Document:

EXHIBIT 10.24

 

BROKERAGE BUSINESS POOLING AGREEMENT

 

This Brokerage Business Pooling Agreement (“Pooling Agreement”) by and
between Tower Insurance Company of New York (“TICNY”), an insurance company
domiciled in New York and CastlePoint Insurance Company (“CPIC”), an insurance
company domiciled in New York, is made effective as of 12:01 a.m., January 1,
2007, (the “Effective Date”).

 

WHEREAS, TICNY and CPIC are each authorized to transact, and do transact, a
multiple line property and casualty insurance business; and

 

WHEREAS, TICNY, and CPIC desire to pool their respective Brokerage Business
(defined below) in order to make more efficient use of available surplus and
achieve other operating efficiencies; and

 

WHEREAS, TICNY will act as the manager of such pool pursuant to a separate Pool
Management Agreement, attached hereto as Exhibit A;

 

NOW, THEREFORE, for mutual considerations, the sufficiency
and receipt of which is hereby acknowledged, TICNY and CPIC agree as follows:

 

ARTICLE
I                    Definitions

 

In addition to the terms defined elsewhere in this Agreement, the
following terms, whenever used herein, shall have the following meanings:

 

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

 

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“Brokerage Business Pool”
shall mean Brokerage Business written by or on behalf of the Participating
Companies or assumed by a Participating Company (including such business
assumed by TICNY from its affiliates), that is pooled and allocated to each of
the Participating Companies based upon their Pooling Percentage as set forth in
this Pooling Agreement.

 

“Existing
Reinsurance” shall mean reinsurance ceded by a Participating Company that is in
effect on the Effective Date, to the extent that such reinsurance relates to the
Brokerage Business of such Participating Company.

 

“Management Fees” shall mean
the management fees payable by CPIC to TICNY pursuant to the Pool Management Agreement.

 

“Net Liability” shall mean
the loss and loss adjustment expense liability remaining after the application
of Existing Reinsurance and, with respect to TICNY, Pool Reinsurance, in each
case to the extent collectible; provided, however, that “Net
Liability” shall not include liability with respect to losses and loss
adjustment expenses incurred prior to the Effective Date.

 

“Net Loss Ratio” shall mean, for any period of time, the ratio of Net
Losses and loss adjustment expenses incurred during such period to Net Premium
Earned for such period.

 

“Net Losses” shall mean, for
any period of time, any and all amounts that a Participating Company is
required to pay to or on behalf of insureds for insurance claims made under its
Policies, after the application of any applicable reinsurance but not including
loss adjustment expenses.

 

“Net Premium Earned” shall mean, for any period of time, the earned
portion of premiums written by a Participating Company after payment for
reinsurance, if any.

 

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

 

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“Participating Companies”
shall mean TICNY and CPIC.

 

“Policies” shall mean all
policies, certificates, binders, contracts and agreements of insurance covering
Brokerage Business issued or renewed on or after the Effective Date by or on
behalf of TICNY or CPIC, as the case may be, all of which shall be subject to
this Pooling Agreement. “Policies” shall be comprised of all lines of business
that are written as Brokerage Business.

 

“Pool Reinsurance” shall
mean property catastrophe and excess of loss reinsurance ceded by TICNY to an
insurer that is not a Participating Company and that inures to the benefit of
the Brokerage Business Pool.

 

“Pooling Percentages” shall
be those percentages set forth on Schedule 1 attached, as amended from time to
time.

 

ARTICLE II                  Cessions to Brokerage Business
Pool

 

CPIC shall automatically and obligatorily cede to TICNY as reinsurance,
and TICNY shall be obligated to accept as assumed reinsurance, one hundred
percent (100%) of the premiums and Net Liabilities with respect to Policies
issued or assumed by CPIC , to be combined with the premiums and Net
Liabilities of TICNY under Policies issued or assumed by TICNY, provided,
however, that the total gross written premium of CPIC after pooling shall not
exceed $150 million for the first twelve (12) month period ending March 31,
2007, subject to a growth factor of 25% per each twelve (12) month period
thereafter, unless agreed otherwise by the parties.

 

ARTICLE
III                 Participation in Brokerage Business Pool

 

TICNY shall establish the
Brokerage Business Pool, which shall consist of the premiums and Net Liability
under all Brokerage Business written or assumed by TICNY and CPIC (including
business assumed by TICNY pursuant to this Pooling Agreement). TICNY shall
automatically and obligatorily cede to CPIC, and retain for TICNY’s own
account, the applicable Pooling Percentages, as set forth in Schedule 1 hereto,
as amended from time to time, of such Net Liability and CPIC shall automatically
and 

 

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obligatorily accept such cessions. Notwithstanding the foregoing, if TICNY
(i) writes business of the type that it has historically not written or (ii)
writes more than 25% of its gross written premiums outside the State of New
York in any 12 month period ending on the anniversary date of this Pooling
Agreement, then such non-historical business and the excess of business not in
New York over 25% may, at CPIC’s discretion, be excluded from the pool. In
addition, the pool shall exclude any property excess of loss liabilities over
$10 million resulting from any one occurrence. TICNY’s and CPIC’s share shall
be as set forth on Schedule 1 hereto, as amended from time to time. Such
Pooling Percentages shall be applied to all Brokerage Business written by the
Participating Companies. Any change in the Pooling Percentages shall be made
only by a written amendment to Schedule 1 of this Pooling Agreement signed by
the parties hereto or as otherwise set forth in Article XVI of this Pooling
Agreement. The Participating Companies acknowledge that, following the
acceptance or retention of a percentage of the Brokerage Business Pool by a
Participating Company, such pooled business shall be subject to such
reinsurance as may be entered into by such Participating Company on or after
the Effective Date that is for the benefit of such Participating Company as to
its participation in the Brokerage Business Pool and does not inure to the
benefit of the Brokerage Business Pool.

 

ARTICLE IV                 Reinsurance

 

TICNY, as pool manager, shall
negotiate, obtain and maintain such Pool Reinsurance as it deems appropriate
with respect to the liabilities of the Brokerage Business Pool, which
reinsurance shall inure to the benefit of the Participating Companies according
to their respective Pooling Percentages. TICNY shall purchase property and
casualty excess of loss reinsurance and property catastrophe excess of loss
reinsurance from third party reinsurers to protect the net exposure of the
Participating Companies. The property catastrophe excess of loss reinsurance
purchased by TICNY may provide for up to approximately 10% of the combined
surplus of TICNY and CPIC to be retained by the pool prior to reinsurance by
third party reinsurance companies (“Pooled Retention”). CPIC also shall have
the right, in 

 

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its discretion, to require TICNY to increase the Pooled Retention by an
additional amount of up to 10% of the surplus of CastlePoint Reinsurance
Company, Ltd. (“CPRe”) with such additional reinsurance to be purchased from
CPRe.

 

For the period beginning
April 1, 2006 and ending March 31, 2007, the premiums pooled shall not be
reduced by TICNY’s property catastrophe premiums ceded and the losses pooled
shall include TICNY’s property catastrophe actual incurred losses up to a
maximum of $15,000,000 times CPIC’s pooling percentage. For the period
beginning April 1, 2007 the amount of property catastrophe premiums ceded that
will be paid by CPIC shall be the total amount of property catastrophe premiums
ceded by the brokerage business pool times CPIC’s pooling percentage. For the
period beginning April 1, 2007 the amount of property catastrophe losses
incurred that will be paid by CPIC shall be the total amount of property
catastrophe losses actually incurred within the property catastrophe deductible
for the brokerage business pool times CPIC’s pooling percentage. The total
amount of property catastrophe premiums ceded and the total amount of property
catastrophe incurred losses paid by TICNY shall be the total amount of property
catastrophe premiums ceded and incurred losses for the total brokerage business
pool less the amounts paid by CPIC as defined above.

 

ARTICLE V          Losses and Loss Adjustment
Expenses

 

A.            All loss settlements made by TICNY with regards
to the Brokerage Business, whether under strict policy conditions or by way of
compromise, shall be unconditionally binding upon CPIC.

 

B.            Each Participating Company shall be liable
for its percentage share per Schedule 1 of loss adjustment expenses incurred
under or in connection with the Policies and shall be credited with its percentage
share per Schedule 1 of any recoveries of such expense.

 

C.            If a Participating Company pays or is held
liable to pay any punitive, exemplary, compensatory, or consequential damages
(hereinafter called “Extra Contractual Obligations”) because of alleged or
actual negligence on its part in handling a claim under a Policy, one hundred
percent (100%) of 

 

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such Extra Contractual Obligations (to the extent permitted by law)
shall be added to the Net Liability, if any, of such Participating Company
under the Policy involved, and the sum thereof shall be subject to this Pooling
Agreement; provided, however, that no such payment of Extra Contractual
Obligations shall be permitted if such payment is contrary to New York law.

 

D.            If a Participating Company pays or is held
liable to pay in connection with any loss amounts in excess of the limit of its
original Policy, such loss in excess of that limit having been incurred because
of its failure to settle within the Policy limit or by reason of alleged or
actual negligence in rejecting an offer of settlement or in the preparation of
the defense or in the trial of any action against the original insured or
reinsured or in the preparation or prosecution of an appeal consequent upon
such action (hereinafter called an “Excess of Policy Limits Loss”), one hundred
percent (100%) of such Excess of Policy Limits Loss (to the extent permitted by
law) shall be added to the Net Liability, if any, of such Participating Company
under the Policy involved, and the sum thereof shall be subject to this Pooling
Agreement.

 

ARTICLE
VI                 Salvage and Subrogation

 

Each of the Participating Companies shall be credited with its
proportionate share of salvage and subrogation on account of losses under the
Policies.

 

ARTICLE
VII               Original Conditions Apply

 

All reinsurance under this
Pooling Agreement shall be subject to the same rates, terms, conditions and
waivers, and to the same modifications and alterations as the respective
Policies. Each of the Participating Companies shall be credited with the
proportion equal to its Pooling Percentage of the original premiums received
under the Policies issued on or after the Effective Date, but after deduction
of premiums, if any, ceded under Existing Reinsurance and Pool Reinsurance.

 

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ARTICLE VIII              Ceding Commission

 

Each of the Participating Companies shall be charged with a ceding
commission in an amount equal to such Participating Company’s Pooling
Percentage of actual commissions paid to agents or brokers, premium taxes,
guarantee fund assessments, fees and assessments for boards, bureaus and
associations, fees and assessments for industry and residual markets, and other
similar expenses incurred by the Participating Companies on all premiums ceded
hereunder, but after deduction of ceding commissions or expense reimbursement
amounts recovered under Existing Reinsurance and Pool Reinsurance.

 

ARTICLE
IX                 Remittances and Reports

 

A.            As soon as practicable consistent with its
standard financial reporting practices, but no later than thirty (30) days
after the end of each calendar month, TICNY shall submit a pooling report to
CPIC setting forth the following information as regards the Brokerage Business
Pool:

 

1.               Net Written Premium received during the
month;

2.               Net Premium Earned received during the month;

3.               Ceding commission thereon;

4.               Losses and loss adjustment expenses paid during
the month;

5.               Salvage and subrogation recoveries received;

6.               Recoverables under inuring reinsurance; and

7.               Management Fees due under the Pool Management
Agreement.

 

B.            The balance shown to be due a Participating
Company shall be remitted within fifteen (15) days after the issuance of the
reports by TICNY on a collected basis; provided that TICNY may retain, as
manager, a reserve out of amounts otherwise due CPIC for the payment of amounts
reasonably estimated by TICNY to be payable during the next sixty (60) days by
the Brokerage Business Pool and allocable to CPIC hereunder. Such balance shall
be remitted in cash or in readily marketable securities (valued at fair market
value) in an amount equal to such balance. Should discrepancies arise in the process
of the verification of any report, such differences, once resolved, should be
remitted promptly.

 

C.            As soon as practicable consistent with its
financial reporting practices, but no later than thirty (30) days after the end
of each calendar quarter, TICNY shall report to CPIC ceded unearned 

 

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premium reserves and ceded outstanding loss and loss adjustment expense
reserves as regards the Brokerage Business as of the end of such quarter.

 

ARTICLE X                  Offset

 

Each of the Participating
Companies shall have and may exercise at any time, and from time to time, the
right to offset any balance or balances whether on account of premiums, losses
or amounts otherwise due from one Participating Company to the other under the
terms of this Pooling Agreement, subject to the provision of applicable law,
and as specifically permitted by Sections 1308 and 7427 of the New York
Insurance Law.

 

ARTICLE
XI                 Errors and Omissions

 

Inadvertent delays, errors
or omissions made in connection with this Pooling Agreement or any transaction
hereunder shall not relieve any Participating Company from any liability that
would have attached had such delay, error or omission not occurred, provided
always that such error or omission will be rectified as soon as possible after
discovery.

 

ARTICLE
XII               Access to Records

 

The files and records of
each Participating Company with respect to this Pooling Agreement and the
Brokerage Business subject hereto shall be open to examination by any officer
or director of each of the other Participating Companies or their duly
authorized representatives during normal business hours.

 

ARTICLE
XIII              Term

 

A.            This Pooling Agreement will become effective
on the Effective Date. A Participating Company may terminate its respective
participation in the Brokerage Business Pool as of the date that is forty-eight
(48) months after the Effective Date and thereafter as of the close of a
calendar quarter by giving at least six (6) months prior written notice to the
other party by certified or registered mail.

 

B.            CPIC shall have the right to terminate its
participation in the Brokerage Business Pool at any time on or after twenty
four (24) months after the Effective Date and thereafter by giving sixty (60) 

 

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days prior written notice by certified or registered mail to TICNY if
the sum of the cumulative Net Loss Ratio for the Brokerage Business Pool plus
the Management Fee Percentage (as defined in Article XIV) equals or exceeds 99
% for the period from the Effective Date to the end of the calendar quarter
immediately preceding the date of such notice. If the Participating Companies
cannot agree as to the calculation of the Net Loss Ratio or Management Fee
Percentage, within 30 days of receiving the appropriate report, the calculation
shall be arbitrated. The actuarial firm of Towers Perrin shall furnish an
arbiter for TICNY, and CPIC will choose another actuarial firm to furnish its
arbiter. Those two arbiters will select a third independent actuarial firm to
furnish the third arbiter.

 

C.            Notwithstanding paragraphs A and B above, this
Pooling Agreement may be terminated immediately with respect to new or renewal
business (a) at any time by mutual consent in writing by each of the
Participating Companies or (b) as of the close of a calendar quarter, upon
not less than sixty (60) days prior written notice by a Participating Company
to the other Participating Companies of such Participating Company’s exercise
of its right to terminate its participation in the Brokerage Business Pool.

 

D.            If this Pooling Agreement is terminated
pursuant to this Article XIII, all rights and obligations of the Participating
Companies with respect to Brokerage Business ceded pursuant to this Pooling Agreement
prior to such termination shall continue to be governed by the terms of this
Pooling Agreement.

 

ARTICLE
XIV              Reinsurance Credit

 

A.            If any Participating Company is unauthorized
or otherwise unqualified in any state or other United States jurisdiction, and
if, without such security, a financial penalty to an other Participating
Company, hereinafter in this Article XIV called the “Reinsured Participating
Company”, would result on any statutory statement or report it is required to
make or file with insurance regulatory authorities or a court of law in the
event of insolvency, the Participating Company will timely secure its share of
Obligations under this Agreement in a manner, form, and amount acceptable to the
Reinsured 

 

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Participating Company and to all applicable insurance regulatory
authorities in accordance with this Article.

 

B.              The Participating Company shall secure such
Obligations by either:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1.             Each Letter of Credit
will be issued for a term of at least one year and will include an “evergreen
clause”, which automatically extends the term for at least one additional year
at each 

 

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expiration date unless written notice of non-renewal is given to the Reinsured
Participating Company not less than 30 days prior to said expiration date.

 

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

 

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

 

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

 

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

 

(iii)          to fund an account with the
Reinsured Participating Company in an amount at least equal to the deduction,
for reinsurance ceded, from the Reinsured Participating Company’s liabilities 

 

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for policies ceded under this Agreement. Such amount shall include, but
not be limited to, amounts for policy reserves for claims and losses incurred
(including losses incurred but not reported), loss adjustment expenses, and
unearned premiums; and

 

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

 

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

 

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

 

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

 

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

 

2.             The Participating
Company agrees to deposit and maintain in said Trust Account assets to be held
in trust by the Trustee for the benefit of the Reinsured Participating Company
as security for the payment of the Participating Company’s Obligations to the
Reinsured Participating Company 

 

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under the Agreement. Such assets shall be maintained in the Trust
Account by the Participating Company as long as the Participating Company
continues to remain liable for such Obligations.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

9.             The Reinsured
Participating Company will prepare and forward at annual intervals or more
frequently as determined by the Reinsured Participating Company, but not more
frequently than quarterly to the Participating Company a statement for the
purposes of this Article, showing the Participating Company’s share of
Obligations as set forth above. If the Participating Company’s share thereof
exceeds the then existing balance of the security provided, the Participating
Company will, within fifteen (15) days of receipt of the Reinsured
Participating Company’s statement, but never later than December 31 of any
year, increase the amount of the letter of credit, or Trust Account to the
required amount of the Participating Company’s share of Obligations set forth
in the Reinsured Participating Company’s statement, but never later than
December 31 of any year. If the then existing balance of the security provided
exceeds an amount equal to 102% of the Participating Company’s share thereof, the
Reinsured Participating Company will release the excess amount over 102% to the
Participating Company upon the Participating Company’s written request.

 

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

 

ARTICLE
XV               Amendments 

 

This
Pooling Agreement may be amended only if in writing and signed by each
Participating Company.

 

ARTICLE
XVI              Adjustments to Participation

 

TICNY may, in its sole discretion, change the Pooling Percentages set
forth on Schedule 1 effective as of the date that is six (6) months following
the Effective Date and, from time to time, as of any six (6) month anniversary
of the Effective Date thereafter, upon not less thirty (30) days prior written
notice to the other Participating Company, unless such notice is waived by the
other Participating Company, so long as the Pooling Percentage of CPIC shall at
all times during the term of this Pooling Agreement be a minimum of 25% and a
maximum of 45%, and provided, however, that the Pool Manager and the other
Participating Company may agree to change the pool participations as of any
calendar quarter, and, in such case, upon mutual agreement, the pooling
percentage of CPIC may be as low as 15%; and provided further, however, that
the total gross written premium of CPIC assumed under this Pooling Agreement
shall not exceed $150 million for the twelve (12) month period ending March 31,
2007, subject to a growth factor of 25% per twelve (12) month period ending
March 31, thereafter, unless otherwise agreed by the parties. Each such change
shall apply to Policies issued or renewed after the effective date of such
change. Schedule 1 shall be revised to reflect all such changes and the
effective date of each such change. If the maximum gross written premium after
pooling is attained in any twelve (12) month period ending March 31 as set
forth herein, unless as otherwise agreed as set forth above, then the Pooling
Percentage, which shall apply to all premiums and losses on a pro-rated basis
for such period, 

 

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of CPIC shall be decreased for that twelve (12) month period, even if
such Pooling Percentage is below 25%.

 

ARTICLE
XVII            Investments

 

The
investments of the Participating Companies and any income, gains or losses
derived therefrom and expenses related thereto, are not part of, nor are they
subject to the terms of, this Pooling Agreement.

 

ARTICLE
XVIII           Insolvency

 

A.            In the event of the insolvency or the
appointment of a liquidator, receiver or other statutory successor of a
Participating Company, any amount due such Participating Company as a ceding
party shall be payable by the accepting party on the basis of the liability of
the ceding party under the Policies reinsured without diminution because of the
insolvency of the ceding party. Payments by the accepting party shall be made
directly to the ceding party or to the liquidator, receiver or statutory
successor, except (a) where any Policy specifically provides another payee of
such reinsurance in the event of the insolvency of the ceding party, or (b)
where the accepting party, with the consent of the direct insured or insureds,
has assumed such Policy obligations of the ceding party as direct obligations
of the accepting party to payees under such Policies and in substitution for
the obligations of the ceding party to such payees.

 

B.            The liquidator or receiver or statutory
successor of the ceding party shall give written notice to the accepting party
of the pendency of any claim against the insolvent ceding party on the Policies
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the accepting party may
investigate the claim and interpose in the proceeding where the claim is to be
adjudicated, at its own expense, any defense or defenses which it may deem
available to the ceding party or its liquidator or receiver or statutory
successor. The expenses thus 

 

17

 

incurred by the accepting party shall be chargeable, subject to court
approval, against the insolvent ceding party solely as a result of the defense
undertaken by the accepting party.

 

ARTICLE
XIX              Arbitration

 

A.            As a condition precedent to any right of
action hereunder, in the event of any dispute or difference of opinion
hereafter arising with respect to this Pooling Agreement (except as set forth
in Article XIII - Term), it is hereby mutually agreed that such dispute
or difference of opinion shall be submitted to arbitration. One Arbiter shall
be chosen by each Participating Company that is a party to such dispute and an
Umpire shall be chosen by the Arbiters before they enter upon arbitration, all
of whom shall be active or retired disinterested executive officers of
insurance or reinsurance companies or Underwriters at Lloyd’s of London. In the
event that a Participating Company should fail to choose an Arbiter within
thirty (30) days following a written request by another Participating Company
to do so, the requesting Participating Company’s Arbiter shall choose a second
arbiter before entering upon arbitration. If the two arbitrators are unable to
agree upon the third arbitrator within thirty (30) days of their appointment,
the third arbitrator shall be selected from a list of six individuals (three
named by each arbitrator) by a judge of the United States District Court having
jurisdiction over the geographical area in which the arbitration is to take
place, or if that court declines to act, the state court having general jurisdiction
in such area.

 

B.            Participating Companies party to the dispute
shall present their case to the Arbiters within thirty (30) days following the
date of appointment of the Umpire. The Arbiters shall consider this Pooling
Agreement as an honorable engagement rather than merely as a legal obligation
and they are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the Arbiters shall be final
and binding on all Participating Companies; but failing to agree, they shall
call in the Umpire and the decision of the majority shall be final and binding
upon all parties. Judgment upon the final decision of the Arbiters may be
entered in any court of competent jurisdiction.

 

18

 

C.            Each Participating Company that is a party to
the dispute shall bear the expense of its own Arbiter, and shall jointly and
equally bear with the other the expense of the Umpire and of the arbitration. In
the event that the two Arbiters are chosen by the requesting Participating
Company, as above provided, the expense of the Arbiters, the Umpire and the
arbitration shall be equally divided between the Participating Companies that
are parties to the arbitration.

 

ARTICLE
XX               Miscellaneous Provisions

 

A.            Headings used herein are not a part of this
Pooling Agreement and shall not affect the terms hereof.

 

B.            All notices, requests, demands and other
communications under this Pooling Agreement must be in writing and will be
deemed to have been duly given or made as follows: (a) if sent by registered or
certified mail in the United States return receipt requested, upon receipt; (b)
if sent by reputable overnight air courier, two business days after mailing;
(c) if sent by facsimile transmission, with a copy mailed on the same day in
the manner provided in (a) or (b) above, when transmitted and receipt is
confirmed by telephone; or (d) if otherwise actually personally delivered, when
delivered.

 

C.            This Pooling Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Pooling Agreement,
nor any right or obligation hereunder, may be assigned by any party without the
prior written consent of the other party hereto.

 

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

 

E.             This Pooling Agreement will be construed,
performed and enforced in accordance with the laws of the State of New York
without giving effect to its principles or rules of conflict of laws thereof to

 

19

 

the extent such principles or rules would require or permit the
application of the laws of another jurisdiction.

 

F.             This Pooling Agreement constitutes the entire
agreement between the parties hereto relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
statements, representations and warranties, negotiations and discussions,
whether oral or written, of the parties and there are no general or specific
warranties, representations or other agreements by or among the parties in
connection with the entering into of this Pooling Agreement or the subject
matter hereof except as specifically set forth or contemplated herein. If any
provision of this Pooling Agreement is held to be void or unenforceable, in
whole or in part, (i) such holding shall not affect the validity and
enforceability of the remainder of this Pooling Agreement, including any other provision,
paragraph or subparagraph, and (ii) the parties agree to attempt in good
faith to reform such void or unenforceable provision to the extent necessary to
render such provision enforceable and to carry out its original intent.

 

G.            No consent or waiver, express or implied, by
any party to or of any breach or default by any other party in the performance
by such other party of its obligations hereunder shall be deemed or construed
to be a consent or waiver to or of any other breach or default in the performance
of obligations hereunder by such other party hereunder. Failure on the part of
any party to complain of any act or failure to act of any other party or to
declare any other party in default, irrespective of how long such failure
continues, shall not constitute a waiver by such first party of any of its
rights hereunder. The rights and remedies provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
equity.

 

H.            Except as expressly provided for in the
insolvency provisions above, nothing in this Pooling Agreement will confer any
rights upon any person that is not a party or a successor or permitted assignee
of a party to this Pooling Agreement.

 

20

 

I.              Wherever the words “include,” “includes” or “including”
are used in this Pooling Agreement, they shall be deemed to be followed by the
words “without limitation.”

 

J.             This Article XX shall survive the termination
of this Pooling Agreement.

 

 

IN WITNESS
WHEREOF, the
Participating Companies have caused this Pooling Agreement to be executed by
their duly authorized representatives, subject to the satisfaction of New York
Insurance Law § 1505, including any conditions such regulators may impose on
the terms of this Agreement subsequent to the date hereof.

 

 

	
   

  	
  TOWER INSURANCE COMPANY OF NEW YORK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Francis M.
  Colalucci

  	
   

  
	
   

  	
  Name: Francis M. Colalucci

  
	
   

  	
  Title: Senior Vice President and Chief Financial Officer

  
	
   

  	
  Date: January 11, 2007

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CASTLEPOINT INSURANCE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joel S. Weiner

  	
   

  
	
   

  	
  Name: Joel S. Weiner

  
	
   

  	
  Title: Senior Vice President and Chief Financial Officer

  
	
   

  	
  Date: January 11, 2007

  

 

21

 

Schedule 1

 

POOLING PERCENTAGES

 

Effective January 1, 2007

 

The percentages of
participation of the Pooling Agreement to which this Schedule 1 is attached
shall be as indicated below:

 

	
  Company

  	
   

  	
  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Tower Insurance Company of New York

  	
   

  	
  85

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  CastlePoint Insurance Company

  	
   

  	
  15

  	
  %

  

 

22EXHIBIT 10.25

 

TRADITIONAL PROGRAM BUSINESS POOLING AGREEMENT

 

This Traditional Program Business Pooling
Agreement (“Pooling Agreement”) by and between Tower Insurance Company of New
York (“TICNY”), an insurance company domiciled in New York, and CastlePoint
Insurance Company (“CPIC”), an insurance company domiciled in New York, is made
effective as of 12:01 a.m., January 1, 2007, (the “Effective Date”).

 

WHEREAS, TICNY and CPIC are each authorized to
transact, and do transact, a multiple line property and casualty insurance
business; and

 

WHEREAS, TICNY and CPIC desire to pool their
respective Traditional Program Business (defined below) in order to make more
efficient use of available surplus and achieve other operating efficiencies;
and

 

WHEREAS, CPIC will act as the manager of such pool
pursuant to a separate pool management agreement (“Pool Management Agreement”),
attached hereto as Exhibit A;

 

NOW,
THEREFORE, for mutual
considerations, the sufficiency and receipt of which is hereby acknowledged,
TICNY and CPIC agree as follows:

 

ARTICLE I                                   Definitions

 

In addition to the terms defined elsewhere in
this Agreement, the following terms, whenever used herein, shall have the
following meanings:

 

“Existing
Reinsurance” shall mean reinsurance ceded by a Participating Company that is in
effect on the Effective Date, to the extent that such reinsurance relates to
the Traditional Program Business of such Participating Company.

 

“Management
Fees” shall mean the management fees payable by TICNY to CPIC pursuant to the
Pool Management Agreement.

 

1

 

“Net
Liability” shall mean the loss and loss adjustment expense liability remaining
after the application of Existing Reinsurance and, with respect to CPIC, Pool
Reinsurance, in each case to the extent collectible; provided, however,
that “Net Liability” shall not include liability with respect to losses and
loss adjustment expenses incurred prior to the Effective Date.

 

“Net
Loss Ratio” shall mean, for any period of time, the ratio of Net Losses plus
loss adjustment expenses incurred during such period to Net Premium Earned for
such period.

 

“Net Losses” shall mean, for any period of
time, any and all amounts that a Participating Company is required to pay to or
on behalf of insureds for insurance claims made under its Policies, after the
application of any applicable reinsurance but not including loss adjustment
expenses.

 

“Net Premium Earned” shall mean, for any
period of time, the earned portion of premiums written by a Participating
Company after payment for reinsurance, if any.

 

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

 

“Participating Companies” shall mean TICNY and CPIC.

 

“Policies”
shall mean all policies, certificates, binders, contracts and agreements of
insurance covering Traditional Program Business issued or renewed on or after
the Effective Date by or on behalf of TICNY or CPIC, as the case may be,
all of which shall be subject to this Pooling Agreement. “Policies” shall be
comprised of all lines of business that are written as Traditional Program
Business.

 

“Pool
Reinsurance” shall mean property catastrophe and excess of loss reinsurance
ceded by CPIC to an insurer that is not a Participating Company that inures to
the benefit of the Traditional Program Business Pool.

 

2

 

“Pooling
Percentages” shall be those percentages set forth on Schedule 1 attached
hereto, as amended from time to time.

 

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

 

“Program Underwriting Agent” means an insurance
intermediary that aggregates business from retail and general agents and
manages business on behalf of insurance companies, including functions such as
risk selection and underwriting, premium collection, policy form design
and client service.

 

“Traditional
Program Business Pool” shall mean Traditional Program Business written by or on
behalf of the Participating Companies or assumed by a Participating Company
(including such business assumed by TICNY from its affiliates), that is pooled
and allocated to each of the Participating Companies based upon their Pooling
Percentage as set forth in this Pooling Agreement.

 

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

 

ARTICLE II                               Cessions to Traditional Program Business
Pool

 

TICNY
shall automatically and obligatorily cede to CPIC as reinsurance, and CPIC shall
be obligated to accept as assumed reinsurance, one hundred percent (100%) of
the Premium and Net Liabilities with respect to Policies issued or assumed by TICNY,
to be combined with the Premium and Net Liabilities of CPIC under Policies
issued or assumed by CPIC, provided, however, that the total gross written
premium of CPIC after pooling shall not exceed $50 million for the first 12
month period ending March 31, 2007, subject to a growth factor of 25% per
each 12 month period thereafter, unless otherwise agreed by the parties.

 

3

 

ARTICLE III                           Participation in Traditional Program Business
Pool

 

CPIC
shall establish the Traditional Program Business Pool, which shall consist of
the Premium and Net Liability under all Traditional Program Business written or
assumed by CPIC and TICNY (including business assumed by CPIC pursuant to this
Pooling Agreement). CPIC shall automatically and obligatorily cede to TICNY,
and retain for CPIC’s own account, the applicable Pooling Percentages of such Net
Liability and TICNY shall automatically and obligatorily accept such cessions. TICNY’s
share shall be as set forth in Schedule 1 hereto, as amended from time to
time. Such Pooling Percentages shall be applied to all Traditional Program
Business written by the Participating Companies. Any change in the Pooling
Percentages shall be made only by a written amendment to Schedule 1 of this
Pooling Agreement signed by the parties hereto or as otherwise set forth in Article XVI
of this Pooling Agreement. The Participating Companies acknowledge that,
following the acceptance or retention of a percentage of the Traditional
Program Business Pool by a Participating Company, such pooled business shall be
subject to such reinsurance as may be entered into by such Participating
Company on or after the Effective Date that is for the benefit of such
Participating Company as to its participation in the Traditional Program
Business Pool and does not inure to the benefit of the Traditional Program
Business Pool.

 

ARTICLE IV                          Reinsurance

 

CPIC, as pool manager, shall negotiate,
obtain and maintain such Pool Reinsurance as it deems appropriate with respect
to the liabilities of the Traditional Program Business Pool, which reinsurance
shall inure to the benefit of the Participating Companies according to their
respective Pooling Percentages. CPIC shall purchase property and casualty
excess of loss reinsurance and property catastrophe excess of loss reinsurance
from third party reinsurers to protect the net exposure of the Participating
Companies. The property catastrophe excess of loss reinsurance purchased by
CPIC may provide for up to approximately 10% of the combined surplus of TICNY
and CPIC to be retained by the 

 

4

 

pool prior to reinsurance by
third party reinsurance companies (“Pooled Retention”). Any of the
Participating Companies also shall have the right, in its discretion, to
require CPIC to increase the Pooled Retention by an additional amount of up to
10% of the surplus of CastlePoint Reinsurance Company, Ltd. (“CPRe”) with such
additional reinsurance to be purchased from CPRe.

 

ARTICLE V                              Losses and Loss Adjustment
Expenses

 

A.                                   All loss settlements made by CPIC with
regards to the Traditional Program Business, whether under strict policy
conditions or by way of compromise, shall be unconditionally binding upon TICNY.

 

B.                                     Each Participating Company shall be liable
for its percentage share per Schedule 1 of loss and loss adjustment expenses
incurred under or in connection with the Policies and shall be credited with
its percentage share per Schedule 1 of any recoveries of such expense.

 

C.                                     If a Participating Company pays or is held
liable to pay any punitive, exemplary, compensatory, or consequential damages
(hereinafter called “Extra Contractual Obligations”) because of alleged or
actual negligence on its part in handling a claim under a Policy, one
hundred percent (100%) of such Extra Contractual Obligations (to the extent
permitted by law) shall be added to the Net Liability, if any, of such
Participating Company under the Policy involved, and the sum thereof shall be
subject to this Pooling Agreement; provided, however, that no such payment of
Extra Contractual Obligations shall be permitted if such payment is contrary to
New York law.

 

D.                                    If a Participating Company pays or is held
liable to pay in connection with any loss, amounts in excess of the limit of
its original Policy, such loss in excess of that limit having been incurred
because of its failure to settle within the Policy limit or by reason of
alleged or actual negligence in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any action against the original
insured or reinsured or in the preparation or prosecution of an appeal
consequent upon such action (hereinafter called an “Excess of Policy Limits
Loss”), one hundred percent (100%) of such Excess 

 

5

 

of Policy Limits Loss (to
the extent permitted by law) shall be added to the Net Liability, if any, of
such Participating Company under the Policy involved, and the sum thereof shall
be subject to this Pooling Agreement.

 

ARTICLE VI                          Salvage and Subrogation

 

Each of the Participating Companies shall be
credited with its proportionate share of salvage and subrogation on account of
losses under the Policies.

 

ARTICLE VII                      Original Conditions Apply

 

All
reinsurance under this Pooling Agreement shall be subject to the same rates,
terms, conditions and waivers, and to the same modifications and alterations as
the respective Policies. Each of the Participating Companies shall be credited
with the proportion equal to its Pooling Percentage of the original premiums
received under the Policies issued on or after the Effective Date, but after
deduction of premiums, if any, ceded under Existing Reinsurance and Pool
Reinsurance.

 

ARTICLE VIII                  Ceding Commission

 

Each of the Participating Companies shall be
charged with a ceding commission in an amount equal to such Participating
Company’s Pooling Percentage of actual commissions paid to agents or brokers,
premium taxes, guarantee fund assessments, fees and assessments for boards,
bureaus and associations, fees and assessments for industry and residual
markets, and other similar expenses incurred by the Participating Companies on
all premiums ceded hereunder, but after deduction of ceding commissions or
expense reimbursement amounts recovered under Existing Reinsurance and Pool
Reinsurance.

 

ARTICLE IX                          Remittances and Reports

 

A.                                   As soon as practicable consistent with its
standard financial reporting practices, but no later than thirty (30) days
after the end of each calendar month, CPIC shall submit a pooling report to
TICNY setting forth the following information as regards the Traditional
Program Business Pool:

 

6

 

1.                                       Net Written Premium received during the
month;

2.                                       Net Premium Earned received during the month;

3.                                       Ceding commission thereon;

4.                                       Losses and loss adjustment expenses paid
during the month;

5.                                       Salvage and subrogation recoveries received;

6.                                       Recoverables under inuring reinsurance; and

7.                                       Expenses paid under the Pool Management Agreement.

 

B.                                     The balance shown to be due a Participating
Company shall be remitted within fifteen (15) days after the issuance of the
reports by CPIC on a collected basis; provided that CPIC may retain, as
manager, a reserve out of amounts otherwise due TICNY for the payment of
amounts reasonably estimated by CPIC to be payable during the next sixty (60)
days by the Traditional Program Business Pool and allocable to TICNY hereunder.
Such balance shall be remitted in cash or in readily marketable securities
(valued at fair market value) in an amount equal to such balance. Should
discrepancies arise in the process of the verification of any report, such
differences, once resolved, should be remitted promptly.

 

C.                                     As soon as practicable consistent with its
financial reporting practices, but no later than thirty (30) days after the end
of each calendar quarter, CPIC shall report to TICNY ceded unearned premium
reserves and ceded outstanding loss and loss adjustment expense reserves as
regards the Traditional Program Business as of the end of such quarter.

 

ARTICLE X                              Offset

 

Each of the Participating
Companies shall have and may exercise at any time, and from time to time,
the right to offset any balance or balances whether on account of premiums,
losses or amounts otherwise due from one Participating Company to the other
under the terms of this Pooling Agreement, subject to the provision of
applicable law, and as specifically permitted by Sections 1308 and 7427 of the
New York Insurance Law.

 

7

 

ARTICLE XI                          Errors and Omissions

 

Inadvertent delays, errors
or omissions made in connection with this Pooling Agreement or any transaction
hereunder shall not relieve any Participating Company from any liability that
would have attached had such delay, error or omission not occurred, provided
always that such error or omission will be rectified as soon as possible after
discovery.

 

ARTICLE XII                      Access to Records

 

The files and records of
each Participating Company with respect to this Pooling Agreement and the Traditional
Program Business subject hereto shall be open to examination by any officer or
director of each of the other Participating Companies or their duly authorized
representatives during normal business hours.

 

ARTICLE XIII                  Term

 

A.                                   This Pooling Agreement will become effective
on the Effective Date. A Participating Company may terminate its
respective participation in the Traditional Program Business Pool as of the
date forty-eight (48) months after the Effective Date and thereafter as of the
close of a calendar quarter by giving at least six (6) months prior
written notice to the other party by certified or registered mail.

 

B.                                     CPIC shall have the right to terminate its
participation in the Traditional Program Business Pool at any time on or after
twenty four (24) months after the Effective Date and thereafter by giving sixty
(60) days prior written notice by certified or registered mail to TICNY if the
sum of the cumulative Net Loss Ratio for the Traditional Program Business Pool
plus the Management Fee Percentage (as defined in the Pool Management Agreement
equals or exceeds 99 % for the period from the Effective Date to the end of the
calendar quarter immediately preceding the date of such notice. If the
Participating Companies cannot agree as to the calculation of the Net Loss
Ratio or Management Fee Percentage, within 30 days of receiving the appropriate
report, the calculation shall be arbitrated. The actuarial firm of 

 

8

 

Towers Perrin shall furnish
an arbiter for TICNY, and CPIC will choose another actuarial firm to furnish
its arbiter. Those two arbiters will select a third independent actuarial firm
to furnish the third arbiter.

 

C.                                     Notwithstanding paragraphs A and B above, this
Pooling Agreement may be terminated immediately with respect to new or
renewal business (a) at any time by mutual consent in writing by each of
the Participating Companies or (b) as of the close of a calendar quarter,
upon not less than sixty (60) days, prior written notice by a Participating
Company to the other Participating Company of such Participating Company’s
exercise of its right to terminate its participation in the Traditional Program
Business Pool.

 

D.                                    If this Pooling Agreement is terminated
pursuant to this Article XIII, all rights and obligations of the
Participating Companies with respect to Traditional Program Business ceded
pursuant to this Pooling Agreement prior to such termination shall continue to
be governed by the terms of this Pooling Agreement.

 

ARTICLE XIV                 Reinsurance Credit

 

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

 

B.                                          The Participating Company shall secure such
Obligations by either:

 

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

 

9

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2.                                       The
Letter of Credit must be issued or confirmed by a bank which is authorized to
issue letters of credit, which is either a member of the Federal Reserve System
or is a New York State chartered bank, and which in all other respects
satisfies the definition of a “Qualified Bank” under Section 79.1(e) of
New York Insurance Regulation 133. If the Letter of Credit is issued by a bank
authorized to 

 

10

 

issue letters of credit but
which is not such a “Qualified Bank”, then the Letter of Credit must be
confirmed by such a bank and the Letter of Credit must meet all of the
conditions set forth in Section 79.4 of New York Insurance Regulation 133.

 

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

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

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

 

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

 

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

 

3.                                       The
Participating Company agrees that the assets deposited into the Trust Account
shall be valued according to their current fair market value and shall consist
only of currency of the United States of America, certificates of deposit
issued by a United States bank and payable in United States legal tender, and
investments of the types specified in paragraphs (1), (2), (3), (8) and (10) of

 

12

 

Section 1404(a) of
the New York Insurance Law, provided such investments are issued by an
institution that is not the parent, subsidiary or affiliate of either the
Grantor or the Beneficiary (“Authorized Investments”).

 

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

 

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

 

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

 

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

 

13

 

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

 

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

 

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

 

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

 

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

 

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

 

14

 

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

 

9.                                       The
Reinsured Participating Company will prepare and forward at annual intervals or
more frequently as determined by the Reinsured Participating Company, but not
more frequently than quarterly to the Participating Company a statement for the
purposes of this Article, showing the Participating Company’s share of
Obligations as set forth above. If the Participating Company’s share thereof
exceeds the then existing balance of the security provided, the Participating
Company will, within fifteen (15) days of receipt of the Reinsured
Participating Company’s statement, but never later than December 31 of any
year, increase the amount of the letter of credit, or Trust Account to the
required amount of the Participating Company’s share of Obligations set forth
in the Reinsured Participating Company’s statement, but never later than December 31
of any year. If the then existing balance of the security provided exceeds an
amount equal to 102% of the Participating Company’s share thereof, the
Reinsured Participating Company will release the amount in excess of 102% to
the Participating Company upon the Participating Company’s written request.

 

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

 

ARTICLE XV                     Amendments 

 

This Pooling Agreement may be amended only if in writing and
signed by each Participating Company.

 

15

 

ARTICLE XVI                 Adjustments to Participation

 

CPIC may, in its sole discretion, change the
Pooling Percentages as set forth in Schedule 1 hereto as of the date that
is six (6) months following the Effective Date and, from time to time, as
of any six (6) month anniversary of the Effective Date thereafter, upon
not less than thirty (30) days prior written notice to the other Participating
Company, unless such notice is waived by the other Participating Company, and
provided, however, that the CPIC and the other Participating Company may agree
to change the pool participations as of any calendar quarter; provided,
however, that the Pooling Percentage of TICNY shall at all times during the
term of this Pooling Agreement be a minimum of 15% and a maximum of 50%, and
provided further, however, that the total combined gross written premium share
of TICNY assumed under this Pooling Agreement shall not exceed $50 million for
the twelve (12) month period ending on March 31, 2007, subject to a growth
factor of 25% per each twelve (12) month period thereafter, unless otherwise
agreed by the parties. Each such change shall apply to Policies issued or
renewed after the effective date of such change. Schedule 1 shall be
revised to reflect all such changes and the effective date of each such change.
If the maximum gross written premium after pooling is attained in any twelve
(12) month period ending March 31 as set forth herein, unless as otherwise
agreed by the parties as et forth above, then the Pooling Percentage, which shall
apply to all premiums and losses on a pro-rated basis for such period, of TICNY
shall be decreased for that twelve (12) month period, even if such Pooling
Percentage is below 15%.

 

ARTICLE XVII             Investments

 

The investments of the Participating Companies and any income, gains or
losses derived therefrom and expenses related thereto, are not part of,
nor are they subject to the terms of, this Pooling Agreement.

 

16

 

ARTICLE XVIII         Insolvency

 

A.                                   In the event of the insolvency or the
appointment of a liquidator, receiver or other statutory successor of a
Participating Company, any amount due such Participating Company as a ceding
party shall be payable by the accepting party on the basis of the liability of
the ceding party under the Policies reinsured without diminution because of the
insolvency of the ceding party. Payments by the accepting party shall be made
directly to the ceding party or to the liquidator, receiver or statutory
successor, except (a) where any Policy specifically provides another payee
of such reinsurance in the event of the insolvency of the ceding party, or (b) where
the accepting party, with the consent of the direct insured or insureds, has
assumed such Policy obligations of the ceding party as direct obligations of
the accepting party to payees under such Policies and in substitution for the
obligations of the ceding party to such payees.

 

B.                                     The liquidator or receiver or statutory
successor of the ceding party shall give written notice to the accepting party
of the pendency of any claim against the insolvent ceding party on the Policies
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the accepting party may investigate
the claim and interpose in the proceeding where the claim is to be adjudicated,
at its own expense, any defense or defenses which it may deem available to
the ceding party or its liquidator or receiver or statutory successor. The
expenses thus incurred by the accepting party shall be chargeable, subject to
court approval, against the insolvent ceding party solely as a result of the
defense undertaken by the accepting party.

 

ARTICLE XIX                 Arbitration

 

A.                                   As a condition precedent to any right of
action hereunder, in the event of any dispute or difference of opinion
hereafter arising with respect to this Pooling Agreement (except as set forth
in Article XIII – Term), it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to arbitration. One Arbiter shall be
chosen by each Participating Company that is a party to 

 

17

 

such dispute and an Umpire
shall be chosen by the Arbiters before they enter upon arbitration, all of whom
shall be active or retired disinterested executive officers of insurance or
reinsurance companies or Underwriters at Lloyd’s of London. In the event that a
Participating Company should fail to choose an Arbiter within thirty (30) days
following a written request by another Participating Company to do so, the
requesting Participating Company’s Arbiter shall choose a second arbiter before
entering upon arbitration. If the two arbitrators are unable to agree upon the
third arbitrator within thirty (30) days of their appointment, the third
arbitrator shall be selected from a list of six individuals (three named by
each arbitrator) by a judge of the United States District Court having
jurisdiction over the geographical area in which the arbitration is to take place,
or if that court declines to act, the state court having general jurisdiction
in such area.

 

B.                                     Participating Companies party to the dispute
shall present their case to the Arbiters within thirty (30) days following the
date of appointment of the Umpire. The Arbiters shall consider this Pooling
Agreement as an honorable engagement rather than merely as a legal obligation
and they are relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of the Arbiters shall be
final and binding on all Participating Companies; but failing to agree, they
shall call in the Umpire and the decision of the majority shall be final and
binding upon all parties. Judgment upon the final decision of the Arbiters may be
entered in any court of competent jurisdiction.

 

C.                                     Each Participating Company that is a party to
the dispute shall bear the expense of its own Arbiter, and shall jointly and
equally bear with the other the expense of the Umpire and of the arbitration. In
the event that the two Arbiters are chosen by the requesting Participating
Company, as above provided, the expense of the Arbiters, the Umpire and the
arbitration shall be equally divided between the Participating Companies that
are parties to the arbitration.

 

18

 

ARTICLE XX                     Miscellaneous Provisions

 

A.                                   Headings used herein are not a part of
this Pooling Agreement and shall not affect the terms hereof.

 

B.                                     All notices, requests, demands and other
communications under this Pooling Agreement must be in writing and will be
deemed to have been duly given or made as follows:  (a) if sent by registered or certified
mail in the United States return receipt requested, upon receipt; (b) if
sent by reputable overnight air courier, two business days after mailing; (c) if
sent by facsimile transmission, with a copy mailed on the same day in the
manner provided in (a) or (b) above, when transmitted and receipt is
confirmed by telephone; or (d) if otherwise actually personally delivered,
when delivered.

 

C.                                     This Pooling Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Pooling Agreement,
nor any right or obligation hereunder, may be assigned by any party
without the prior written consent of the other party hereto.

 

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

 

E.                                      This Pooling Agreement will be construed,
performed and enforced in accordance with the laws of the State of New York
without giving effect to its principles or rules of conflict of laws
thereof to the extent such principles or rules would require or permit the
application of the laws of another jurisdiction.

 

F.                                      This Pooling Agreement constitutes the entire
agreement between the parties hereto relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
statements, representations and warranties, negotiations and discussions, whether
oral or written, of the 

 

19

 

parties and there are no
general or specific warranties, representations or other agreements by or among
the parties in connection with the entering into of this Pooling Agreement or
the subject matter hereof except as specifically set forth or contemplated
herein. If any provision of this Pooling Agreement is held to be void or
unenforceable, in whole or in part, (i) such holding shall not affect the
validity and enforceability of the remainder of this Pooling Agreement,
including any other provision, paragraph or subparagraph, and (ii) the
parties agree to attempt in good faith to reform such void or
unenforceable provision to the extent necessary to render such provision enforceable
and to carry out its original intent.

 

G.                                     No consent or waiver, express or implied, by
any party to or of any breach or default by any other party in the performance
by such other party of its obligations hereunder shall be deemed or construed to
be a consent or waiver to or of any other breach or default in the performance
of obligations hereunder by such other party hereunder. Failure on the part of
any party to complain of any act or failure to act of any other party or to
declare any other party in default, irrespective of how long such failure
continues, shall not constitute a waiver by such first party of any of its
rights hereunder. The rights and remedies provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at
law or equity.

 

H.                                    Except as expressly provided for in the
insolvency provisions above, nothing in this Pooling Agreement will confer any
rights upon any person that is not a party or a successor or permitted assignee
of a party to this Pooling Agreement.

 

I.                                         Wherever the words “include,” “includes” or “including”
are used in this Pooling Agreement, they shall be deemed to be followed by the
words “without limitation.”

 

J.                                        This Article XX shall survive the
termination of this Pooling Agreement.

 

20

 

IN WITNESS WHEREOF, the Participating Companies have caused this Pooling Agreement to be
executed by their duly authorized representatives, subject to the satisfaction
of New York Insurance Law § 1505, including any conditions such regulators
may impose on the terms of this Agreement subsequent to the date hereof.

 

 

	
   

  	
  TOWER INSURANCE COMPANY OF NEW
  YORK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Francis M. Colalucci

  	
   

  
	
   

  	
  Name: Francis M. Colalucci

  
	
   

  	
  Title: Senior Vice President and Chief Financial
  Officer

  
	
   

  	
  Date: January 11, 2007

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CASTLEPOINT INSURANCE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joel S. Weiner

  	
   

  
	
   

  	
  Name: Joel S. Weiner

  
	
   

  	
  Title: Senior Vice President and Chief Financial
  Officer

  
	
   

  	
  Date: January 11, 2007

  

 

21

 

Schedule 1

 

POOLING PERCENTAGES

 

Effective January 1, 2007

 

The percentages of
participation of the Pooling Agreement to which this Schedule 1 is
attached shall be as indicated below:

 

	
  Company

  	
   

  	
  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Tower Insurance
  Company of New York

  	
   

  	
  50.0

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  CastlePoint
  Insurance Company

  	
   

  	
  50.0

  	
  %

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