive payments under Section 4.04 hereof, and who survives the
Participant to receive any Surviving Spouse’s benefit payable under the Plan. For
purposes of the Plan, a “Spouse” is a Participant’s husband or wife under
a legal union recognized by applicable state or federal law.  

        2.22
“Target (Supplemental) Retirement Plan Trust” and “Trust” mean any
irrevocable grantor trust or trusts established by the Company with an independent
trustee for the benefit of persons entitled to receive payments hereunder.  

        2.23
“Tax Funded” means that the interest of a Participant in the Plan will be
includable in the gross income of the Participant for federal income tax purposes before
actual receipt of Plan benefits by the Participant as a result of the failure of the Plan
to comply with Code Section 409A with respect to the Participant.  

        2.24
“Termination for Cause” means a termination of service of the Participant
resulting from the Participant’s fraud, misappropriation, embezzlement, or theft of
Company property, conviction of a felony, or violation of restrictive covenants contained
in any employment agreement between him and the Company, or a willful and repeated
violation of published standards of conduct of the Company, the determination of which
shall be made solely by the Company.  

        2.25
“Termination of Service” means the cessation of Participant’s employment
with the Company for any reason whatsoever, whether voluntarily or involuntarily,
including by reason of retirement, death, or disability; provided, however, that a
Participant who is entitled to long-term disability benefits under a long-term disability
plan sponsored by the Company shall not be deemed to have incurred a Termination of
Service until the earlier of the first anniversary of the date the Participant became
entitled to long-term disability benefits, or the date the Participant no longer
qualifies for long-term disability benefits, including loss of qualification due to
death.  

        2.26
“Years of Service”means years of service credited to a Participant based on the
period beginning with the Participant’s employment commencement date, as specified
in the Participant’s Agreement, and ending on the date the Participant incurs a
Termination of Service. Nonsuccessive periods of service of less than whole year periods
of service shall be aggregated, with 12 months of service or 365 days of service equaling
a whole year of service. In its sole discretion, the Committee may award additional Years
of Service to a Participant at any time prior to his or her Retirement Date as specified
in the Participant’s Agreement.  

5 

	III.  	ELIGIBILITY;
PARTICIPATION

        3.01
Eligibility.  Participation  in the Plan shall be limited to  employees of the
Company who meet all of the following conditions: 

            (a)              each
employee must be a corporate officer or other key employee of the Company           who
is designated as eligible to participate in the Plan by the Administrative
          Committee. The determination of which corporate officers and other key
employees           shall be designated eligible shall be made solely by the Committee;  

            (b)              each
employee designated eligible to participate must file an Agreement with the
          Company in order to become a Participant in the Plan.  

An employee who meets all of the
requirements of this Section shall become a Participant in the Plan. Except as otherwise
provided in Section 3.02, once an employee becomes a Participant in the Plan, he or she
shall remain a Participant until his or her Separation from Service, and thereafter until
all benefit payments, if any, to the Participant (or his or her Surviving Spouse) have
been made. 

        3.02
Continuing Eligibility. If for any reason, a Participant’s Salary has been
reduced, or if he or she has had a material reduction in job responsibility, job
description, or job duties, his or her participation in the Plan may be terminated as
determined in the sole discretion of the Committee. In the event of such termination, a
Participant shall be deemed to have incurred a Termination of Service. Unless such
termination occurs on or after the date the Participant has become eligible for Early or
Normal Retirement, no benefit shall be payable to or on behalf of the Participant under
the Plan upon the Participant’s actual Retirement Date.  

        3.03
Reemployment. Any Participant who incurs a Termination of Service shall not be
eligible to participate in the Plan on reemployment, unless the Committee so determines.
In such event, the Committee shall specify the effective date of the Participant’s
renewed eligibility, and the conditions of his or her participation, including any
adjustments in Years of Service, accrued benefit earned on the date of his or her
reparticipation, if any, and other factors to reflect his or her break in continued
participation. The Committee shall notify each reemployed Participant of his or her
eligibility, of the effective date, and the conditions of participation.  

	IV.  	BENEFITS 

        4.01
Retirement Benefit. A Participant whose Termination of Service occurs on his or
her Normal Retirement Date or Early Retirement Date shall be eligible for a retirement
benefit, payable in monthly installments as provided in Section 4.03. The monthly benefit
payable shall equal:  

6 

            (a)              2.0%
of the Participant’s Final Average Compensation, multiplied by his or           her
Years of Service (up to a maximum of 30) determined as of the           Participant’s
Retirement Date, less  

            (b)              the
Participant’s Other Retirement Plans’ benefit; and  

            (c)              the
Participant’s Social Security Retirement Benefit.  

        4.02
Benefit Commencement. If a Participant is entitled to a Retirement Benefit under
Section 4.01, payment of his or her Retirement Benefit shall commence on the first day of
the seventh (7th) month immediately following his or her Separation from
Service.  

        4.03
Form of Benefit Payment. An aggregate number of no more than one hundred and
eighty (180) monthly benefit payments shall be payable under the Plan. The first six
months of benefit payments shall be accumulated and paid in a lump sum on the first day
of the seventh (7th) month following the Participant’s Normal Retirement
Date. Monthly benefits shall continue on the first day of each month thereafter, until
the first of the following dates:  

            (a)              the
last payment date immediately preceding the death of the Participant who           dies
without a Surviving Spouse;  

            (b)              the
last payment date immediately preceding the death of the Surviving Spouse of
          the Participant; or  

            (c)              the
date the one hundred and eightieth (180th) payment has been made to the
          Participant and/or his or her Surviving Spouse.  

        4.04
Surviving Spouse Benefit.  The Company shall pay the Surviving Spouse of a
Participant: 

            (a)    Death
During Employment. In the event a Participant dies while employed           by the
Company, but on or after the Participant has become eligible for Early or
          Normal Retirement, a Surviving Spouse benefit equal to one hundred percent
          (100%) if the Participant’s retirement benefit shall be payable as
provided           in this subsection. The monthly amount of the Surviving Spouse’s
benefit           payable shall be calculated and determined as if the Participant had
retired on           the date of his or her death. Payment of the Surviving Spouse
benefit shall           commence on the first day of the month immediately following the
date of the           Participant’s death, and shall be payable until the one
hundred and           eightieth (180th) monthly installment has been paid, or until the
last payment           immediately preceding the Surviving Spouse’s date of death,
whichever           occurs first. No Surviving Spouse benefit shall be paid to a
Participant who           dies while employed by the Company but prior to becoming
eligible for Early or           Normal Retirement.  

            (b)    Death
After Retirement Date. In the event a Participant dies on or after           his or
her Retirement Date, a Surviving Spouse benefit shall be payable as           provided in
this subsection. One hundred percent (100%) of the monthly amount of           any of the
one hundred and eighty (180) installments payable under the Plan           remaining
unpaid to the Participant on the date of his or her death, if any,           shall be
payable to the Participant’s Surviving Spouse. Payment to the           Surviving
Spouse benefit shall commence on the first day of the month           immediately
following the date of the Participant’s death, and shall           continue monthly
until the one hundred and eightieth (180th) monthly installment           has been paid
including installments paid prior to the Participant’s death,           or until the
last payment immediately preceding the Surviving Spouse’s date           of death,
whichever occurs first. No benefits shall be paid upon the death of a
          Participant who has no Surviving Spouse.  

7 

        4.05
Vesting. Except in the event of a Termination for Cause, and except as otherwise
provided in Section 3.02, each Participant who is eligible for an Early or Normal
Retirement Benefit (whether or not the Participant has retired), shall be one hundred
percent (100%) vested in an Early or Normal Retirement Benefit, determined under Section 4.01
hereof, based on Years of Service, Final Average Compensation, and benefits payable from
Other Retirement Plans as of any appropriate date after the Participant has become
eligible for an Early or Normal Retirement Benefit. A Participant shall not be deemed
vested in any benefits from the Plan for any reason prior to becoming eligible for Early
or Normal Retirement.  

        4.06
Termination for Cause. If a Participant’s Termination of Service occurs as a
result of a Termination for Cause, no benefit shall be payable under the Plan. Upon
Termination for Cause, the provisions of Section 4.05 shall not apply, and the
Participant shall immediately cease to be eligible for any benefit otherwise payable
under Section 4.01 of the Plan.  

        4.07
Withholding; Employment Taxes. To the extent required by the law in effect at the
time payments are made, the Company shall withhold any taxes required to be withheld by
the federal, or any state or local, government. If prior to the date of distribution of
any amount hereunder, the Federal Insurance Contributions Act (FICA) tax imposed under
Code Sections 3101, 3121(a) and 3121(v)(2), where applicable, becomes due, then the
Administrative Committee may authorize a payment from the Participant’s accrued
benefit equal to the amount needed to pay the Participant’s portion of such tax, as
well as withholding taxes resulting therefrom (including the additional taxes
attributable to the pyramiding of such distributions and taxes), and the amount of the
month retirement benefit described in Section 4.01 shall be reduced accordingly.  

        4.08
Facility of Payment. Any benefit payable hereunder to any person under a legal
disability, or to any person who, in the judgment of the Administrative Committee, is
unable to properly administer his or her financial affairs, may be paid to the legal
representative of such person, or may be applied for the benefit of such person in a
manner which the Committee may select.  

	V.  	CLAIM
FOR BENEFITS PROCEDURE 

        5.01
Claim for Benefits. Any claim for benefits under the Plan shall be made in writing
to the Committee no later than 90 days following the date the payment that is in dispute
should have been made. If such claim for benefits is wholly or partially denied by the
Committee, the Committee shall, within a reasonable period of time, but not later than
ninety (90) days after receipt of the claim, notify the claimant of the denial of the
claim. Such notice of denial shall be in writing and shall contain:  

8 

            (a)              the
specific reason or reasons for the denial of the claim;  

            (b)              a
reference to the relevant Plan provisions upon which the denial is based;  

            (c)              a
description of any additional material or information necessary for the
          claimant to perfect the claim, together with an explanation of why such
material           or information is necessary; and  

            (d)              an
explanation of the Plan’s claim review procedure, including the           claimant’s
right to bring a suit for benefits under ERISA Section 502 if           the claimant’s
appeal is denied.  

        5.02
Request for Review of a Denial of a Claim for Benefits. Upon receipt by the
claimant of written notice of denial of the claim, the claimant may within sixty (60)
days file a written request to the Committee, requesting a review of the denial of the
claim, which review shall include a hearing if deemed necessary by the Committee;
provided that to avoid penalties under Code Section 409A, the claimant’s appeal must
be filed no later than 180 days after the latest date the payment that is in dispute
could have been timely paid pursuant to Code Section 409A. In connection with the claimant’s
appeal of the denial of his or her claim, he or she may review relevant documents and may
submit issues and comments in writing.  

        5.03
Decision Upon Review of Denial of Claim for Benefits. The Committee shall render a
decision on the claim review promptly, but no more than sixty (60) days after the receipt
of the claimant’s request for review, unless special circumstances (such as the need
to hold a hearing) require an extension of time, in which case the sixty (60) day period
shall be extended to one hundred-twenty (120) days. Such decision shall:  

            (a)              include
specific reasons for the decision;  

            (b)              be
written in a manner calculated to be understood by the claimant;  

            (c)              contain
specific references to the relevant Plan provisions upon which the           decision is
based; and  

            (d)              contain
notification to the claimant of his or her right to bring suit for           benefits
under ERISA Section 502.  

The decision of the Committee shall
be final and binding in all respects on both the Company and the claimant. Legal action
against the Plan may not be commenced more than 180 days after the Committee notifies the
claimant of the determination upon review, or if the Committee fails to timely notify the
claimant pursuant to the provisions of the Plan, 180 days after the latest date the
Committee could have timely notified the claimant. 

9 

	VI.  	ADMINISTRATION 

        6.01
Plan Administrative Committee. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company, which shall be the Administrative
Committee of the Plan. The Administrative Committee may assign duties to an officer or
other employees of the Company, and delegate such duties as it sees fit. No member of the
Committee shall vote or act on matters relating solely to himself or herself, or his or
her Plan benefits.  

        6.02
General Rights, Powers and Duties of Administrative Committee. The Administrative
Committee shall be responsible for the management, operation and administration of the
Plan in its discretion. In addition to any powers, rights, and duties set forth elsewhere
in the Plan, it shall have the following discretionary powers and duties to:  

            (a)              adopt
such rules and regulations consistent with the provisions of the Plan as           it
deems necessary for the proper and efficient administration of the Plan;  

            (b)              administer
the Plan in accordance with its terms and any rules and regulations           it
establishes;  

            (c)              maintain
records concerning the Plan sufficient to prepare reports, returns, and           other
information required by the Plan or by law;  

            (d)              construe
and interpret the Plan, and to resolve all questions arising under the           Plan;  

            (e)              direct
the Company to pay benefits under the Plan, and to give such other           directions
and instructions as may be necessary for the proper administration of           the Plan;  

            (f)              employ
or retain agents, attorneys, actuaries, accountants or other persons who           may
also be employed by or represent the Company; and  

            (g)              be
responsible for the preparation, filing, and disclosure on behalf of the Plan
          of such documents and reports as are required by any applicable federal or
state           law.  

        6.03
Information to be Furnished to Administrative Committee. The records of the
Company shall be determinative of each Participant’s period of employment,
Retirement Date, Termination of Service and the reason therefor, disability, leave of
absence, Years of Service, personal data, and Final Average Compensation. Participants
and their Surviving Spouse shall furnish to the Committee such evidence, data or
information, and execute such documents as the Committee requests.  

        6.04
Responsibility. No member of the Committee shall be liable to any person for any
action taken or omitted in connection with the administration of this Plan unless
attributable to his or her own fraud or willful misconduct; nor shall the Company be
liable to any person for any such action unless attributable to fraud or willful
misconduct on the part of a director, officer or employee of the Company. Further, the
Company shall hold harmless and defend and indemnify any individual in the employment of
the Company and any Director of the Company against any claim, action, or liability
asserted against him in connection with any action or failure to act regarding the Plan,
except as and to the extent such liability may be based upon the individual’s own
willful misconduct or fraud. This indemnification shall not duplicate, but may
supplement, any coverage available under any applicable insurance coverage. This
indemnification provided hereunder shall continue as to a person who has ceased serving
on the Committee or as an officer, employee, or director of the Company, and such person’s
rights shall inure to the benefit of his or her heirs and representatives.  

10 

	VII.  	AMENDMENT
AND TERMINATION

        7.01
Amendment. The Plan may be amended in whole or in part by the Company at any time;
provided, however, that the Committee may amend the Plan if the amendments are (a) within
the scope of the law, (b) will not have a material financial effect on the Company, and
(c) are either immaterial changes in the provisions of the Plan or technical changes
required by applicable law. Notice of any material amendment shall be given in writing to
the Administrative Committee or the Company, as appropriate, and to each Participant and
each Surviving Spouse of a deceased Participant. No amendment shall retroactively
decrease a Participant’s vested accrued benefit determined as of the amendment date
pursuant to Section 4.05.  

        7.02
Company’s Right to Terminate. The Company reserves the sole right to
terminate the Plan at any time. Termination of the Plan shall not decrease a Participant’s
vested benefit determined as of the termination date pursuant to Section 4.05. Upon
termination of the Plan, the Company may provide that the single sum Actuarial Equivalent
present value of the Participants’ vested accrued benefits, determined as of the
termination date, be paid in a single lump sum to the extent permitted by and in
accordance with Code Section 409A.  

        7.03
Special Termination. Any other provision of the Plan to the contrary
notwithstanding, the Plan shall terminate if the Plan is held to be ERISA Funded or Tax
Funded by a federal court, and appeals from that holding are no longer timely or have
been exhausted. The Company may terminate the Plan if it determines, based on a legal
opinion which is satisfactory to the Company, that either judicial authority or the
opinion of the U.S. Department of Labor, Treasury, Department or Internal Revenue Service
(as expressed in proposed or final regulations, advisory opinions or rulings, or similar
administrative announcements) creates a significant risk that the Plan will be held to be
ERISA Funded or Tax Funded, and failure to so terminate the Plan could subject the
Company or the Participants to material penalties or the inclusion of Plan benefits in
taxable income prior to actual receipt of Plan benefits. Upon any such termination, the
Company may:  

            (a)              transfer
the rights and obligations of the Participants and the Company to a new           plan
established by the Company, which is not deemed to be ERISA Funded or Tax
          Funded, but which is similar in all other respect to this Plan, if the Company
          determines that it is possible to establish such a Plan;  

            (b)              if
the Company, in its sole discretion, determines that it is not possible to
          establish the Plan in (a) above, the Company shall pay to each Participant a
          lump sum benefit equal to the Economic Equivalent of his or her vested benefit
          determined pursuant to Section 4.05 if and to the extent such a lump sum
          payment is permitted by Code Section 409A; or  

11 

            (c)              pay
a lump sum benefit equal to the Actuarial Equivalent of a Participant’s
          vested benefit determined pursuant to Section 4.05 to the extent that a
          federal court has held that the interest of the Participant in the Plan is
          includable in the gross income of the Participant for federal income tax
          purposes prior to actual payment of Plan benefits as a result of the Plan’s
          failure to comply with Code Section 409A with respect to such Participant. The
          Actuarial Equivalent of any remaining vested accrued benefit shall remain as an
          obligation of the Company, to be paid to the Participant as provided in the
          Plan.  

	VIII.  	MISCELLANEOUS

        8.01
Separation of Plan; No Implied Rights. The Plan shall not operate to increase any
benefit payable to or on behalf of a Participant (or his or her Surviving Spouse) from
any other plan maintained by the Company. Neither the establishment of the Plan nor any
amendment thereof shall be construed as giving any Participant, Surviving Spouse, or any
other person any legal or equitable right unless such right shall be specifically
provided for in the Plan or conferred by specific action of the Company in accordance
with the terms and provisions of the Plan. Except as expressly provided in the Plan, the
Company shall not be required or be liable to make any payment under the Plan.  

        8.02
No Right to Company Assets. Neither the Participant nor any other person shall
acquire by reason of the Plan any right in or title to any assets, funds or property of
the Company whatsoever, including, without limiting the generality of the foregoing, any
specific funds, assets or other property which the Company, in its sole discretion, may
set aside in anticipation of a liability hereunder. Any benefits which become payable
hereunder shall be paid from the general assets of the Company or the Trust. The
Participant shall have only a contractual right to the amounts, if any, payable
hereunder, unsecured by any asset of the Company. Nothing contained in the Plan
constitutes a guarantee by the Company that the assets of the Company shall be sufficient
to pay any benefits to any person.  

        8.03
No Employment Rights. Nothing herein shall constitute a contract of employment or
of continuing service or in any manner obligate the Company to continue the services of
the Participant, or obligate the Participant to continue in the service of the Company,
or as a limitation of the right of the Company to discharge any of its employees, with or
without cause. Nothing herein shall be construed as fixing or regulating the compensation
or other remuneration payable to the Participant.  

        8.04
Offset. If, at the time payments or installments of payments are to be made
hereunder, the Participant or the Surviving Spouse or both are indebted or obligated to
the Company, then the payments remaining to be made to the Participant or the Surviving
Spouse or both may, at the discretion of the Company, be reduced by the amount of such
indebtedness or obligation, provided, however, that an election by the Company not to
reduce any such payment or payments shall not constitute a waiver of its claim for such
indebtedness or obligation.  

12 

        8.05
Protective Provisions. In order to facilitate the payment of benefits hereunder,
each employee designated eligible shall cooperate with the Company by furnishing any and
all information requested by the Company, and taking such other actions as may be
requested by the Company. If the employee refuses to cooperate, he or she shall not
become a Participant in the Plan and the Company shall have no further obligation to him
or her under the Plan. In such event, no benefit shall be payable to the Participant or
his or her Surviving Spouse.  

        8.06
Non-assignability. Neither the Participant nor any other person shall have any
voluntary or involuntary right to commute, sell, assign, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, which are expressly declared to
be unassignable and non-transferrable. No part of the amounts payable shall be, prior to
actual payment, subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by the Participant or any other person,
or be transferrable by operation of law in the event of the Participant’s or any
other person’s bankruptcy or insolvency.  

        8.07
Notice. Any notice required or permitted to be given under the Plan shall be
sufficient if in writing and hand delivered, or sent by registered or certified mail to
the last known address of the Participant if to the Participant, or, if given to the
Company, to the principal office of the Company, directed to the attention of the
Administrative Committee. Such notice shall be deemed given as of the date of delivery,
or, if delivery is made by mail, as of the date shown on the postmark or the receipt for
registration or certification.  

        8.08
Governing Laws. The Plan shall be construed and administered according to the laws
of the State of Wisconsin, without reference to conflict of law principles thereof. The
Plan is intended to be a deferred compensation plan that complies with Code Section 409A,
and the Plan shall be construed and interpreted in a manner that will cause any payment
hereunder that is not exempt from Code Section 409A to meet the requirements thereof such
that no additional tax will be due under Code Section 409A on such payment.  

        8.09
Target (Supplemental) Retirement Plan Trust. (a) The Company shall establish a
Trust or Trusts with (an) independent trustee(s), and shall comply with the terms of the
Trust(s). The Company may transfer to the trustee(s) an amount of cash, marketable
securities, or other property acceptable to the trustee(s) (“Trust Property”)
determined by Regal Beloit Corporation, in its sole discretion, as it deems necessary or
appropriate. Trust Property so transferred shall be held, managed, and disbursed by the
trustee(s) in accordance with the terms of the Trust(s). To the extent that Trust
Property shall be used to pay the Company’s obligations under the Plan, such
payments shall discharge obligations of the Company; however, the Company shall continue
to be liable for amounts not paid by the Trust(s). Trust Property will nevertheless be
subject to claims of the Company’s creditors in the event of bankruptcy or
insolvency, and the Participant’s rights under the Plan and Trust(s) shall at all
times be subject to the provisions of Section 8.02.  

            (b)              Upon
a Change of Control, Company shall, as soon as possible, but in no event           longer
than thirty (30) days following the Change of Control, as defined herein,           make
an irrevocable contribution to the Trust in an amount that is sufficient to           pay
each vested Plan Participant or their Surviving Spouses, the vested benefits           to
which Plan Participants or their Surviving Spouses would be entitled pursuant
          to the terms of the Plan as of the date on which the Change of Control
occurred;           provided such contribution is not prohibited by Code Section
409A(b)(2) or (3).           A Participant’s or Surviving Spouse’s vested
benefit shall be           determined pursuant to Section 4.05.  

13

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