Document:

exv10w11

Exhibit 10.11

PROPERTY CATASTROPHE 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 10,00% share
	EXHIBIT “II” — SECOND EXCESS:

	 	a 25.00% share
	EXHIBIT “III” — THIRD EXCESS:

	 	a 26.00% share
	EXHIBIT “IV” — FOURTH EXCESS:

	 	a 50.00% share
	EXHIBIT “V” — FIFTH EXCESS:

	 	a 28.50% 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 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 CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE
JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES BARRE, PENNSYLVANIA

by

AMERICAN AGRICULTURAL INSURANCE COMPANY 

INDIANA

(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 07.00% share
	EXHIBIT “II” — SECOND EXCESS:

	 	an 11.00% share
	EXHIBIT “Ill” — THIRD EXCESS:

	 	an 11.00% share
	EXHIBIT “IV” — FOURTH EXCESS:

	 	 a 05.00% share
	EXHIBIT “V” — FIFTH EXCESS:

	 	a 04.00% 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,

	 	 	 	 	 	 	 
	 	 	AMERICAN AGRICULTURAL INSURANCE

COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 	 	 

 

 

PROPERTY CATASTROPHE 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 04.00% share
	EXHIBIT “II” — SECOND EXCESS:

	 	a 04.00% share
	EXHIBIT “III” — THIRD EXCESS:

	 	a 04.00% share
	EXHIBIT “IV” — FOURTH EXCESS:

	 	a 04.00% share
	EXHIBIT “V” — FIFTH EXCESS:

	 	a 03.00% 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 Des Moines, Iowa, this           day of                , 2009,

	 	 	 	 	 	 	 
	 	 	EMPLOYERS MUTUAL CASUALTY COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 	 	 

 

 

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY 

WILKES BARRE, PENNSYLVANIA

by

FLAGSTONE REASSURANCE SUISSE LTD. 

ZURICH, SWITZERLAND

(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 35.00% share
	EXHIBIT “II” — SECOND EXCESS:

	 	a 25.00% share
	EXHIBIT “III” — THIRD EXCESS:

	 	a 20.00% share
	EXHIBIT “IV” — FOURTH EXCESS:

	 	a 10.00% share
	EXHIBIT “V” — FIFTH 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 Zurich, Switzerland, this      day of                , 2009,

	 	 	 	 	 	 	 
	 	 	FLAGSTONE REASSURANCE SUISSE LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 	 	 

 

 

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY 

WILKES BARRE, PENNSYLVANIA

by

HANNOVER RE (BERMUDA) LTD. 

HAMILTON, BERMUDA

(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 “Il” — SECOND EXCESS:

	 	a 00.00% share
	EXHIBIT “III” — THIRD EXCESS:

	 	a 00.00% share
	EXHIBIT “IV” — FOURTH EXCESS:

	 	a 00.00% share
	EXHIBIT “V” — FIFTH 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 Hamilton, Bermuda, this      day of                , 2009,

	 	 	 	 	 	 	 
	 	 	HANNOVER RE (BERMUDA) LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 	 	 

 

 

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY 

WILKES BARRE, PENNSYLVANIA

by

P.R.A.M. — SIRIUS INTERNATIONAL INSURANCE CORPORATION 

STOCKHOLM, SWEDEN 

(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 14.00% share
	EXHIBIT “II” — SECOND EXCESS:

	 	a 10.00% share
	EXHIBIT “III” — THIRD EXCESS:

	 	a 12.00% share
	EXHIBIT “IV” — FOURTH EXCESS:

	 	a 12.00% share
	EXHIBIT “V” — FIFTH EXCESS:

	 	a 15.00% 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 Stockholm, Sweden, this      day of                , 2009,

	 	 	 	 	 	 	 
	 	 	P.R.A.M. SIRIUS INTERNATIONAL INSURANCE
CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 	 	 

 

 

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES BARRE, PENNSYLVANIA

by

PARIS RE S.A. 

PARIS, FRANCE 

(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 05.00% share
	EXHIBIT “III” — THIRD EXCESS:

	 	a 05.00% share
	EXHIBIT “IV” — FOURTH EXCESS:

	 	a 04.00% share
	EXHIBIT “V” — FIFTH EXCESS:

	 	a 01.00% 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
Paris, France, this      day of                 , 2009,

	 	 	 	 	 	 	 
	 	 	PARIS RE S.A.	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 	 	 

 

 

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY

WILKES BARRE, PENNSYLVANIA

by

QBE REINSURANCE CORPORATION 

PENNSYLVANIA

(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 “Ill” — THIRD EXCESS:

	 	a 00.00% share
	EXHIBIT “IV” — FOURTH EXCESS:

	 	a 00.00% share
	EXHIBIT “V” — FIFTH EXCESS:

	 	a 03.50% 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,

	 	 	 	 	 	 	 
	 	 	QBE REINSURANCE CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 	 	 

 

 

PROPERTY CATASTROPHE 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 “III” — THIRD EXCESS:

	 	a 22.00% share
	EXHIBIT “IV” — FOURTH EXCESS:

	 	a 15.00% share
	EXHIBIT “V” — FIFTH EXCESS:

	 	a 35.00% 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 , this       day of                ,2009.

	 	 	 	 	 	 	 
	 	 	PENN MILLERS INSURANCE
COMPANY
AMERICAN MILLERS INSURANCE	 	COMPANY
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 	 	 

PROPERTY CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY 

 

 

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

PROPERTY CATASTROPHE 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 RETAINED LINE
	 	 	9	 
	ARTICLE 10

	 	NET LOSS
	 	 	9	 
	ARTICLE 11

	 	EXTRA-CONTRACTUAL OBLIGATIONS/ LOSS EXCESS OF POLICY LIMITS
	 	 	10	 
	ARTICLE 12

	 	NOTICE OF LOSS AND LOSS SETTLEMENT
	 	 	12	 
	ARTICLE 13

	 	ERRORS AND OMISSIONS
	 	 	12	 
	ARTICLE 14

	 	OFFSET
	 	 	13	 
	ARTICLE 15

	 	CURRENCY
	 	 	13	 
	ARTICLE 16

	 	FEDERAL EXCISE TAX AND OTHER TAXES
	 	 	13	 
	ARTICLE 17

	 	ACCESS TO RECORDS
	 	 	14	 
	ARTICLE 18

	 	SERVICE OF SUIT
	 	 	15	 
	ARTICLE 19

	 	CONFIDENTIALITY
	 	 	16	 
	ARTICLE 20

	 	PRIVACY
	 	 	17	 
	ARTICLE 21

	 	ARBITRATION
	 	 	17	 
	ARTICLE 22

	 	INSOLVENCY
	 	 	21	 
	ARTICLE 23

	 	RESERVES
	 	 	22	 
	ARTICLE 24

	 	MODE OF EXECUTION
	 	 	25	 
	ARTICLE 25

	 	LATE PAYMENTS
	 	 	26	 
	ARTICLE 26

	 	VARIOUS OTHER TERMS
	 	 	27	 
	ARTICLE 27

	 	INTERMEDIARY
	 	 	29	 

 

2.

ATTACHMENTS:

NUCLEAR INCIDENT EXCLUSION CLAUSE — PHYSICAL DAMAGE — REINSURANCE (BRMA 35B)

POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE TRANSMISSION AND DISTRIBUTION LINES
EXCLUSION — ABOVE GROUND FUNGI COVERAGE LIMITATION

TERRORISM EXCLUSION CLAUSE (NMA 29308)

INFORMATION TECHNOLOGY HAZARDS CLARIFICATION CLAUSE (NMA2912)

	 	 	 
	EXHIBIT I -

	 	PROPERTY FIRST CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
	EXHIBIT II -

	 	PROPERTY SECOND CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
	EXHIBIT III -

	 	PROPERTY THIRD CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
	EXHIBIT IV -

	 	PROPERTY FOURTH CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
	EXHIBIT V -

	 	PROPERTY FIFTH CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

 

1.

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

PROPERTY CATASTROPHE 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 Fire, Allied Lines, Automobile Physical Damage (excluding
Collision), Section I of Homeowners and Multiple Peril Policies, Inland Marine and Property Agri
Business that are in force at the inception of this Contract or are written with a Policy
periods (new and renewal) effective during the term of this Contract (“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

     This Contract shall incept at 12:01 a.m., Eastern Standard Time, January 1, 2009, and
remain in force until 12:01 a.m., Eastern Standard Time, January 1, 2010. Should this Contract
terminate while a Loss Occurrence is in progress, the entire loss arising out of the Loss
Occurrence shall be subject to this Contract and its terms and conditions.

 

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-”.

 

3.

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 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

 

4.

a 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. Policies or portions thereof classified by the Company as: Accident
and Health, Aviation, Casualty, Crop Hail, Fidelity and Surety, and Ocean Marine.

2, Collision.

3. Policies of Excess of Loss Reinsurance.

4. Financial Guarantee and Insolvency.

5. Mortgage Impairment and Difference In Conditions business.

6. Flood damage, except under Automobile Physical Damage, Inland
Marine, Homeowners or Commercial Multi-Peril Policies.

 

5.

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

	 	8.	 	a. Pool, Association or Syndicate business except for
participation in the Mutual Reinsurance Bureau, as excluded by the provisions of
the “Pools Exclusion Clause”. Nevertheless, it is specifically agreed that
liability accruing to the Company from its participation in the following shall
not be excluded:

	 	i.	 	The following so-called Coastal Pools:
	 
	 	 	 	Alabama Insurance Underwriting Association

Florida Windstorm Underwriting Association

Louisiana Insurance Underwriting Association

Mississippi Insurance Underwriting Association

North Carolina Insurance Underwriting Association
South Carolina Windstorm and Hail Underwriting Association

Texas Catastrophe Property Insurance Association Georgia

Insurance Underwriting Association
	 
	 	ii.	 	All “FAIR Plan” business
	 
	 	 	 	for all perils including riot and civil disorder otherwise
protected hereunder shall not be excluded except, however, that
this Contract does not include any increase in such liability
resulting from:
	 
	 	 	 	a) the inability of any other participant in such FAIR
	 
	 	 	 	Plan or Coastal Pool to meet its liability
	 
	 	 	 	b) any claim against such FAIR Plan or Coastal
Pool, or any participant therein, including the Company,
whether by way of subrogation or otherwise, brought by or on
behalf of any insolvency fund (as defined in the Insolvency
Funds Exclusion Clause incorporated in this Contract).

b. Fire and Lightning losses on Mill and Elevator properties
processed through or not processed through the Association of American
Mill & Elevator Mutual Insurance Companies, known as the Mill Mutuals,
Itasca, Illinois and the Association of American Mill and Agri Insurers.

9. Loss/or Damage/or Costs/or Expenses arising from Seepage and/or
Pollution and/or Contamination, other than Contamination from Smoke Damage.
Nevertheless, this exclusion does not preclude payment of the cost of the removal of
debris of property damaged by a loss otherwise covered

 

6.

hereunder, but subject always to a limit of not more than five thousand dollars ($5,000)
plus twenty five percent (25%) of the Company’s property loss under original Policy.

10. Regarding interests which at time of loss or damage are on shore, no
liability shall attach hereto in respect of 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.

11. 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 is excluded from this Contract. “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.

12. Transmission and Distribution Lines Exclusion — Above Ground (150M
Exclusion)

13. Fungi Coverage Limitation (NMA 2955)

14. Terrorism (NMA 2930b)

15. Information Technology Hazard Clarification Clause (NMA 2912)

B. Any exclusion listed above (other than exclusions A(4), A(6), A(7), A(9),
A(10), A(11), A(14) & A(15)) 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 of an insured’s regular operations shall mean
not greater than ten percent (10%) of the insured’s regular operations.

 

7.

ARTICLE 5

RETENTION AND LIMIT

	See EXHIBITS I, II, III, IV and V attached to and forming part of this
Contract.

 ARTICLE 6

REINSTATEMENT

	See EXHIBITS 1, II, III, IV and V attached to and forming part of this
Contract. 

ARTICLE 7

PREMIUM 

	See EXHIBITS I, II, III, IV and V 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 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

 

8.

respect of individual losses which occur beyond such seventy two (72) consecutive hours
during the continued occupation of an assured’s premises by strikers, provided such
occupation commenced during the aforesaid period.

3. As regards earthquake (the epicentre 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. Except for those “Loss Occurrences” referred to in A(1) and A(2) 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.

C. However, as respects those “Loss Occurrences” referred to in A(1) and A(2),
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, 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.

 

9.

ARTICLE 9

NET RETAINED LINE

A. This Contract applies only to that portion of any Policy 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 Policy which the Company retains net for its own account shall be
included.

B. 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 such
Reinsurers, 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 underlying reinsurance
and layers of catastrophe reinsurance both below and above this layer of coverage and recoveries
made thereunder shall be disregarded for all purposes of this Contract and shall inure to the sole
benefit of the Company.

ARTICLE 10

NET LOSS

A. The term “Net Loss” shall mean the actual loss sustained 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, (v) any interest on judgments other than prejudgment interest when added to a
judgment and (vi) all Loss Adjustment Expenses incurred by the Company. 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. “Loss Adjustment Expenses” shall mean: (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

 

10.

in connection with coverage questions regarding specific claims and legal actions, including
Declaratory Judgment Expenses, connected thereto, (iii) all interest on judgments other than
prejudgment interest 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.

C. “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.

D. All salvages, recoveries, payments and reversals or reductions of verdicts or
judgments (net of the cost of obtaining such salvage, recovery, payment or reversal or reduction
of a verdict or judgment) 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,

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

ARTICLE 11

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.

 

11.

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 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.

 

12.

ARTICLE 12

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 13

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 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.

 

13.

ARTICLE 14

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 15

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 16

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.

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.

 

 

14.

ARTICLE 17

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 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.

 

 

15.

ARTICLE 18

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.

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

 

 

16.

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 19

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 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.

 

 

17.

ARTICLE 20

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 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 Reinsurers 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 21

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

 

 

18.

(“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 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.

 

 

19.

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.

1. 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
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

 

 

20.

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.

0. 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 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

 

 

21.

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 22

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.

 

 

22.

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.

ARTICLE 23

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
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;

 

 

23.

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 Reinsurers
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 including but not limited to the Reinsurers
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

 

 

24.

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 un-liquidated 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 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

 

 

25.

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 24

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.

 

 

26.

ARTICLE 25

LATE PAYMENTS

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 SETTLEMENTS. 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 repots) 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 SETTLEMENTS 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 due 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

 

 

27.

amount computed in respect of any overdue payment is less than one quarter of one percent
(0.25%) of the amount 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

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 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.

 

 

28.

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 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.

 

 

29.

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.

0. 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 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 27

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
	 
	 	Ill.	 	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
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.

 

 

2.

	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.

 

 

POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

	A.	 	It is agreed that the following is excluded hereunder:

	 	(1)	 	All business derived directly or indirectly from any Pool, Association or Syndicate
which
maintains its own reinsurance facilities.
	 
	 	(2)	 	Any Pool or Scheme, (whether voluntary or mandatory) formed after 1st March, 1968 for
the purpose of insuring property whether on a country-wide basis or in respect of
designated areas. This exclusion shall not apply to so-called Automobile
Insurance Plans or other Pools formed to provide coverage for Automobile Physical
Damage.
	 
	 	(3)	 	Business written by the Company for the same perils, which is known at the time to
be
insured by, or in excess of underlying amounts placed in any Pool, Association or
Syndicate formed for the purpose of writing oil, gas or petro-chemical plants
and/or oil or gas drilling rigs.

	 	 	Nevertheless, this exclusion does not apply:

	 	(a)	 	where the Total Insured Value over all interests of the risk in question is
less than
$250,000,000.
	 
	 	(b)	 	to interests traditionally underwritten as Inland Marine or Stock and/or
Contents
written on a Blanket Basis.
	 
	 	(c)	 	to Contingent Business interruption, except when the Company is aware that the
key location is known at the time to be insured in any Pool, Association
or Syndicate named above, other than as provided for under (a), above.
	 
	 	(d)	 	Risks as follows:
offices, hotels, apartments, hospitals, educational establishments,
public utilities (other than railroad schedules) and builder’s risks on
the classes of risks specified in this subsection (d) only.

B. Where this Clause attaches to Catastrophe Excess of Loss Reinsurance Agreements, the following

SECTIONS are added:

	 	(1)	 	Nevertheless the Reinsurers specifically agree that liability accruing to the Company from
its participation in Residual Market Mechanisms including but not limited to:

	 	(a)	 	“Coastal Pools”
	 
	 	(b)	 	All “Fair Plan” and “Rural Risk Plan” Business, and
	 
	 	(c)	 	California Earthquake Authority (“CEA”), and Citizens
Property Insurance
Corporation (Florida) (“CM”)

	 	 	for all perils otherwise protected hereunder shall not be excluded, except that this
reinsurance does not include any increase in such liability resulting from:

	 	(i)	 	The inability of any other participant in such Residual Market
Mechanisms to meet its liability.
	 
	 	(ii)	 	Any claim against such Residual Market Mechanisms or any participant
therein, including the Company, whether by way of subrogation or
otherwise, brought by or on behalf of any insolvency fund (as
defined in the Insolvency Funds Exclusion Clause incorporated in
this Contract).

 

 

2.

	 	(2)	 	In respect of the CEA, where an assessment is made against the Company by the CEA,
the Company may include in its Ultimate Net Loss only that assessment directly
attributable to each separate loss occurrence covered hereunder. The Company’s
initial capital contribution to the CEA shall not be included in the Ultimate
Net Loss.
	 
	 	(3)	 	In respect of the Citizens Property Insurance Corporation (“CPIC”), where an assessment
is made against the Company by the Citizens Property Insurance Corporation,
(“CPIC”) the maximum loss that the Company may include in the Ultimate Net
Loss in respect of any loss occurrence hereunder shall not exceed the lesser
of:

	 	(a)	 	The Company’s assessment from CPIC for the accounting year in which the loss
occurrence commenced, or
	 
	 	(b)	 	The product of the following:

	 	(i)	 	The Company’s percentage participation in CPIC for the
accounting year in which the loss occurrence commenced; and
	 
	 	(ii) 	 	CPIC’s total losses in such loss occurrence.

	 	 	Assessments for accounting years other than the accounting year in which the Loss
Occurrence commenced may not be included in the Company’s Ultimate Net Loss hereunder,
	 
	 	 	Moreover, in respect of the CPIC, Ultimate Net Loss hereunder shall not include any
monies expended to purchase or retire bonds as a consequence of being a member of the
CPIC or to meet any obligations arising from the deferment by CPIC of the collection of
monies.

			
	NOTES:	 	Wherever used herein the terms:

	 	 	“Company” shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever
other term is used in the attached reinsurance document to designate the reinsured
company or companies.
	 
	 	 	“Agreement” shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever
other term is used to designate the attached reinsurance document.
	 
	 	 	“Coastal Pools” means liability accruing to the Company from its participation in state
Residual Market Mechanisms formed to protect property located in those states of the
United States of America which border the Gulf of Mexico, Hawaii, Florida, Georgia, South
Carolina and North Carolina.
	 
	 	 	“Pool”, “Syndicate” or “Association” refers to a mandatory or voluntary collection of
unaffiliated insurers, reinsurers or both, who are associated together and using a common
underwriting manager, whether as an employee or as a third party contractor, for the
purposes of accepting risk and providing insurance or reinsurance either severally or
jointly.
	 
	 	 	“Reinsurers” shall be understood to mean “Reinsurers”, “Underwriters” or whatever other
term is used in the attached reinsurance document to designate the Reinsurer or
Reinsurers.
	 
	 	 	“Ultimate Net Loss” shall be understood to mean “Loss”, “Net Loss” or whatever other term
is used to designate the amount of loss to which this reinsurance coverage and the limit
and retention of the attached reinsurance document apply.

 

 

TRANSMISSION AND DISTRIBUTION LINES EXCLUSION — ABOVE GROUND

(150M EXCLUSION)

All above ground transmission and distribution lines, including wire, cables, poles, pylons,
standards, towers, other supporting structures and any equipment of any type which may be
attendant to such installations of any description, for the purpose of transmission and
distribution of electrical power, telephone or telegraph signals, and all communication signals
whether audio or visual.

This exclusion applies to all equipment other than those on or within 150 meters (or 500 feet)
from the insured structure.

This exclusion applies both to physical loss or damage to the equipment and all business
interruption, consequential loss, and/or other contingent losses related to transmission and
distribution lines, other than contingent property damage/business interruption losses
(including expenses), arising from loss and/or damage to lines of third parties.

 

 

FUNGI COVERAGE LIMITATION (PROPERTY CATASTROPHE PROGRAM)

This reinsurance agreement excludes absolutely any loss, damage, cost expense, or liability
arising from Fungi unless directly caused by or arising from one of the following listed perils:

Earthquake, Seaquake, Seismic and/or Volcanic Disturbance/Eruption, Hurricane, Rainstorm,
Windstorm, Tornado, Cyclone, Typhoon, Tsunami, Flood, Hail, Freeze, Ice Storm, Weight of Snow or
Ice, Avalanche, Meteor/Asteroid Impact, Landslip, Landslide, Mudslide, Bush Fire, Forest Fire,
Lightning, Explosion, Fire, Aircraft and Vehicle Impact, Riots, Strikes and Civil Commotion.

Such losses arising from Fungi may only be included in the Company’s Ultimate Net Loss if they
manifest themselves, and are reported to the Reinsured within twelve (12) months of the start of
the event identified in relation to that Ultimate Net Loss.

Losses arising from Fungi shall not in and of themselves constitute an event for the purposes of
recovery hereunder.

If this reinsurance contract includes cover for Extra Contractual Obligations or Excess of Policy
Limit payments, then such losses which arise out of claims where Fungi are present or alleged to
be present may be included in the Ultimate Net Loss but only up to a maximum of twenty five
percent (25%) of the Ultimate Net Loss.

For the purposes of this reinsurance contract, Fungi shall be taken to include any type or form
of fungus, mold or mildew and any mycotoxins, spores, scents or by products produced or released
by fungi.

 

 

TERRORISM EXCLUSION 

(Property Treaty Reinsurance)

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

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

	(i)	 	involves violence against one or more persons; or
	 
	(ii)	 	involves damage to property; or
	 
	(iii)	 	endangers life other than that of the person committing the action; or
	 
	(iv)	 	creates a risk to health or safety of the public or a section of the public; or
	 
	(v)	 	is designed to interfere with or to disrupt an electronic system.

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

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

 

 

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 CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued
to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for
each and every Loss Occurrence, for ninety five percent (95%) of the excess Net Loss above an
initial Net Loss to the Company of two million dollars ($2,000,000) each and every Loss
Occurrence; but the Reinsurers shall not be liable for more than nine hundred fifty thousand
dollars ($950,000) of Net Loss for each and every such Loss Occurrence.

B. The Company agrees to carry at its own risk and not reinsured in any way the
remaining five percent (5%) of each excess Net Loss for which claim is made hereunder.

C. It is warranted that this Contract shall respond only when two (2) or more
risks are involved in a Loss Occurrence.

ARTICLE 6

REINSTATEMENT

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

B. For each amount so reinstated, the Company agrees to pay an additional
premium calculated by multiplying one hundred percent (100%) of the annual premium hereon by the
product of the percentage that the amount reinstated bears to the limit (i.e., nine hundred fifty
thousand dollars ($950,000)) of this Contract.

 

 

Exhibit I — Page 2.

Nevertheless, the liability of the Reinsurers shall never be more than nine hundred fifty
thousand dollars ($950,000) in respect of any one Loss Occurrence, nor more than one million
nine hundred thousand dollars ($1,900,000) in all in respect of all losses occurring during the
term of this Contract.

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 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. As premium for the reinsurance provided hereunder, the Company shall pay
the Reinsurers point seven nine seven zero percent (.7970%) of its Net Subject Earned Premium
for the Contract period.

B. The Company shall pay the Reinsurers a deposit premium of two hundred
seventy five thousand three hundred ninety six dollars ($275,396) in equal quarterly
installments of sixty eight thousand eight hundred forty nine dollars ($68,849) on January 1,
April 1, July 1 and October 1, 2009. This Contract shall be subject to a minimum premium of two
hundred twenty thousand three hundred sixteen dollars ($220,316).

C. As promptly as possible after the end of the Contract period, the Company
shall provide a report to the Reinsurers setting forth the premium due hereunder, computed in
accordance with the first paragraph, and any additional premium due the Reinsurers or return
premium due the Company shall be remitted promptly.

 

 

Exhibit I — Page 3.

D. “Net Subject Earned Premium” as used in this Contract shall mean the gross
earned premium of the Company for the classes of business reinsured hereunder, less the earned
portion of premium for reinsurance that inures to the benefit of this Contract.

attaching to and forming part of the

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

 

 

Exhibit II — Page 1.

EXHIBIT II

PROPERTY SECOND CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued
to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for
each and every Loss Occurrence, for ninety five percent (95%) of the excess Net Loss above an
initial Net Loss to the Company of three million dollars ($3,000,000) each and every Loss
Occurrence; but the Reinsurers shall not be liable for more than one million nine hundred
thousand dollars ($1,900,000) of Net Loss for each and every such Loss Occurrence.

B. The Company agrees to carry at its own risk and not reinsured in any way the
remaining five percent (5%) of each excess Net Loss for which claim is made hereunder.

C. It is warranted that this Contract shall respond only when two (2) or more
risks are involved in a Loss Occurrence.

ARTICLE 6

REINSTATEMENT

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

B. For each amount so reinstated, the Company agrees to pay an additional
premium calculated by multiplying one hundred percent (100%) of the annual premium hereon by the
product of the percentage that the amount reinstated bears to the limit (i.e., one million nine
hundred thousand dollars ($1,900,000)) of this

 

 

Exhibit II — Page 2.

Contract. Nevertheless, the liability of the Reinsurers shall never be more than one million
nine hundred thousand dollars ($1,900,000) in respect of any one Loss Occurrence, nor more than
three million eight hundred thousand dollars ($3,800,000) in all in respect of all losses
occurring during the term of this Contract.

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 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. As premium for the reinsurance provided hereunder, the Company shall pay
the Reinsurers point eight five two zero percent (.8520%) of its Net Subject Earned Premium for
the Contract period.

B. The Company shall pay the Reinsurers a deposit premium of two hundred
ninety four thousand four hundred dollars ($294,400) in equal quarterly installments of seventy
three thousand six hundred dollars ($73,600) on January 1, April 1, July 1 and October 1, 2009.
This Contract shall be subject to a minimum premium of two hundred thirty five thousand five
hundred twenty dollars ($235,520).

C. As promptly as possible after the end of the Contract period, the Company
shall provide a report to the Reinsurers setting forth the premium due hereunder, computed in
accordance with the first paragraph, and any additional premium due the Reinsurers or return
premium due the Company shall be remitted promptly.

 

 

Exhibit II — Page 3.

D. “Net Subject Earned Premium” as used in this Contract shall mean the gross
earned premium of the Company for the classes of business reinsured hereunder, less the earned
portion of premium for reinsurance that inures to the benefit of this Contract.

attaching to and forming part of the

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

 

 

Exhibit III — Page 1.

EXHIBIT III

PROPERTY THIRD CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued
to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for
each and every Loss Occurrence, for ninety five percent (95%) of the excess Net Loss above an
initial Net Loss to the Company of five million dollars ($5,000,000) each and every Loss
Occurrence; but the Reinsurers shall not be liable for more than four million seven hundred fifty
thousand dollars ($4,750,000) of Net Loss for each and every such Loss Occurrence.

B. The Company agrees to carry at its own risk and not reinsured in any way the
remaining five percent (5%) of each excess Net Loss for which claim is made hereunder.

C. It is warranted that this Contract shall respond only when two (2) or more
risks are involved in a Loss Occurrence.

ARTICLE 6

REINSTATEMENT

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

B. For each amount so reinstated, the Company agrees to pay an additional
premium calculated by multiplying one hundred percent (100%) of the annual premium hereon by the
product of the percentage that the amount reinstated bears to the limit (i.e., four million seven
hundred fifty thousand dollars ($4,750,000)) of this

 

 

Exhibit III — Page 2.

Contract. Nevertheless, the liability of the Reinsurers shall never be more than four million
seven hundred fifty thousand dollars ($4,750,000) in respect of any one Loss Occurrence, nor more
than nine million five hundred thousand dollars ($9,500,000) in all in respect of all losses
occurring during the term of this Contract.

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 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. As premium for the reinsurance provided hereunder, the Company shall pay
the Reinsurers one point zero six five four percent (1.0654%) of its Net Subject Earned Premium
for the Contract period.

B. The Company shall pay the Reinsurers a deposit premium three hundred
sixty eight thousand one hundred thirty nine dollars ($368,139) in equal quarterly installments
of ninety two thousand thirty four dollars and seventy five cents ($92,034.75) on January 1,
April 1, July 1 and October 1, 2009. This Contract shall be subject to a minimum premium of two
hundred ninety four thousand five hundred eleven dollars ($294,511).

C. As promptly as possible after the end of the Contract period, the Company
shall provide a report to the Reinsurers setting forth the premium due hereunder, computed in
accordance with the first paragraph, and any additional premium due the Reinsurers or return
premium due the Company shall be remitted promptly.

 

 

Exhibit III — Page 3.

D. “Net Subject Earned Premium” as used in this Contract shall mean the gross
earned premium of the Company for the classes of business reinsured hereunder, less the earned
portion of premium for reinsurance that inures to the benefit of this Contract.

attaching to and forming part of the

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY 

 

 

Exhibit IV — Page 1.

EXHIBIT IV

PROPERTY FOURTH CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT 

EFFECTIVE JANUARY 1, 2009 

issued to

PENN
MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY 

WILKES-BARRE, PENNSYLVANIA

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for
each and every Loss Occurrence, for ninety five percent (95%) of the excess Net Loss above an
initial Net Loss to the Company of ten million dollars ($10,000,000) each and every Loss
Occurrence; but the Reinsurers shall not be liable for more than fourteen million two hundred
fifty thousand dollars ($14,250,000) of Net Loss for each and every such Loss Occurrence.

B. The Company agrees to carry at its own risk and not reinsured in any way the
remaining five percent (5%) of each excess Net Loss for which claim is made hereunder.

C. It is warranted that this Contract shall respond only when two (2) or more
risks are involved in a Loss Occurrence.

ARTICLE 6

REINSTATEMENT

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

 

 

Exhibit IV — Page 2.

B. For each amount so reinstated, the Company agrees to pay an additional
premium calculated by multiplying one hundred percent (100%) of the annual premium hereon by the
product of the percentage that the amount reinstated bears to the limit (i.e., fourteen million
two hundred fifty thousand dollars ($14,250,000)) of this Contract. Nevertheless, the liability
of the Reinsurers shall never be more than fourteen million two hundred fifty thousand dollars
($14,250,000) in respect of any one Loss Occurrence, nor more than twenty eight million five
hundred thousand dollars ($28,500,000) in all in respect of all losses occurring during the term
of this Contract.

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 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. As premium for the reinsurance provided hereunder, the Company shall pay
the Reinsurers one point six four nine six percent (1.6496%) of its Net Subject Earned Premium
for the Contract period.

B. The Company shall pay the Reinsurers a deposit premium of five hundred
seventy thousand three dollars ($570,003) in equal quarterly installments of one hundred forty
two thousand five hundred dollars and seventy five cents ($142,500.75) on January 1, April 1,
July 1 and October 1, 2009. This Contract shall be subject to a minimum premium of four hundred
fifty six thousand three dollars ($456,003).

 

 

Exhibit IV — Page 3.

C. As promptly as possible after the end of the Contract period, the Company
shall provide a report to the Reinsurers setting forth the premium due hereunder, computed in
accordance with the first paragraph, and any additional premium due the Reinsurers or return
premium due the Company shall be remitted promptly.

D. “Net Subject Earned Premium” as used in this Contract shall mean the gross
earned premium of the Company for the classes of business reinsured hereunder, less the earned
portion of premium for reinsurance that inures to the benefit of this Contract.

attaching to and forming part of the

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

 

 

Exhibit V — Page I.

EXHIBIT V

PROPERTY FIFTH CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued to

PENN
MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES-BARRE, PENNSYLVANIA

ARTICLE 5

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for
each and every Loss Occurrence, for ninety five percent (95%) of the excess Net Loss above an
initial Net Loss to the Company of twenty five million dollars ($25,000,000) each and every Loss
Occurrence; but the Reinsurers shall not be liable for more than nineteen million dollars
($19,000,000) of Net Loss for each and every such Loss Occurrence.

B. The Company agrees to carry at its own risk and not reinsured in any way the
remaining five percent (5%) of each excess Net Loss for which claim is made hereunder.

C. It is warranted that this Contract shall respond only when two (2) or more
risks are involved in a Loss Occurrence.

ARTICLE 6

REINSTATEMENT

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

 

 

Exhibit V — Page 2.

B. For each amount so reinstated, the Company agrees to pay an additional
premium calculated by multiplying one hundred percent (100%) of the annual premium hereon by the
product of the percentage that the amount reinstated bears to the limit (i.e., nineteen million
dollars ($19,000,000)) of this Contract.

     Nevertheless, the liability of the Reinsurers shall never be more than nineteen million
dollars ($19,000,000) in respect of any one Loss Occurrence, nor more than thirty eight million
dollars ($38,000,000) in all in respect of all losses occurring during the term of this Contract.

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 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. As premium for the reinsurance provided hereunder, the Company shall pay
the Reinsurers one point six two zero seven percent (1.6207%) of its Net Subject Earned Premium
for the Contract period.

B. The Company shall pay the Reinsurers a deposit premium of five hundred
sixty thousand seventeen dollars ($560,017) in equal quarterly installments of one hundred forty
thousand four dollars and twenty five cents ($140,004.25) on January 1, April 1, July 1 and
October 1, 2009. This Contract shall be subject to a minimum premium of four hundred forty eight
thousand fourteen dollars ($448,014).

 

 

Exhibit V — Page 3.

C. As promptly as possible after the end of the Contract period, the Company
shall provide a report to the Reinsurers setting forth the premium due hereunder, computed in
accordance with the first paragraph, and any additional premium due the Reinsurers or return
premium due the Company shall be remitted promptly.

D. “Net Subject Earned Premium” as used in this Contract shall mean the gross
earned premium of the Company for the classes of business reinsured hereunder, less the earned
portion of premium for reinsurance that inures to the benefit of this Contract.

attaching to and forming part of the

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANYexv10w12

Exhibit 10.12

PROPERTY & CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT 

EFFECTIVE JANUARY 1, 2009 

issued to

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY 

WILKES-BARRE, PENNSYLVANIA

(hereinafter called the “Company”)

by

EMPLOYERS MUTUAL INSURANCE COMPANY 

IOWA

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

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

a 10.00% share

of the liability described in the attached Contract and, as
consideration, the Reinsurer shall receive a 10.00% share of the
premium named therein.

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

	 	 	 	 	 	 	 
	 	 	EMPLOYERS MUTUAL INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 

 

 

PROPERTY & CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009 

issued to

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY 

WILKES-BARRE, PENNSYLVANIA

(hereinafter called the “Company”)

by

HANNOVER RUCKVERISCHERUNG AG 

HANNOVER, GERMANY 

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

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

a 25.00% share

of the liability described in the attached Contract and, as
consideration, the Reinsurer shall receive a 25.00% share of the
premium named therein.

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

	 	 	 	 	 	 	 
	 	 	HANNOVER RUCKVERSICHERUNG AG	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 

	 	 

 

 

PROPERTY & CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT 

EFFECTIVE JANUARY 1, 2009 

issued to

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY 

WILKES-BARRE, PENNSYLVANIA

(hereinafter called the “Company”)

by

TRANSATLANTIC REINSURANCE COMPANY 

NEW YORK

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

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

a 12.50% share

of the liability described in the attached Contract and, as
consideration, the Reinsurer shall receive a 12.50% share of the
premium named therein.

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

	 	 	 	 	 	 	 
	 	 	TRANSATLANTIC REINSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 

	 	 

 

 

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

	 	 	 	 	 	 	 
	 	 	PENN MILLERS INSURANCE
COMPANY

AMERICAN MILLERS INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 

	 	 

 

 

 1. 

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY 

PROPERTY & CASUALTY 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
	 	 	6	 
	ARTICLE 5

	 	WARRANTY
	 	 	13	 
	ARTICLE 6

	 	GENERAL CONDITIONS
	 	 	14	 
	ARTICLE 7

	 	RETENTION AND LIMIT
	 	 	14	 
	ARTICLE 8

	 	PREMIUM
	 	 	17	 
	ARTICLE 9

	 	DEFINITION OF LOSS OCCURRENCE (PROPERTY)
	 	 	17	 
	ARTICLE 10

	 	DEFINITION OF LOSS OCCURRENCE (CASUALTY)
	 	 	19	 
	ARTICLE 11

	 	NET LOSS
	 	 	21	 
	ARTICLE 12

	 	EXTRA-CONTRACTUAL OBLIGATIONS /LOSS EXCESS OF
POLICY LIMITS
	 	 	23	 
	ARTICLE 13

	 	TERRORISM RECOVERY
	 	 	25	 
	ARTICLE 14

	 	NET RETAINED LINE
	 	 	25	 
	ARTICLE 15

	 	NOTICE OF LOSS AND LOSS SETTLEMENT
	 	 	26	 
	ARTICLE 16

	 	COMMUTATION (AS RESPECTS WORKERS’
COMPENSATION CLAIMS)
	 	 	27	 
	ARTICLE 17

	 	ERRORS AND OMISSIONS
	 	 	28	 
	ARTICLE 18

	 	OFFSET
	 	 	29	 
	ARTICLE 19

	 	CURRENCY
	 	 	29	 
	ARTICLE 20

	 	FEDERAL EXCISE TAX AND OTHER TAXES
	 	 	30	 
	ARTICLE 21

	 	ACCESS TO RECORDS
	 	 	30	 
	ARTICLE 22

	 	INSOLVENCY
	 	 	31	 
	ARTICLE 23

	 	CONFIDENTIALITY
	 	 	32	 
	ARTICLE 24

	 	PRIVACY
	 	 	33	 
	ARTICLE 25

	 	ARBITRATION
	 	 	34	 
	ARTICLE 26

	 	SERVICE OF SUIT
	 	 	38	 
	ARTICLE 27

	 	RESERVES
	 	 	39	 
	ARTICLE 28

	 	LATE PAYMENTS
	 	 	42	 
	ARTICLE 29

	 	MODE OF EXECUTION
	 	 	44	 
	ARTICLE 30

	 	VARIOUS OTHER TERMS
	 	 	44	 
	ARTICLE 31

	 	INTERMEDIARY
	 	 	47	 

 

2.

ATTACHMENTS:

NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE USA (BRMA 35A)

NUCLEAR INCIDENT EXCLUSION CLAUSE — PHYSICAL DAMAGE — REINSURANCE (BRMA 35B)

INFORMATION TECHNOLOGY HAZARDS CLARIFICATION CLAUSE

 

1.

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY 

PROPERTY & CASUALTY 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 and Casualty, that are in force at the inception of, and written with a Policy
period (new or renewal) effective during the term of this Contract (“Business Covered”).

B. For the purpose of this Contract, the term “Casualty Policies” shall mean the Company’s Policies
covering General Liability (including Products), Automobile Liability (including Medical Payments,
Uninsured Motorists and Underinsured Motorists, and statutory liability arising under Policies
providing coverage in accordance with the laws of states taking jurisdiction over losses), Workers’
Compensation (including Employers’ Liability, Common Law Liability and Occupational Disease)
Directors, Officers and Managers Liability/Directors and Officers Indemnity Business, Errors and
Omissions, Crime, and Surety including Seedman Bonds, Employee Benefits Liability (covered on a
claims-made basis) and the liability portion of Commercial Multi-Peril Policies.

C. 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.

D. 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.

 

2.

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.

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-”.

 

3.

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 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

 

4.

with another identified firm in the (re)insurance industry or related field.

 

5.

B. In the event the Company elects termination, the Company shall with the
notice of termination specify that termination will be on a Run-Off basis or a Cut-Off basis. In
the event that the Company elects to Cut-Off and thus relieve the Reinsurer for losses occurring
subsequent to the Reinsurer’s specified termination date, the Reinsurer shall within thirty (30)
days of the termination date return the liability for the unearned portion of any ceded premium
paid hereunder, calculated as of the termination date, and cash in that amount (less any
applicable ceding commission allowed thereon) and the minimum premium provisions, if any, shall
be waived. If the Company elects “Run-Off’, the Reinsurer shall remain liable to the Company
under this Contract with respect to losses arising from policies placed into effect and ceded
hereunder with effective dates (new or renewal policy period) prior to the termination date until
those policies naturally expire, are cancelled or non-renewed or their next annual anniversary,
provided such period shall not exceed eighteen (18) months from the date of termination elected
under this Article.

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.

 

6.

ARTICLE 4

EXCLUSIONS 

This Contract shall not cover:

A. As respects all classes of Business Covered hereunder:

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;

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

4. 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;

5. 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;

6. Financial Guarantee and Insolvency;

7. Loss resulting from an act of certified or non-certified terrorism 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;

 

7.

8.
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 interest which
at time of Loss or damage are within the territorial limits of the United
States of America (comprising the fifty (50) 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 all Property classes of Business Covered hereunder:

1. 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;

2. Policies of excess of Loss reinsurance;

3. 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;

4. 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;

5. Seepage and/or Pollution as per original Policies;

     Furthermore, Reinsurers agree that this exclusion does not apply to
over spraying of anhydrous ammonia, fertilizers

 

8.

and agriculture chemicals;

6. Information Technology Hazard Clarification (NMA 2912);

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

C. As respects all Casualty classes of Business Covered hereunder,
(including Workers’ Compensation and Employers’ Liability):

1. Umbrella Liability business;

2. Public Utilities;

3. Manufacture, handling, transit or use of explosives; unless
incidental to routine Agriculture operation;

4. Manufacture of liquid petroleum gas or petroleum;

5. All mining operations;

6. Buses other than buses used to transport employees of the
Insured or property;

7. Pharmaceutical and Medical Device Manufacturers;

8. Loss or liability, whether direct or indirect, arising from the
hazard of asbestos including the manufacturing, mining, storage, distribution,
transportation, fabrication, installation or removal of asbestos or products
containing asbestos;

9. Operation, navigation, or handling of ships, or vessels owned
by the Insured other than:

a. Yachts, small pleasure crafts, sports fishing vessels,
and

b. Vessels operating exclusively in inland and/or coastal
waters where legal liability on such vessels is incidental to the
coverage provided either under a general liability Policy or under a
comprehensive form of Policy;

 

9.

10. Ownership, maintenance or use of aircraft and aircraft flight
operations, but this exclusion does not apply to Workers’ Compensation/Employers’
Liability coverage;

11. Repair, cleaning or demolition of any vessel or barge used as

a petroleum tanker;

12. Loss or liability excluded by the Standard Pollution
Exclusion(s) promulgated by the Insured Services Office for both Commercial
General Liability and Commercial Automobile Liability Policies;

Notwithstanding the above, the Reinsurers agree that this exclusion shall not
apply to original Policies written in any state where the Standard ISO Pollution
Exclusion(s) have not been approved or are not permitted to be included in or
attached to original Policies.

Further, the Reinsurers agree that this exclusion shall not apply in any case
where the Company has attached the Standard ISO Pollution Exclusion(s) to an
original Policy but has sustained a Loss as a result of that exclusion being
deemed invalid or inapplicable by a court of law.

Notwithstanding all of the foregoing, Reinsurers agree that this exclusion does
not apply to environmental restoration coverage provided under an MCS-90
Endorsement attached to a commercial automobile Policy written in accordance with
the Motor Carrier Act of 1980.

Furthermore, Reinsurers agree that this exclusion does not apply to over spraying
of anhydrous ammonia, fertilizers and agricultural chemicals, nor shall this
exclusion apply to operations involving anhydrous ammonia, liquefied petroleum
gas (LPG), or propane (including the transportation thereof) where the Company
has attached the Solutions 2000 Liability PMAG-16 (01 05) Pollution Exclusion
Amendment to an original Policy. Furthermore, this exclusion does not apply to
pollutants from mobile equipment where the Company has attached the Solutions
2000 Liability PMAG-16 (01 05) Pollution Exclusion Amendment to an original
Policy.

Furthermore, Reinsurers agree that this exclusion does not apply to operations
meeting all standards of any statute, ordinance, regulation or license
requirement of any federal, state or local government which apply to those
operations, where the Company has attached the Solutions 2000 Liability PMAG —
04 (07 98) “Pesticide or Fertilizer Applicator Amended Exclusions with Amendment
of Limits of Insurance”

 

10.

to an original policy. Furthermore, this exclusion does not apply to fields on
which the insured, or any contractor or subcontractor working on the behalf of
the insured, is performing operations, where the Company has attached the
Solutions 2000 Liability PMAG — 04 (07 98) “Pesticide or Fertilizer Applicator
Amended Exclusions with Amendment of Limits of Insurance” to an original Policy.

13. Products guarantee and/or recall and/or integrity impairment when written as
such;

14. Nursing Homes;

15. All Workers’ Compensation business classified by the
Company as Employee Leasing Corporations, Professional Employment Organizations
(PEO’s), Temporary Agencies, Police, Firefighters and EMT Workers, whether
professional or volunteer;

16. Blasting;

17. Policies issued as excess coverage, other than insurance or
over a self-insured retention;

18. Manufacturing of fireworks, fuses, nitroglycerine, celluloid and pyroxylin;

19. Concerns when engaged in the demolition of buildings more than three (3)
stories in height;

20. Operation of animal shows, riding academies, circuses,
carnivals, amusement parks or amusement devices;

21. Municipalities, when written as such, but this exclusion does not apply as
respects:

a. School districts;

b. Municipally-owned buildings or properties;

c. Municipalities named as an additional insured;

22. Auto Liability

a. As a taxicab, public livery or bus;

b. Public emergency vehicles such as fire trucks or police cars;

c. Ambulances;

d. Rent-a-car and leasing operations;

e. Vehicles carrying passengers for hire or reward;

 

11.

f. Automobiles used in organized speed contests including but not limited
to racing, rallies, and speed trials;

g. As a long haul public freight carrier or common carrier, except for
incidental hauling of goods of others;

h. However, if any risks falling within the scope of the above exclusions
are assigned to the Company under an Assigned Risk Plan, the coverage
afforded by this Contract shall apply to such risks, but only for the
Policy limits prescribed by said Automobile Assigned Risk Plan;

23. Products Liability

a. The manufacture, sale or retail or wholesale distribution of aircraft,
aircraft parts;

b. The manufacture of extracts drugs, medicines, cosmetics or hair, scalp
or skin preparations;

c. The manufacture of automobiles, buses, trucks and trailers,
recreational vehicles, motorcycles or the manufacture of components
critical to vehicle safety;

d. Products liability written without an annual aggregate limit;

24. Malpractice or Professional Liability, except

a. Druggists’ Liability;

b. Printers’ Liability;

c. Barbers’ and Beauticians’ Liability; (including nail salons);

d. Agricultural Consultants’ Liability;

e. Funeral Directors’ or Morticians’ Professional Liability;

f. Pastoral Professional Liability written in conjunction
with a liability risk;

g. Incidental malpractice written in conjunction with a
liability risk;

h. Opticians;

i. Hearing Aid Providers;

j. Florists.

25. Bridge Construction—when over three stories, over navigable
waters, or over one hundred (100) feet in length.

26. Construction or maintenance of tunnels or subways more

 

12.

than fifty (50) feet in length, dams, levees, cofferdams (except dams and levees
constructed on farm premises which are incidental to farm operations), or with
respect to business classified as commercial business, towers over two (2 )stories
high.

27. Elevator construction and installation, except construction or installation of
Grain Elevator facilities or related equipment.

28. Occupational Accident when written as such.

29. Applies to Workers Compensation, and not Commercial
General Liability Coverage:

Risks having maritime exposures or exposures including but not limited to:

i. Risks subject to the U.S. Longshoremen’s and
Harborworker’s Act (except incidental which is defined as less than ten
percent (10%) of Workers Compensation policy premium);

ii. Operation of docks, quays, wharves, or drydocks;

iii. Operations subject to Jones Act;

iv. Operations subject to the Outer Continental Shelf Act
work.

30. Roofing contractors

31.
Scaffolding installations (except residential and commercial up to three stories).

32. Tower, steeple, chimney, or shaft construction and work.

33. Any exclusion listed above (other than A(3), A(4), A(5), A(6),
A(8), B(3), B(4), B(5), C(7), C(8), C(12), C(14), C(15)), 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 of an insured’s regular
operations shall mean not greater than ten percent (10%) of the insured’s regular
operations.

34. If the Company, without the knowledge and consent of its
Home Office, is bound on a risk excluded above (other than Exclusions A(3)
Nuclear Incident Exclusion Clause — Liability and Physical Damage — Reinsurance
A(4) Syndicate, Pool or

 

13.

Underwriting Association, A(5) Insolvency Funds Exclusion, A(6) Financial
Guarantee and Insolvency, A(8) War, B(3) Property Damage Seepage and/or Pollution
Exclusion Clause, B(4) Flood, B(5) Seepage and/or Pollution, C(7) Pharmaceutical
and Medical Device Manufacturers, C(8) Asbestos Exclusion Clause, C(12) Casualty
Pollution Exclusion Clause, C(14) Nursing Homes, and C(15) Workers Compensation
Business), 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.

ARTICLE 5

WARRANTY

     For the purposes of this Contract, the Company warrants that the maximum Policy limits are as
follows:

Commercial General Liability 

Two million dollars ($2,000,000) each Loss Occurrence or so deemed.

Four million dollars ($4,000,000) Products-Completed Operation Aggregate Limit or so
deemed.

Business Automobile Liability 

One million dollars ($1,000,000) Combined Single Limit or so deemed.

Directors, Officers and Managers Liability

Directors and Officers Indemnity 

One million dollars ($1,000,000)/one million dollars ($1,000,000)/one million dollars
($1,000,000) or so deemed.

Workers’ Compensation and Employers’ Liability

     For the purpose of determining the amount of Loss sustained by the Company for accidents
under Workers’ Compensation and Employers’ Liability, it is deemed that the amount of Loss
applicable to any one employee under this Contract

 

14.

shall not exceed seven million five hundred thousand dollars ($7,500,000).

ARTICLE 6

GENERAL CONDITIONS 

	A.	 	Property Business 
	 
	 	 	As respects to all Property business, the following general conditions shall apply:

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

	B.	 	Casualty Business 
	 
	 	 	As respects to all Casualty business, the following general conditions shall apply:

	 	—	 	 As respects Occupational Disease, retention and limit applies to each employee.
	 
	 	—	 	 Recoveries from the Minnesota Workers’ Compensation Reinsurance Association
shall inure to the benefit of Reinsurers hereunder.
	 
	 	—	 	 Employee Benefits Liability and Directors, Officers and Managers business
covered on a claims made basis.

ARTICLE 7

RETENTION AND LIMIT 

	A.	 	Property Business 

     As respects to all Property business, the Reinsurers shall be liable to, indemnify
and reinsure the Company for 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 hundred
thousand dollars ($500,000) but the Reinsurers shall not be liable
for more than five hundred thousand dollars ($500,000) of Net Loss in each and every Risk in each and every
Loss Occurrence, nor shall Reinsurers be liable for more

 

15.

	 	 	than one million five hundred thousand dollars ($1,500,000) of Net Loss in excess Loss
from any one Loss Occurrence.
	 
	B.	 	Casualty Business 

     As respects to all Casualty business, the Reinsurers shall be liable to, indemnify
and reinsure the Company for 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 hundred
thousand dollars ($500,000) but the Reinsurers shall not be liable for more than five
hundred thousand dollars ($500,000) of Net Loss each and every Loss Occurrence.

	C.	 	Basket Retention 

     As respects a combination Property and Casualty loss, the following additional
coverage shall apply:

	 	 	Five hundred thousand ($500,000) Net Loss, each Loss Occurrence in excess of five hundred
thousand ($500,000) Net Loss, each Loss Occurrence.
	 
	 	 	It is agreed, however, that no more than one Property risk shall be included in any such
combination accident or occurrence.
	 
	 	 	Coverage under paragraphs A and B shall inure to coverage under Paragraph C.
	 
	 	 	Notwithstanding the foregoing, it is further understood and agreed that as respects
Property losses in no event shall the Reinsurers be liable for more than one million five
hundred thousand dollars ($1,500,000) of Net Loss from any one Loss Occurrence.
	 
	D.	 	Terrorism 

1. The Reinsurers shall be liable to, indemnify and reinsure the
Company for one hundred percent (100%) of the Company’s Net Loss involving any 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
hundred thousand dollars ($500,000) each and every Loss Occurrence; but the Reinsurers
shall not be liable for more than five hundred thousand dollars ($500,000) of Net Loss
for each Loss Occurrence, and not more than five hundred thousand dollars ($500,000) of
Net Loss during the term of this Contract.

 

16.

2. An “Act of Terrorism” shall mean any act, including both Certified
Acts of Terrorism in accordance with 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 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:

a. involves violence against one or more persons; or

b. involves damage to property; or

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

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

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

f. 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”.

	E.	 	Mold

     As respects to all Net Loss arising from Mold, the Reinsurers shall be liable for
one hundred percent (100%) of the Company’s excess Net Loss above an initial Net Loss to
the Company of five hundred thousand dollars ($500,000) from Mold, as such term is
defined in the Company’s Policy, but the Reinsurers shall not be liable for more than
five hundred thousand dollars ($500,000) for all Net Loss arising from Mold during the
term of the Contract.

 

17.

ARTICLE 8

PREMIUM 

A. The premium payable to Reinsurers shall be calculated by applying a rate of seven point zero
percent (7.0%) 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 million one
hundred seventy six thousand four hundred fifty two dollars ($6,176,452), in four (4) equal
installments of one million five hundred forty four thousand one hundred thirteen dollars
($1,544,113) each on January 1, April 1, July 1 and October 1, 2009. As promptly as possible,
however no longer than sixty (60) days, after the termination of this Contract, 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 four million
nine hundred forty one thousand one hundred sixty one dollars ($4,941,161).

ARTICLE 9

DEFINITION OF LOSS OCCURRENCE (Property)

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

 

18.

contiguous thereto.

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

 

19.

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, 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 10

DEFINITION OF LOSS OCCURRENCE (Casualty) 

A. Except as otherwise provided herein, the term “Loss Occurrence” or
“Occurrence” means an accident, incident, disaster, casualty, error, omission, wrongful act or
happening, or series of accidents, incidents, disasters, casualties, errors, omissions, wrongful
acts or happenings arising out of or following on one event. Except where specifically provided
otherwise in this Contract, each Loss Occurrence shall be deemed to take place in its entirety as
of the earliest date of Loss as determined by any Policy responding to the Loss Occurrence. Any
claims made under an extended reporting period endorsement or any other extended reporting and/or
discovery period shall for the purposes of this Contract be considered to be made on the last day
of the Policy period immediately preceding the extended reporting and/or discovery period.

B. If only one Policy is involved in a Loss Occurrence, then the date of Loss shall be as
determined under that Policy. However, for the purpose of this Contract when claims-made and/or
losses discovered and/or Occurrence and/or accident Policies are involved in the same Loss
Occurrence with other claims-made and/or losses discovered and/or Occurrence and/or accident
Policies, the date of Loss for the Loss Occurrence shall be determined as follows:

1. If an Occurrence or accident Policy is identified as being involved,
then the date of “Loss” shall be the date as determined under the Occurrence or accident
Policy; or

2. If no Occurrence or accident Policy is identified as being involved,

 

20.

then the date of the “Loss Occurrence” shall be the date the first claim is made or
discovered under a claims-made or losses discovered Policy. If the first claim from a
Loss Occurrence is made under an extended reporting period endorsement, the date of Loss
for the Loss Occurrence shall be the date the first claim is made. If after ten (10)
years from the expiration date of this Contract, the Company identifies an Occurrence
Policy, the date of Loss for all claims-made and losses discovered Policies shall remain
as first established.

C. Continuous or Repeated Injurious Exposure. As respects liability (bodily
injury and property damage) other than Automobile and Products, and at the option of the Company,
the term “Loss Occurrence” as used in this Contract shall also mean the sum of all damages for
bodily injury and property damage sustained by each insured during a Policy period arising out of
a continuous or repeated injurious exposure to substantially the same general conditions. For
purposes of this definition, the date of Loss shall be deemed to be the inception or renewal date
of the Policy to which payment of the Loss is charged.

D. Products. As respects Products liability, and at the option of the Company, the term “Loss
Occurrence” as used in this Contract shall also mean the sum of all damages for bodily injury and
property damage sustained by each insured during a Policy period arising out of the use of the
same kind of product made or produced by the same manufacturer or producer. For purposes of this
definition, the date of Loss shall be deemed to be the inception or renewal date of the Policy to
which payment of the Loss is charged.

E. Occupational Disease or Cumulative Injury. An Occupational Disease Or
Cumulative Injury suffered by an employee shall also be deemed to be a “Loss Occurrence” within
the meaning of this Contract, and each case of an employee contracting such disease or cumulative
injury shall be considered as constituting a separate and distinct Occurrence.

F. The date of Loss on which the Company has sustained an Occupational
Disease or Cumulative Injury Loss, as respects each employee, shall be deemed to be the date of
Loss under the original Policy as determined by the Company.

G. As respects two (2) or more occupational disease losses of one specific kind or class or
cumulative injury losses of one specific kind or class suffered by one or more employees of one
insured during the same Policy period, the date of any Loss Occurrence shall be deemed to be the
inception, anniversary or renewal date of the Policy under which such Loss or losses are covered
(or if such losses arise under two (2) or more Policies, the inception, anniversary or renewal date
of

 

21.

the Policy chosen by the Company).

H. “Occupational Disease” shall mean any bodily injury (including resulting
death) or disease suffered by an employee which fulfills all of the following conditions:

1. It is not traceable to a definite compensable accident occurring
during the employee’s present or past employment;

2. It is not traceable to an event of twenty four (24) hours or less in
duration;

3. It has been caused by exposure to conditions present in the workers’
occupational environment;

4. It has resulted in a disability or death.

I. “Cumulative Injury” means any bodily injury (including resulting death) or
disease suffered by an employee which fulfills all of the following conditions:

1. It is not traceable to a definite compensable accident occurring
during the employee’s present or past employment;

2. It is not traceable to an event of twenty four (24) hours or less in
duration;

3. It has occurred from, and has been aggravated by, a repetitive
employment-related activity.

J. “Loss” means the amount of Loss or liability paid by the Company to or on
behalf of its policyholder under the Policies.

K. For purposes of this Contract, the term “Policy Period” shall mean a
separate Policy period of twelve (12) months or less commencing at the inception, anniversary or
renewal date of a Policy.

ARTICLE 11

NET LOSS 

A. The term “Net Loss” shall mean the actual Loss sustained 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

 

22.

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.

 

23.

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 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 Notwithstanding the preceding paragraph (C), Loss Adjustment Expenses as defined are covered on
a pro rata basis with the exception of Directors, Officers and Managers business, as classified by
the Company as such, where Loss Adjustment Expenses will be included as part of the Net Loss,
subject to a limit of the original Policy.

E. “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.

F. 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 12

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

 

24.

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 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

 

25.

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 13

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 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 14

NET RETAINED LINE 

 

26.

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. Intercompany 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
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 15

NOTICE OF LOSS AND LOSS SETTLEMENT 

A. The Company shall advise the Reinsurers promptly of all losses 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. In addition, the
Company shall promptly advise the Reinsurer of all bodily injury losses involving the following
major injuries:

	 	1.	 	Fatality.
	 
	 	2.	 	Spinal Cord Injuries (quadriplegia, paraplegia).

 

27.

	 	3.	 	Brain Damage (seizure, coma or physical/mental impairment).
	 
	 	4.	 	Severe Burn Injuries resulting in Disfigurement or Scarring.
	 
	 	5.	 	Total or Partial Blindness in one or both Eyes.
	 
	 	6.	 	Amputation of a Limb or Multiple Fractures.
	 
	 	7.	 	Major Organ (such as heart, lungs).
	 
	 	8.	 	Permanent disability.
	 
	 	9.	 	Sexual molestation or abuse.

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 16

COMMUTATION (As respects Workers’ Compensation claims) 

A. No later than eighty four (84) months following the termination of this
Contract, the Company will submit a statement to the Reinsurers listing amounts paid, and
reserves, in respect of the excess portion of all known Workers’ Compensation claims which
occurred during the term of this Contract and which are not finally settled and are likely to
result in claims under this Contract. This statement will form the basis of a final agreed present
value for the excess portion of all such losses reinsured under this Contract should both parties
mutually agree to commute the Workers’ Compensation coverage part of this Contract.

 

28.

B. In determining the present value of said losses in excess of the retention, the Company will
first calculate the undiscounted value excess of the retention, subject to the maximum amount of
liability as provided in the Contract. The Company will then calculate the present value of that
portion of the undiscounted Loss that exceeds the retention for those losses in accordance with
generally accepted actuarial practices.

C. If, upon receipt of such statement from the Company, there is mutual
agreement between the Company and the Reinsurers as to the present value of said losses, the
Reinsurers will pay the agreed amount in excess of the retention
and subject to the maximum amount of liability as provided in each layer of coverage provided
within this Contract. In the absence of mutual agreement as to the present value of said losses,
the sole remedy to resolve disputes involving the determination of the present value of said
losses will be as follows.

D. The Reinsurers, or the Company, will request in writing that any difference be settled by a
panel of three (3) actuaries, one to be chosen by each party and the third by the two (2) so
chosen.

E. If either party refuses or neglects to appoint an actuary within thirty (30) days after the
Reinsurers’ or Company’s request in writing that the differences be settled by a panel of three (3)
actuaries, the other party will appoint two (2) actuaries. All the actuaries will be regularly
engaged in the evaluation of Workers’ Compensation claims and will be Fellows of the Casualty
Actuarial Society or of the American Academy of Actuaries. None of the actuaries will be under the
control of either party to this Contract.

F. Each party will submit its case to the actuary within thirty (30) days of the appointment of the
third actuary. The decision in writing of any two (2) actuaries, when filed with the parties
hereto, will be final and binding on both parties. The expense of the actuaries and of the
commutation will be equally divided between the two (2) parties. Said commutation will take place
in Wilkes Barre, Pennsylvania, unless some other place is mutually agreed upon by the Company and
the Reinsurers.

G. The Reinsurers’ proportion of the amounts so determined will be considered the amount of Loss
hereunder, and the payment thereof by the Reinsurers will constitute a complete release of the
Reinsurers of their liability for such Loss or losses.

ARTICLE 17

ERRORS AND OMISSIONS 

 

29.

     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 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 18

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 19

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.

 

30.

ARTICLE 20

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.

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 21

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.

 

31.

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 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 22

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

 

32.

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.

ARTICLE 23

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

 

33.

accepting a 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 24

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

 

34.

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 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 25

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

 

35.

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 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.

 

36.

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 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

 

37.

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 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

 

38.

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 26

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.

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.

 

39.

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 27

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
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

 

40.

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 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;

 

41.

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 un-liquidated and un-discharged 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 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

 

42.

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 28

LATE PAYMENTS 

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

 

43.

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 due 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 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

 

44.

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 29

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 30

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 the parties other
than as expressed in this Contract. Any change or modification of

 

45.

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

 

46.

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

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.

 

47.

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 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 31

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 Reinsurance a business of
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.

 

1.

NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE 

U.S.A. (BRMA 35A) 

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

2. Without in any way restricting the operation of paragraph 1 of this Clause, it is understood and
agreed that for all purposes of this reinsurance all the original policies of the Company (new,
renewal and replacement) of the classes specified in Clause II of this paragraph 2 from the time
specified in Clause III in this paragraph 2 shall be deemed to include the following provision
(specified as the Limited Exclusion Provision).

     Limited Exclusion Provision*

	 	I.	 	It is agreed that the policy does not apply under any liability coverage, to (injury,
sickness, disease, death or destruction (bodily injury or
property damage with respect to which an insured under the policy is also an insured under a
nuclear energy liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
	 
	 	II.	 	Family Automobile Policies (liability only), Special Automobile Policies
(private passenger automobiles, liability only), Farmers Comprehensive Personal
Liability Policies (liability only), Comprehensive Personal Liability Policies
(liability only) or policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated above, such as the
Comprehensive Dwelling Policy and the applicable types of Homeowners Policies.
	 
	 	 	 	The inception dates and thereafter of all original policies as described in II
above, whether new, renewal or replacement, being policies which either

	 	(a)	 	become effective on or after 1st May, 1960, or
	 
	 	(b)	 	become effective before that date and contain the Limited Exclusion Provision
set out above;

	 	 	 	provided this paragraph 2 shall not be applicable to Family Automobile Policies,
Special Automobile Policies, or policies or combination policies of a similar
nature, issued by the Company on New York risks, until 90 days following
approval of the Limited Exclusion Provision by the Governmental Authority having
jurisdiction thereof.

3. Except for those classes of policies specified in Clause II of paragraph 2 and without in any
way restricting the operation of
paragraph 1 of this Clause, it is understood and agreed that for all purposes of this reinsurance
the original liability policies of the Company (new, renewal and replacement) affording the
following coverages:

Owners, Landlords and Tenants Liability, Contractual Liability, Elevator Liability,
Owners or Contractors (including railroad), Protective Liability, Manufacturers and
Contractors Liability, Product Liability, Professional and Malpractice Liability,
Storekeepers Liability, Garage Liability, Automobile Liability (including Massachusetts
Motor Vehicle or Garage Liability)

shall be deemed to include, with respect to such coverages, from the time specified in Clause V of
this paragraph 3, the following provision (specified as the Broad Exclusion Provision):

Broad Exclusion Provision*

	 	I.	 	It is agreed that the policy does not apply:

	 	 	 	Under any Liability Coverage, to (injury, sickness, disease, death or destruction
(bodily injury or property damage

	 	(a)	 	with respect to which an insured under the policy is also
an insured under a nuclear energy liability
policy issued by Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or
	 
	 	(b)	 	resulting from the hazardous properties of nuclear material and with respect
to which (1) any person
or organization is required to maintain financial protection pursuant to
the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the
insured is, or had this policy not been issued would be, entitled to
indemnity from the United States of America, or any agency thereof, under
any agreement entered into by the United States of America, or any agency
thereof, with any person or organization.

	 	II.	 	Under any Medical Payments Coverage, or under any Supplementary Payments Provision
relating to
(immediate medical
or surgical relief
(first aid
(bodily injury, sickness, disease or death to expenses incurred with respect to (bodily Injury
resulting from the hazardous properties of nuclear material and
arising out of the operation of a nuclear facility by any person or organization.

	 	III.	 	Under any Liability Coverage, to (injury, sickness, disease, death or destruction
(bodily injury or property damage
resulting from the hazardous properties of nuclear
material, if

 

2.

	 	(a)	 	the nuclear material (1) is at any nuclear facility owned
by, or operated by or on behalf of, an insured, or (2) has been discharged or
dispersed therefrom;

	 	(b)	 	the nuclear material is contained in spent fuel or waste at any time
possessed, handled, used,
processed, stored, transported or disposed of by or on behalf of an
insured; or
	 
	 	(c)	 	the (injury, sickness, disease, death or destruction
(bodily injury or property damage arises out of the furnishing by an
insured of services, materials, parts or equipment in connection with the
planning, construction, maintenance, operation or use of any nuclear facility,
but if such facility is located within the United States of America, its
territories, or possessions or Canada, this exclusion (c) applies only to (injury
to or destruction of property at such nuclear facility
(property damage to such nuclear facility and any property thereat.

	 	IV.	 	As used in this endorsement:

	 	 	 	“Hazardous properties” include radioactive, toxic or explosive properties;
“nuclear material” means source material, special nuclear material or byproduct
material; “source material”, “special nuclear material”, and “byproduct material”
have the meanings given them in the Atomic Energy Act of 1954 or in any law
amendatory thereof; “spent fuel” means any fuel element or fuel component, solid
or liquid, which has been used or exposed to radiation in a nuclear reactor;
“waste” means any waste material (1) containing byproduct material other than
tailings or wastes produced by the extraction or concentration of uranium or
thorium from any ore processed primarily for its source material content, and (2)
resulting from the operation by any person or organization of any nuclear
facility included under the first two paragraphs of the definition of nuclear
facility; “nuclear facility” means:

	 	(a)	 	any nuclear reactor,
	 
	 	(b)	 	any equipment or device designed or used for (1) separating
the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel,
or (3) handling, processing or packaging waste,
	 
	 	(c)	 	any equipment or device used for the processing,
fabricating or alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the premises where
such equipment or device is located consists of or contains more than 25
grams of plutonium or uranium 233 or any combination thereof, or more than
250 grams of uranium 235,
	 
	 	(d)	 	any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of waste,

and includes the site on which any of the foregoing is located, all operations conducted on such
site and all premises used for such operations; “nuclear reactor” means any apparatus designed or
used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass
of fissionable material;

	 	 	 	(With respect to injury to or destruction
of property, the word “injury” or
“destruction” (“property damage” includes
all forms of radioactive contamination of
property. (includes all forms of
radioactive contamination of pioperty.

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

	 	(a)	 	Garage and Automobile Policies issued by the Company on New York risks, or
	 
	 	(b)	 	statutory liability insurance required under Chapter 90, General Laws of
Massachusetts,

	 	 	 	until 90 days following approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.

4. Without in any way restricting the operation of paragraph 1 of this Clause, it is understood and
agreed that paragraphs 2 and
3 above are not applicable to original liability policies of the Company in Canada and that with
respect to such policies this Clause shall be deemed to include the Nuclear Energy Liability
Exclusion Provisions adopted by the Canadian Underwriters’ Association or the Independent
Insurance Conference of Canada.

*NOTE: The words printed in italics in the Limited Exclusion Provision and in the Broad Exclusion
Provision shall apply only in relation to original liability policies which include a Limited
Exclusion Provision or a Broad Exclusion Provision containing those words.

 

1.

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.

 

2.

4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this
reinsurance does not cover any Loss or liability by radioactive contamination accruing to the
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.

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