Document:

EX-10.6

 

Exhibit 10.6

CASUALTY VARIABLE QUOTA SHARE REINSURANCE AGREEMENT

	 	 	 	 	 
	ARTICLE	 	PAGE
	PREAMBLE
	 	 	2	 
	DEFINITIONS ARTICLE
	 	 	2	 
	REINSURANCE COVERAGE ARTICLE
	 	 	7	 
	FOLLOW THE FORTUNES ARTICLE
	 	 	9	 
	TERM ARTICLE
	 	 	10	 
	SPECIAL TERMINATION OR SETTLEMENT ARTICLE
	 	 	11	 
	TERRITORY ARTICLE
	 	 	13	 
	EXCLUSIONS ARTICLE
	 	 	14	 
	REINSURANCE PREMIUM AND CEDING COMMISSION ARTICLE
	 	 	22	 
	OTHER REINSURANCE ARTICLE
	 	 	22	 
	EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS OF LIMITS LIABILITY
	 	 	 	 
	ARTICLE
	 	 	22	 
	REPORTS AND REMITTANCES ARTICLE
	 	 	23	 
	LOSS SETTLEMENTS ARTICLE
	 	 	25	 
	OFFSET ARTICLE
	 	 	25	 
	SALVAGE AND SUBROGATION ARTICLE
	 	 	25	 
	DELAYS, ERRORS, OR OMISSIONS ARTICLE
	 	 	26	 
	ENTIRE AGREEMENT, INTERPRETATION ARTICLE
	 	 	26	 
	ACCESS TO RECORDS ARTICLE
	 	 	26	 
	CONFIDENTIALITY ARTICLE
	 	 	27	 
	INSOLVENCY ARTICLE
	 	 	27	 
	ARBITRATION ARTICLE
	 	 	28	 
	GOVERNING LAW ARTICLE
	 	 	30	 
	CURRENCY REVALUATION AND FOREIGN EXCHANGE ARTICLE
	 	 	31	 
	SERVICE OF SUIT ARTICLE
	 	 	33	 
	AGENCY ARTICLE
	 	 	34	 
	INTERMEDIARY ARTICLE
	 	 	34	 
	RESERVES AND FUNDING ARTICLE
	 	 	35	 
	TAXES ARTICLE
	 	 	37	 
	FEDERAL EXCISE TAX ARTICLE
	 	 	37	 
	SURVIVAL ARTICLE
	 	 	37	 

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CASUALTY VARIABLE QUOTA SHARE REINSURANCE AGREEMENT

(Words and phrases that appear in bold print have special meanings that are defined
either in the DEFINITIONS ARTICLE or in the text of this agreement.)

PREAMBLE

This agreement is made and entered into by and between:

ALLIED WORLD ASSURANCE COMPANY, LTD, a Bermuda corporation;

ALLIED WORLD ASSURANCE COMPANY (EUROPE) LIMITED, an Ireland corporation; ALLIED WORLD ASSURANCE
COMPANY (REINSURANCE) LIMITED, an Ireland corporation;

ALLIED WORLD ASSURANCE COMPANY (U.S.) INC., a Delaware corporation; and/or NEWMARKET UNDERWRITERS
INSURANCE COMPANY, a New Hampshire corporation;

(hereinafter collectively referred to as the “company” and wherever the word “company” is used in
this agreement, such term shall be held to include any and/or all of the subsidiary or affiliated
companies that are or may hereafter come under the ownership, management and/or control of the
company, provided that notice be given to the reinsurer of any such subsidiary or affiliate
companies that may hereafter come under the ownership, management and/or control of the company as
soon as practicable)

of the one part; and the various reinsurers as identified by the INTERESTS AND LIABILITIES
AGREEMENTS attaching to and forming a part of this agreement (hereinafter referred to individually
as the “reinsurer” and collectively as the “reinsurers") of the other part.

The parties hereto agree as hereinbelow, in consideration of the mutual covenants contained in the
following Articles and upon the terms and conditions set forth therein:

DEFINITIONS ARTICLE

The following terms, wherever used in this agreement, will have the meanings set forth herein, and
will be deemed to refer to the singular, plural, or otherwise inflected forms of such terms, as the
context requires:

	A.	 	“Advertising liability” and “advertising injury” have the same meanings that they do in the
company’s policy.

	B.	 	“Agreement” means this contract of reinsurance, any exclusion clauses as may be referenced in
the Exclusions Article and the INTERESTS AND LIABILITIES AGREEMENTS attached hereto as well as
any written amendment to this agreement that has been by signed by both the company and the
reinsurer.

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C. “Automobile” has the same meaning that it does in the company’s policy.

D. “Bodily injury” has the same meaning that it does in the company’s policy.

	E.	 	“Critical auto parts” means brakes and component parts, alternators, engines and engine
control parts, clutch sets, axles/joints, fuel/gas tanks and component parts, ignition parts,
shocks/struts, steering/suspensions, transmissions/gearboxes, wheels/tires, seatbelts, door
latches, and airbags.

F. “Date of loss” means:

	 	1.	 	The date of the occurrence or accident as determined by a policy responding to the loss
if the policy was issued on an occurrence basis;
	 
	 	2.	 	The date the claim is made as determined by a policy responding to the loss if the
policy was issued on a claims-made basis; or
	 
	 	3.	 	The date the occurrence is reported as determined by a policy responding to the loss if
the policy is issued on an occurrences-reported basis.

The date of any claim made under a claims-made policy, or occurrence reported under a
occurrences-reported policy will be deemed to be the date as determined under the terms of the
policy, except that the date of any claim made or occurrence reported under a Basic Extended
Reporting Period, Supplemental Extended Reporting Period or Discovery Period provided by such a
policy will be deemed to be the termination date of the policy.

	G.	 	“Declaratory judgment expense” means all expenses incurred by the company in direct
connection with declaratory judgment actions brought to determine the company’s policy
obligations that are allocable to specific policies and claims subject to this agreement.
Declaratory judgment expense will be deemed to have been incurred by the company on the date
of loss.

	H.	 	“Extended reporting period” and “discovery period” mean a specific time period after a
policy’s termination date within which claims may be made or occurrences may be reported
(under a policy written on a claims-made or occurrences-reported basis) with respect to
occurrences happening between the policy’s retroactive date, if any, and the termination date
of that policy.

	I.	 	“Ethical pharmaceutical” means the specific dosage(s) of a pharmaceutical or drug dispensable
only directly by or upon prescription of a physician or other practitioner licensed by law to
administer such pharmaceutical or drug.

	J.	 	“Incidental” with respect to any premises, operations, products, activities or work of an
original insured means premises, operations, products, activities or work that generate 10.00%
or less of such insured’s total revenues for the 12-month period that immediately precedes the
effective or renewal date of the policy written for such insured.

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	K.	 	“Industrial aid aircraft” and “industrial aid aircraft use” have the same meanings that they
do in the company’s policy.

L. “Incidental medical malpractice” includes:

	 	1.	 	Any liability, loss, cost or expense arising out of emergency first aid provided by any
original insured that is not principally engaged in the provision of emergency medical
services.
	 
	 	2.	 	Any liability, loss, cost or expense arising out of medical, surgical, dental, x-ray,
nursing or chiropractic services or care provided to any person, including the furnishing
of drugs in connection therewith, by any original insured that is not principally engaged
in the provision of such medical care or services.

	M.	 	“Insured’s products” has the same meaning that it does in the company’s policy.

	N.	 	“Integrated occurrence” or “batch occurrence” have the same meaning that they do in the
company’s policy, if applicable.

O. “Joint venture” has the same meaning that it does in the company’s policy.

P. “Loss adjustment expense” includes:

	 	1.	 	All expenses incurred by the company in the investigation, appraisal, adjustment,
litigation and/or defense of claims under policies reinsured hereunder, including salaries
and expenses of the company’s field employees and salaried adjusters who have no
administrative duties;
	 
	 	2.	 	Charges or expenses incurred through the use of third party claim services or technical
services;
	 
	 	3.	 	Expenses of the company’s officials incurred in connection with the loss;
	 
	 	4.	 	Court costs;
	 
	 	5.	 	Interest accrued prior to final judgment, if included as part of expense on reinsured
policies; and
	 
	 	6.	 	Interest accrued after final judgment; and
	 
	 	7.	 	Declaratory judgment expense.

The reinsurer’s liability for loss adjustment expense will be in addition to its limit of
liability for ultimate net loss under this agreement as set forth in the REINSURANCE COVERAGE
ARTICLE (except as respects any such expense that is included in the definition of “ultimate net
loss” as set forth below).

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The reinsurer will bear its pro rata share of all loss adjustment expense, and the reinsurer
will, on the other hand, benefit proportionately from all reductions of loss adjustment expense
by salvage, compromise or otherwise.

Loss adjustment expense does not include salaries of the company’s officials and regular office
employees and office expenses of the company.

	Q.	 	“Low-rise residential construction operations” mean the construction of:

	 	1.	 	Homes;
	 
	 	2.	 	Town homes;
	 
	 	3.	 	Residential apartment buildings; or
	 
	 	4.	 	Residential condominium buildings;

that are under three stories in height.

	R.	 	“Net subject written premium” means the gross written premium of the company for the policies
reinsured hereunder, including any premium paid by original insureds in respect of any
extended reporting periods or discovery periods and any reinstatement premium payable by the
original insureds, less returned premium for cancellations, premium audits and reductions, and
less premium for inuring reinsurance as set forth in the OTHER REINSURANCE ARTICLE.

	S.	 	“Occurrence” has the same meaning that it does in the company’s policy. If a policy has an
“each accident,” “each wrongful act,” “each common cause,” “each disease,” “each location,”
“each claim,” “each employee” or “each offense” limit of liability, then occurrence as used in
this agreement will have the same meaning as an “accident,” “wrongful act,” “common cause,”
“disease,” “location,” “claim,” “employee,” or “offense” in such policy with respect to such
limit of liability.

	T.	 	“Personal injury” and “personal and advertising injury” have the same meanings that they do
in the company’s policy.

	U.	 	“Policy” means any policy, binder, contract, or agreement of insurance or reinsurance. Where
the company has issued two or more ceded policies covering the same original named insured, or
group of original named insureds, at different attachment points, then such policies will be
deemed to be a single policy hereunder.
	 
	 	 	The maximum policy period for subject business will be:

	 	1.	 	12 months plus odd time, not to exceed eighteen (18) months in all, for all policies
other than those described in paragraph 2. below; and
	 
	 	2.	 	60 months plus odd time, not to exceed 66 months in all, for all policies written to
insure a specific construction project or series of construction projects;

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	 	 	Provided, however:

	 	a.	 	That the limitation in 1. above will not apply to policies issued for policy periods of
greater than 18 months if they can be re-priced and re-underwritten without limitation,
other than such limitations as are described in c) below, at the expiration of each annual
period during the policy period. The commencement of each subsequent annual period will be
considered a separate renewal for purposes of this agreement;
	 
	 	b.	 	In determining whether a policy has exceeded the maximum policy period, the policy
period of such policy will not include any:

	 	1.	 	Extended reporting periods (whether basic, supplemental or both);
	 
	 	2.	 	Discovery period(s); or
	 
	 	3.	 	Products-completed operations extensions or extensions for maintenance defects liability;
	 
	 	 	 	That are provided under the terms and conditions of that policy; and

	 	c.	 	If the company is limited or prevented by statute, regulation, or judicial decision
from re-pricing, re-underwriting, cancelling, or non-renewing a policy, then the maximum
policy period will be extended until the first renewal date when the company can lawfully
re-price, re-underwrite, cancel or non-renew such policy.

Any products-completed operations extension provided under a policy that is reinsured hereunder
will commence at the end of the policy period of such policy and will not extend beyond the
greatest amount of time allowed under:

	 	(1)	 	The longest applicable statute of repose (including any applicable extensions thereof);
or
	 
	 	(2)	 	The longest applicable statute of limitations (including any applicable extensions
thereof).

V. “Pollutants” has the same meaning that it does in the company’s policy.

W. “Products-completed operations hazard” has the same meaning that it does in the company’s
policy.

X. “Property damage” has the same meaning that it does in the company’s policy.

	Y.	 	“Renewal” or “renewed” will include any policy with a policy period of one year or less that
is renewed at its expiration or anniversary date as well as any policy that is issued for more
than one year, but which can be re-priced and re-underwritten at the expiration of each annual
period during its policy period.

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	Z.	 	“Satisfactory proof of loss” means reasonable evidence of amounts paid or payable by the
company in any settlement, compromise or adjustment of loss made by the company.

	AA.	 	“Ultimate net loss” means the amount of any settlement, award, or judgment paid by the
company, or for which the company has become liable to pay, including interest accrued prior
to the final judgment, if such interest erodes the applicable limit of liability of the
company’s policy. All recoveries, salvages and subrogations that are actually recovered and
all inuring reinsurance, whether recovered or not, will be deducted from the amount of the
ultimate net loss. Ultimate net loss does not include:

	 	1.	 	Any element of loss adjustment expense, unless that element of loss adjustment expense
erodes the applicable limit of liability of the company’s policy;
	 
	 	2.	 	Extra contractual obligations; or
	 
	 	3.	 	Excess of limits liability.

REINSURANCE COVERAGE ARTICLE

The company will cede to the reinsurer, and the reinsurer will accept a quota share percentage of
the interests and liabilities of all policies classified by the company as:

EXCESS GENERAL CASUALTY INSURANCE.

Said quota share cession will be based on the original limits and initial attachment point of each
policy as set forth in the below Sections A, B, and C.

SECTION A

(This Section A is not applicable to policies written through Allied World Assurance Company (U.S.)
Inc. or Newmarket Underwriters Insurance Company.)

As respects policies with original limits up to and including $25,000,000, €25,000,000, or
£15,000,000 each occurrence, the reinsurers will accept a 100% quota share participation. The
limit of liability to the reinsurers for ultimate net loss will not exceed $25,000,000,
€25,000,000, or £15,000,000, each occurrence each policy, subject to any reinstatement or any
aggregate provisions (or both) in the policy, plus their proportionate share of loss adjustment
expense (payable whether or not the company has paid or has become liable to pay any ultimate net
loss under its policy), and any extra contractual obligations and excess of limits liability not
included within the above limit, subject to the provisions of the EXTRA CONTRACTUAL OBLIGATIONS AND
EXCESS LIMITS LIABILTY ARTICLE.

All policies subject to this Section A will be written above a minimum initial attachment point of
$10,000,000, €10,000,000, or £10,000,000.

The company will retain a 75% share in each policy, each occurrence subject to this Section A net
and unreinsured, except as provided in the OTHER REINSURANCE ARTICLE.

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SECTION B

(This Section B is not applicable to policies written through Allied World Assurance Company (U.S.)
Inc. or Newmarket Underwriters Insurance Company.)

	 	1.	 	As respects policies with original limits in excess of $25,000,000, €25,000,000, or
£15,000,000 each occurrence, the company will cede to the reinsurers a variable quota share
cession, which will be calculated individually with respect to each policy. The variable
quota share ceded percentage as used in this Section B will be calculated according to the
following formula: For policies issued in U.S. Dollars, Euros or United Kingdom Pounds
Sterling, the formula is:

	 	a.	 	The amount of the policy’s total original limit in excess of
$25,000,000, €25,000,000 or £15,000,000
	 
	 	b.	 	Divided by the policy’s total original policy limit
	 
	 	c.	 	Equals the policy’s variable quota share ceded percentage.

	 	2.	 	As respects policies issued in currency other than U.S. Dollars, Euros or United
Kingdom Pounds Sterling, the policy’s total original limit will be converted into U.S.
Dollars in accordance with the CURRENCY REVALUATION AND FOREIGN EXCHANGE ARTICLE, and the
calculation described in 1. above will apply to such policy as if it had been initially
written with limits in U.S. Dollars.

The limit of liability to the reinsurers for ultimate net loss will not exceed $25,000,000 or
€25,000,000 or £15,000,000 each occurrence under each policy, subject to any reinstatement or
any aggregate provisions (or both) in the company’s policy, plus their proportionate share of loss
adjustment expense (payable whether or not the company has paid or has become liable to pay any
ultimate net loss under its policy), and any extra contractual obligations and excess of limits
liability not included within the above limit, subject to the provisions of the EXTRA CONTRACTUAL
OBLIGATIONS AND EXCESS LIMITS LIABILITY ARTICLE.

All policies subject to this Section B will be written above a minimum initial attachment point of
$25,000,000, € 25,000,000, or £15,000,000.

The company will retain a 100% share, less the cession to reinsurers (as calculated above in this
Section B) in each policy subject to this Section net and unreinsured, except as provided in the
OTHER REINSURANCE ARTICLE.

SECTION C

(This Section C is applicable only to policies written through Allied World Assurance Company
(U.S.) Inc. or Newmarket Underwriters Insurance Company.)

As respects policies with original limits up to and including $25,000,000 each occurrence, the
reinsurers will accept a 100% quota share participation. The limit of liability to the reinsurers
for ultimate net loss will not exceed $25,000,000 each occurrence under each policy, subject to any
reinstatement or any aggregate provisions (or both) in the company’s policy, plus their
proportionate share of loss adjustment expense (payable whether or not the company has paid or has
become liable to pay any ultimate net loss under its policy), and any extra contractual

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obligations and excess of limits liability not included within the above limit, subject to the
provisions of the EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY ARTICLE.

All policies that provide coverage for original named insureds that are principally engaged in the
construction of real property and that are subject to this Section C will be written above a
minimum initial attachment point of $10,000,000. All other policies subject to this Section C will
be written above a minimum initial attachment point of $5,000,000.

The company will retain a 72% share in each policy, each occurrence subject to this Section C net
and unreinsured, except as provided in the OTHER REINSURANCE ARTICLE.

APPLICABLE TO SECTIONS A, B AND C ABOVE

The application of amounts in U.S. Dollars, Euros, or United Kingdom Pounds Sterling above will be
subject to Paragraph V. of the CURRENCY REVALUATION AND FOREIGN EXCHANGE ARTICLE.

If the company’s policy recognizes any:

	1.	 	Erosion of its initial attachment point due to payment of claims by underlying insurance and
drops down; or

	2.	 	Reduction in its stated attachment point due to any provisions in any underlying insurance
with respect to any joint venture;

then the minimum initial attachment points specified in Sections A, B, and C above will likewise
recognize any such erosion or reduction and be eroded or reduced to the same extent.

Should any loss involve this agreement, the obligation of the reinsurers in Sections A, B, and C
above will be reinstated immediately and automatically as to any subsequent loss for the full
amount of reinsurance as set forth above.

FOLLOW THE FORTUNES ARTICLE

The reinsurer’s liability will attach simultaneously with that of the company and will be subject
in all respects to the same terms, conditions, interpretations, waivers, modifications,
alterations, and cancellations as the respective policies of the company, the true intent of this
agreement being that the reinsurer will follow the fortunes of the company, subject to the terms,
conditions and limits of this agreement.

Nothing will in any manner create any obligations or establish any rights against the reinsurer in
favor of any third parties or any persons not parties to this agreement.

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TERM ARTICLE

This agreement applies to all policies written or renewed with effective dates during the 12-month
term extending from March 1st, 2007, 12:01 a.m. standard time to March 1st,
2008, 12:01 a.m. standard time.

Standard time is as determined by the company’s policy.

This agreement will expire on a run-off basis, and the reinsurer will remain liable for all losses
under policies in force until their expiration or renewal dates, whichever comes first.
Additionally, the reinsurer will remain liable during any extended reporting period or discovery
period that an original insured may elect to invoke on a claims-made or occurrence-reported policy
that is written or renewed with an effective date during the term of this agreement. In
conformance with state regulations, the obligations of the reinsurer under this agreement as
respects all claims-made or occurrence-reported policies will extend to the reinstatement of any
aggregate limits as may be afforded by any extended reporting period or discovery period provision
of such policies. The reinsurer will receive its share of any premium applicable to said extended
reporting period or discovery period, which will be considered fully earned by the reinsurer on the
last in-force day of the company’s policy period.

Alternatively, the company may elect that the expiration or termination of this agreement
be effected on a cut-off basis, and in the event that the company elects a cut-off
expiration or termination:

	1.	 	The reinsurer will not be liable for any losses with a date of loss on or after the
date of expiration or termination of this agreement; and

	2.	 	The reinsurer will return immediately to the company the unearned portion of the net
subject written premium less ceding commission as of the date of expiration or
termination of this agreement, computed on a pro-rata basis.

Should expiration or termination take place on a cut-off basis, any aggregate limits of liability
to the reinsurers under this agreement will be prorated as of the date of expiration or termination
in the same proportion that the earned net subject written premium bears to the total net subject
written premium for all policies as of that date.

In the event that policies subject to this agreement are written in a jurisdiction where
cancellation, renewal, or nonrenewal of coverage is regulated by the insurance authorities, and the
company is bound by statute or regulation of said jurisdiction or by a judicial decision to
continue coverage after the expiration or termination date of this agreement, then the reinsurer
will remain liable on any policies continuing such coverage (and will receive any premium collected
there for) until the first date when the company can lawfully cancel or nonrenew said policies.
If, however, the company notifies the reinsurer in writing that it has decided to hold the business
net and for its own account, then the reinsurer will not be liable for longer than the run-off
period set forth above.

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Notwithstanding the expiration or termination of this agreement (or any reinsurer’s percentage
participation hereon) as hereinabove provided, the provisions of this agreement will continue to
apply to all obligations and liabilities of the parties incurred hereunder to the end that all such
obligations and liabilities will be fully performed and discharged.

SPECIAL TERMINATION OR SETTLEMENT ARTICLE

(Applicable separately as between the company and each participating reinsurer)

Section I

	A.	 	The company may terminate this agreement forthwith in the event that:

	 	1.	 	The reinsurer ceases writing reinsurance;
	 
	 	2.	 	The reinsurer at any time:

	 	a.	 	Has a Standard & Poor’s (S&P) Insurer Financial Strength Rating of lower than
“A-”; or
	 
	 	b.	 	Ceases to have any S&P Insurer Financial Strength Rating (or has a designation
of “not rated” or “NR”) after having had an S&P rating at or after the inception of
this agreement;

	 	3.	 	The reinsurer at any time:

	 	a.	 	Has an A.M. Best’s Financial Strength Rating of lower than “A-”; or
	 
	 	b.	 	Ceases to have any A.M. Best’s Financial Strength Rating (or has a designation
of “not rated” or “NR”) after having had an A.M. Best’s Financial Strength Rating at or
after the inception of this agreement;

	 	4.	 	Over any period not exceeding twelve months, the policyholders’ surplus of the
reinsurer, as reported in such financial statements of the reinsurer as designated by the
company, drops by 20% or more; or
	 
	 	5.	 	As respects each reinsurer domiciled in the United States of America only, upon
application of the NAIC Insurance Regulatory Information System (IRIS) tests to the
reinsurer’s most recent statutory Annual Statement (which the reinsurer hereby agrees to
furnish to the company upon request), it is found that four or more of the reinsurer’s IRIS
financial ratio values are outside of the usual range established in the IRIS system.

	B.	 	Termination under Section I A. above will be effected by written notice. The company will
elect whether the termination will be on a run-off basis or a commutation with an immediate
settlement of all present and future obligations under this agreement. If the company
initially elects a run-off basis, within 15 calendar days after receiving notice of the

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	 	 	company’s election, the reinsurer will secure all such obligations through a trust account or a
clean, unconditional, irrevocable, and evergreen letter of credit from a financial institution
acceptable to the company. However, even if such security is requested by the company or
provided by the reinsurer, the company will retain the right to require an immediate settlement
of all present and future obligations at any subsequent date.

Section II

	A.	 	After the expiration (if there is no Special Termination as governed by Section I above) of
this agreement, if the reinsurer has any remaining present or future obligations to the
company and any of the five events described in paragraph A. of Section I should occur, the
company may require:

	 	1.	 	An immediate settlement of all present and future obligations under this agreement; or
	 
	 	2.	 	The reinsurer to secure all such obligations through a trust account or a clean,
unconditional, irrevocable, and evergreen letter of credit from a financial institution
acceptable to the company.

	B.	 	If the company initially requires security under Paragraph A. 2. of this Section, it will
notify the reinsurer in writing and the reinsurer will provide such trust account or letter of
credit within 15 calendar days. However, even if such security is requested by the company or
provided by the reinsurer, it is agreed that the company will retain the right to require an
immediate settlement of all present and future obligations at any subsequent date.

Section III

	A.	 	For purposes of this Article, “all present and future obligations” means outstanding ultimate
net loss, extra contractual obligations, excess of limits liability and loss adjustment
expense [including reserves for incurred-but-not-reported ultimate net loss and loss
adjustment expense (hereinafter “IBNR”)], return of unearned net subject written premium, and
all other present or future balances, obligations, or amounts due the company under this
agreement.

	B.	 	In no event will this Article be construed to limit the amount of, or the rights and
obligations of the parties with respect to, any security withheld or required in accordance
with the RESERVES AND FUNDING ARTICLE hereof (if applicable).

	C.	 	In the event of an immediate settlement of all present and future obligations, upon receipt
of final payment, the company and the reinsurer will execute a full and final commutation and
mutual release of their respective liabilities under the agreement.

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	D.	 	When requested by either party an appraisal of IBNR will be made by a panel of three
disinterested actuaries to be selected as follows:

	 	1.	 	The company, or the reinsurer, may request in writing to the other party that any
differences in the estimated amount of IBNR be settled by a panel of three actuaries, one
to be chosen by each party and the third by the two so chosen.
	 
	 	2.	 	If the other party refuses or neglects to appoint an actuary within 10 calendar days
after the company’s or reinsurer’s request in writing that the differences be settled by a
panel of three actuaries, the other party may appoint two actuaries.
	 
	 	3.	 	If the two actuaries fail to agree on the selection of a third actuary within 10
calendar days of their appointment, each of them will name two, of whom the other will
decline one, and the decision will be made by drawing lots. All the actuaries will be
regularly engaged in the valuation of excess general liability insurance claims, and each
will be a Fellow of the Casualty Actuarial Society. None of the actuaries will be under the
control of either party to this agreement.
	 
	 	4.	 	Each party will submit its case to the actuary it selected within 10 calendar days of
the appointment of the third actuary. The decision in writing of any two 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 parties. Said
appraisal will take place in Hamilton, Bermuda unless some other place is mutually agreed
upon by the company and the reinsurer.
	 
	 	5.	 	Any appraisal rendered pursuant to this subparagraph D. will not be subject to
arbitration, and either party to this agreement may proceed to a court of competent
jurisdiction to initiate an action to enforce such an appraisal.

	E.	 	All demands, requests and notices pursuant to this Article will be given in writing and given
by hand, prepaid express courier, airmail or telecopier properly addressed to the appropriate
party and will be deemed as having been effected only upon actual receipt.

	F.	 	Settlements under this Article will be adjusted for net present value. The discount rate used
for determining net present value will be the current yield of a United States Treasury 2-year
note as quoted in the Wall Street Journal on the nearest working day prior to the date the
commutation is executed.

	G.	 	In the event of any conflict between this Article and any other Article of this agreement,
the terms of this Article will control.

TERRITORY ARTICLE

The territorial scope of this agreement will follow that of the company’s policies.

13

 

EXCLUSIONS ARTICLE

	I.	 	With respect to policies otherwise subject to Sections A, B or C of the REINSURANCE COVERAGE
ARTICLE, this agreement does not apply to and specifically excludes the following:

	 	A.	 	Liability assumed by the company under treaty reinsurance; provided, however, that this
exclusion does not apply to policies subject to an inter-company pooling reinsurance
agreement among the parties comprising the company hereunder.
	 
	 	B.	 	Loss or liability excluded by the Insolvency Funds Exclusion Clause, as attached to
this agreement.
	 
	 	C.	 	Loss or liability excluded by the following clauses, which are attached to this
Agreement:

	 	1.	 	Nuclear Incident Exclusion Clause—Liability—Reinsurance (U.S.A.);
	 
	 	2.	 	Nuclear Incident Exclusion Clause—Liability—Reinsurance (Canada);
	 
	 	3.	 	Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994), (Worldwide
Excluding U.S.A. and Canada), (Includes Japanese Amendment);
	 
	 	4.	 	Nuclear Incident Exclusion Clause—Physical Damage—Reinsurance (U.S.A.);
	 
	 	5.	 	Nuclear Incident Exclusion Clause—Physical Damage—Reinsurance (Canada);
	 
	 	6.	 	Nuclear Incident Exclusion Clause—Physical Damage and Liability (Boiler and
Machinery Policies)—Reinsurance (U.S.A.); and
	 
	 	7.	 	Nuclear Incident Exclusion Clause—Physical Damage and Liability (Boiler and
Machinery Policies)—Reinsurance (Canada).

	D.	 	Loss caused directly, or indirectly, by war, whether or not declared, civil war,
insurrection, rebellion or revolution or any act or condition incidental to any of the
foregoing. If a policy contains, or follows as in the case of a follow-form policy, any war
or terrorism exclusion that incorporates any provision(s) in conflict with any provision(s)
of this exclusion, then the provision(s) of the company’s policy will supersede the
conflicting provision(s) of this exclusion. This exclusion will not be more limiting than
any war or terrorism exclusion contained in, or followed by, any policy issued by the
company.

	E.	 	Costs incurred for the withdrawal, inspection, repair, recall, return, replacement, or
disposal of an original named insured’s products or work.

	 	 	Except with respect to policies issued to original named insureds that are principally
engaged in the manufacture of automobiles or critical auto parts, this exclusion does not
apply to liability, loss, cost or expense incurred for the withdrawal, inspection, repair,
recall, return, replacement, or disposal of products or work of a party other than an
original named insured of which the original named insured’s products or work forms a part.

14

 

	F.	 	An integrated occurrence or batch occurrence; provided, however, that this exclusion
applies only with respect to loss or liability arising out of the insured’s products or the
products-completed operations hazard and only with respect to policies issued to original
named insureds that are principally engaged in the manufacture of automobiles or critical
auto parts.

	G.	 	Business classified by the company as:

	 	1.	 	Directors and Officers Liability;
	 
	 	2.	 	Surety;
	 
	 	3.	 	Fidelity Insurance;
	 
	 	4.	 	Credit Insurance;
	 
	 	5.	 	Financial Guarantee Insurance;
	 
	 	6.	 	Insolvency Insurance;
	 
	 	7.	 	Environmental Impairment Liability;
	 
	 	8.	 	Employment Practices Liability; or
	 
	 	9.	 	Pure Financial Loss Insurance;

	 	 	When written as such.

	H.	 	Aviation Liability, unless such coverage pertains to an incidental part of the original
insured’s overall operations. Additionally, Aircraft Products Liability will not be
covered when the policy is issued to an original named insured whose primary business is
the manufacture of aircraft, aircraft engines, or aircraft propellers. This exclusion does
not apply to:

	 	1.	 	Fuel or other fluids and lubricants utilized for aircraft;
	 
	 	2.	 	Any aviation liability arising out of aircraft that an original insured leases
to others if such insured is not principally engaged in the manufacture of aircraft,
aircraft engines or aircraft propellers or in the carrying of passengers aboard
aircraft for a fee.
	 
	 	3.	 	Industrial aid aircraft or industrial aid aircraft use or incidental aircraft
use or aviation liability.

If a policy contains, or follows as in the case of a follow-form policy, any aviation
liability or aircraft exclusion that incorporates any provision(s) in conflict with any
provision(s) of this exclusion, then the provision(s) of the company’s policy will supersede
the conflicting provision(s) of this exclusion. This exclusion will not be more limiting
than any aviation liability or aircraft exclusion contained in, or followed by, any policy
issued by the company.

15

 

	I.	 	Errors and omissions (E&O) or professional liability coverage; provided, however, that
this exclusion does not apply to:

	 	1.	 	Any:

	 	a.	 	Bodily injury;
	 
	 	b.	 	Property damage;
	 
	 	c.	 	Personal injury;
	 
	 	d.	 	Advertising liability (or advertising injury or personal and
advertising injury); or
	 
	 	e.	 	Extra contractual obligations, excess of limits liability, or any loss
adjustment expense associated with 1. a. through 1. d. above,

regardless of whether or not such extra contractual obligations, excess of limits
liability, loss adjustment expense, liability, injury, or damage results directly, or
indirectly, or is caused in whole, or in part, by any act, misfeasance, malfeasance,
breach of duty, error, or omission of the insured that is of a professional nature;

	 	2.	 	Druggists or Pharmacists Professional Liability;
	 
	 	3.	 	Employee Benefits Liability;
	 
	 	4.	 	Incidental medical malpractice; or
	 
	 	5.	 	Incidental professional exposure.

	 	 	If a policy contains, or follows as in the case of a follow-form policy, any E&O or
professional liability exclusion that incorporates any provision(s) in conflict with any
provision(s) of this exclusion, then the provision(s) of the company’s policy will supersede
the conflicting provision(s) of this exclusion. This exclusion will not be more limiting
than any E&O or professional liability exclusion contained in, or followed by, any policy
issued by the company.
	 
	J.	 	Loss or liability directly resulting from the rendering, or failure to render, the
following professional services:
	 
	 	 	Medical, surgical, dental, x-ray, nursing or chiropractic services or care provided to any
person, including the furnishing of drugs, in connection therewith.
	 
	 	 	This exclusion will not apply to:

	 	1.	 	Druggists or Pharmacists Professional Liability; or
	 
	 	2.	 	Incidental medical malpractice.

16

 

	 	 	If a policy contains, or follows as in the case of a follow-form policy, any medical
malpractice exclusion that incorporates any provision(s) in conflict with any provision(s)
of this exclusion, then the provision(s) of the company’s policy shall supersede the
conflicting provision(s) of this exclusion. This exclusion will not be more limiting than
any medical malpractice exclusion contained in, or followed by, any policy issued by the
company.
	 
	K.	 	Loss or liability arising out of a multi-year policy. The term multi-year policy as
used herein means a policy issued for a policy period greater than the maximum policy
period as specified under the DEFINITIONS ARTICLE.
	 
	L.	 	Business derived directly as a member of any pool, association, or syndicate.
	 
	M.	 	Asbestos, except as respects such coverage as may be provided by the XL 004 policy form
(or similar provisions of other occurrence-reported or claims-made forms).
	 
	N.	 	1. Loss or liability arising out of the actual, alleged or threatened discharge,
dispersal, seepage, migration, release or escape of methyl tertiary-butyl ether (MTBE)
pollutants, but only with respect to policies issued to original insureds that are engaged
in the:

	 	(a)	 	Refining or manufacturing of MTBE;
	 
	 	(b)	 	Refining of petroleum products; or
	 
	 	(c)	 	Blending of MTBE with other petroleum products;

	 	 	provided, however, that:

	 	(i)	 	This exclusion does not apply to persons or organizations that qualify
as additional insureds under policies issued to original insureds that are not
engaged in any of the operations described in 1. through 3. above.
	 
	 	(ii)	 	As respects liability or alleged liability arising out of an actual,
alleged or threatened discharge, dispersal, seepage, migration, release or escape
of both MTBE and other pollutants, coverage hereon will not be excluded for that
portion of such liability or alleged liability which arises out of pollutants that
are not MTBE.

	 	2.	 	If a policy contains, or follows as in the case of a follow-form policy, any
MTBE or fuel oxygenates exclusion that incorporates any provision(s) in conflict with
any provision(s) of this exclusion, then the provision(s) of the company’s policy will
supersede the conflicting provision(s) of this exclusion. This exclusion will not be
more limiting than any MTBE or fuel oxygenates exclusion contained in, or followed by,
any policy issued by the company.

17

 

	 	3.	 	However, solely with respect to bodily injury or property damage arising out of
the insured’s products or the products-completed operations hazard, if any MTBE or fuel
oxygenates exclusion contained in, or followed by, the company’s policy does not
exclude a gradual discharge of MTBE pollutants, then:

	 	(a)	 	The provisions of paragraph 2. above will not apply to such coverage as
may be allowed for such gradual discharge of MTBE pollutants by the company’s
policy; and
	 
	 	(b)	 	The provisions of paragraph 1. above will apply to such gradual
discharge of MTBE pollutants, notwithstanding that such provisions may be in
conflict with the provisions of any MTBE or fuel oxygenates exclusion contained in,
or followed by, the company’s policy.

As used in this exclusion:

“Discharge” has the same meaning that it does in the company’s policy or, if such term is
not used in the company’s policy, has the same meaning as whatever equivalent term(s)
is(are) used in the company’s policy such as ‘dispersal,’ ‘release,’ ‘seepage,’ ‘migration,’
‘release’ or ‘escape’.

A discharge will not be considered a “gradual discharge” if:

	 	(a)	 	The original insured is aware of it within 20 days following its
commencement and if the original insured gives the company notice of such discharge
within 80 days following its commencement; or
	 
	 	(b)	 	Such discharge results from a “covered pollution peril” or “named
peril” (as such terms are defined in the company’s policy) or such perils as are
listed or covered in the company’s policy.

	II.	 	With respect to policies that are otherwise subject to Sections B or C of the REINSURANCE
COVERAGE ARTICLE and issued to original named insureds that are ethical pharmaceutical
manufacturers, this agreement does not apply to and specifically excludes bodily injury or
property damage arising out of the insured’s products or the products-completed operations
hazard. However, this exclusion does not apply to:

	 	A.	 	Nutraceutical companies;
	 
	 	B.	 	Over-the-counter (non-ethical) drug companies; or
	 
	 	C.	 	Diversified manufacturers whose ethical pharmaceutical revenues are less than 20.00% of
total corporate revenues for the 12-month period that immediately precedes the effective or
renewal date of the policy.

18

 

	III.	 	With respect to policies otherwise subject to Section C of the REINSURANCE COVERAGE ARTICLE,
this agreement does not apply to and specifically excludes the following:

	 	A.	 	Bodily injury or property damage that directly results from the following premises or
operations; provided, however, that this exclusion does not apply to such bodily injury or
property damage that arises out of the insured’s products or that is included in the
products-completed operations hazard:

	 	1.	 	Demolition operations when written as such, but this exclusion does not apply
to any mining or quarrying operations or any blasting operations of original insureds
whose primary business is not demolition operations;
	 
	 	2.	 	Fraternity premises when written as such, but this exclusion does not apply to
any educational institution that is found liable for its oversight (or failure thereof)
of the premises, operations, or conduct of fraternities;
	 
	 	3.	 	Ship-building; ship repair yards, or dry dock operations;
	 
	 	4.	 	Amusement parks, carnivals, or automobile racing events when written as such,
but this exclusion does not apply to original insureds that do not operate such events
or premises, but do:

	 	a.	 	Promote, market, or advertise such events or premises;
	 
	 	b.	 	Use such events or premises in their promotional, marketing, or
advertising activities; or
	 
	 	c.	 	Sell or give away tickets to such events or premises;

	 	5.	 	Airports, but only as respects loss or liability that directly results from the
ownership, maintenance, or use of aircraft or from flight operations;
	 
	 	6.	 	Construction of subways, tunnels, or dams, but this exclusion does not apply to
the construction of:

	 	a.	 	A dam that has an embankment less than 20 feet in height or a reservoir
capacity less than 100 acre-feet;
	 
	 	b.	 	A pool or impoundment; or
	 
	 	c.	 	A pond;

	 	7.	 	The application of insecticides or pesticides within a building, but this
exclusion does not apply to an original insured that owns, occupies, rents, leases, or
uses such a building;
	 
	 	8.	 	Underground mining operations, but this exclusion does not apply to surface
mining or quarrying operations; or
	 
	 	9.	 	Low-rise residential construction operations;

Provided, however, that if:

	 	(1)	 	A policy contains, or follows as in the case of a follow-form policy, an
exclusion of any of the premises or operations (or both) listed above; and
	 
	 	(2)	 	Such exclusion incorporates any provision(s) in conflict with any provision(s)
of this exclusion A.;

19

 

	 	 	 	Then the provision(s) of company’s policy will supersede the conflicting provision(s) of
this exclusion A. with respect to such premises or operations (or both). This exclusion A.
will not be more limiting than any exclusion of such premises or operations (or both) listed
above, which is contained in, or followed by, any policy issued by the company.
	 
	 	 	 	This exclusion A. will not apply to any original insured that performs work or operations
at, or incidental to, any of the premises or operations excluded above unless such insured
is also principally engaged in the ownership of such premises or the performance of such
work or operations excluded above.
	 
	 	B.	 	Bodily injury or property damage included in the products-completed operations hazard,
but only if such bodily injury or property damage directly results from the manufacturing
of:

	 	1.	 	Automobiles or motorcycles;
	 
	 	2.	 	Springboards or trampolines;
	 
	 	3.	 	Helmets intended to be used in athletic events or athletic activities;
	 
	 	4.	 	Underground storage tanks intended to be used for the storage of petroleum
products;
	 
	 	5.	 	Firearms or guns;
	 
	 	6.	 	Paints containing lead;
	 
	 	7.	 	Fireworks;
	 
	 	8.	 	Medical devices intended to be used for implantation into humans;
	 
	 	9.	 	Cell phones;
	 
	 	10.	 	Smoke detectors;
	 
	 	11.	 	NutraSweet or saccharin intended to be used in food or beverage products for
human consumption, but this exclusion does not apply to an original insured who
handles, sells, or distributes food or beverage products intended for human consumption
that contain NutraSweet or saccharin, unless such insured is principally engaged in the
manufacturing of NutraSweet or saccharin;
	 
	 	12.	 	Latex gloves;
	 
	 	13.	 	Rides intended for use in amusement parks;
	 
	 	14.	 	Tobacco products, but this exclusion does not apply injury or damage due to a
fire caused by lighted tobacco products;
	 
	 	15.	 	Diving boards or diving towers;
	 
	 	16.	 	Insecticides, pesticides or herbicides;
	 
	 	17.	 	Manganese welding rods; or
	 
	 	18.	 	Explosives or nitroglycerine, celluloid, pyroxlin, or other explosive
substances intended for use in explosives;

Provided, however, that if:

	 	(1)	 	A policy contains, or follows as in the case of a follow-form policy, an
exclusion of any of the products or completed operations (or both) listed above; and
	 
	 	(2)	 	Such exclusion incorporates any provision(s) in conflict with any provision(s)
of this exclusion B.;

20

 

Then the provision(s) of the company’s policy will supersede the conflicting provision(s) of
this exclusion B. with respect to such products or completed operations (or both) listed
above. This exclusion B. will not be more limiting than any exclusion of such products or
completed operations (or both) listed above, which is contained in, or followed by, any
policy issued by the company.

Except as noted above, this exclusion B. will not apply to any original insured that
produces, manufactures or assembles any component parts, subassemblies, chemicals,
materials, or substances used in any of the products or completed operations listed above
unless such insured is also principally engaged in the final production, manufacturing, or
assembly of such product(s) or the performance of such completed operations listed above.

The exclusions enumerated in III. above will not apply to incidental premises, operations,
products, activities or work of the original insured.

Should the company, by reason of an inadvertent act, error, or omission, be bound to afford
coverage excluded hereunder or should an existing insured extend its premises, operations,
products, activities or work to include exposures excluded hereunder, the reinsurer will
temporarily waive such exclusions. Such waiver, however, will not apply to exclusions I.A., I.B.,
I.C., I.G.2. through I.G.6., I.L. or I.M. of this Article. The duration of said waiver will not
extend beyond the time that notice of such exposure has been received by a member of the executive
or managerial staff of the company’s office having underwriting authority in the class of business
involved, plus the minimum time period required thereafter for the company to terminate such
coverage. If the company is prevented from canceling said policy within such period by applicable
statute or regulation, then such policy will be covered hereunder until the earliest date on which
the company may cancel.

The company may submit in writing to the reinsurer, for special acceptance hereunder, policy(ies)
that would otherwise not be covered by this agreement. If said policy(ies) is/are accepted in
writing by the reinsurer, it/they will be subject to the terms and conditions of this agreement for
that reinsurer’s percentage participation hereon, except as such terms and conditions are modified
by such acceptance. Recognizing the urgent nature of these communications, the reinsurer agrees to
respond forthwith to such requests. Silence on the part of the reinsurer after five business days
from its receipt of a request for special acceptance will be deemed constructive concurrence with
the company’s election to cede to this agreement the policy(ies) that is/are the subject of the
request. Any policies special accepted under reinsurance agreements that precede this agreement
will be automatically covered hereunder. Further, should reinsurers become a party to this
agreement subsequent to the acceptance of any policies not normally covered hereunder, they will
automatically accept such policies as being a part of this agreement.

21

 

REINSURANCE PREMIUM AND CEDING COMMISSION ARTICLE

The company will cede to the reinsurer the reinsurer’s quota share percentage (as specified for
such reinsurer in the INTERESTS AND LIABILITIES AGREEMENTS attaching to and forming a part of this
agreement) of the net subject written premium on all policies written or renewed with an effective
date on or after the effective date of this agreement, less a flat ceding commission on the net
subject written premium ceded as follows:

	 	 	 
	Section A:

	 	Flat rate of 25% of net subject written premium.
	 
	 	 
	Section B:

	 	Flat rate of 23.5% of net subject written premium.
	 
	 	 
	Section C:

	 	Flat rate of 22.5% of net subject written premium.

The flat ceding commission will include premium taxes of all kinds, local board assessments, and
all other expenses and charges whatsoever based on the premium for policies ceded under this
agreement, except for Federal Excise Tax as described in the FEDERAL EXCISE TAX ARTICLE.

OTHER REINSURANCE ARTICLE

The company may purchase the following treaty reinsurance on its retentions (as set forth in the

REINSURANCE COVERAGE ARTICLE):

	A.	 	Inter-company pooling reinsurance agreements among the parties comprising the company; and
	 
	B.	 	Aggregate excess of loss reinsurance written on an each-occurrence (a.k.a. “clash”) basis.

The premium paid for such treaty reinsurance will not be deducted from the net subject written
premium hereon; likewise, recoveries under such reinsurance will inure to the sole benefit of the
company.

Additionally, the company may purchase facultative reinsurance on any policy for which it deems
such purchase advisable, and the premium for that portion of the company’s policy reinsured
elsewhere will be deducted from the net subject written premium, and such facultative reinsurance
(if any) will inure to the benefit of this agreement.

EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS OF LIMITS LIABILITY ARTICLE

This agreement will extend to cover any claims-related extra contractual obligations or excess of
limits liability (or both) arising because of, but not limited to, the following:

	A.	 	Failure of the company to agree to settle a claim within the policy limits or to provide a
defense against such claims.

22

 

	B.	 	Actual or alleged bad faith, fraud, or negligence in investigating or handling a claim or in
rejecting an offer of settlement.

	C.	 	Negligence or breach of duty in the preparation of the defense or the conduct of a trial or
the preparation or prosecution of any appeal or subrogation (or both) or any subsequent action
resulting therefrom.

“Extra contractual obligations” as used in this agreement means those liabilities not covered under
any other provision of this agreement for which the company is liable to its insured or a
third-party claimant, or that the company paid as its share of a claims-related extra contractual
obligation awarded against one or more of its co-insurers.

“Excess of limits liability” as used in this agreement will mean any amount for which the company
would have been contractually liable to pay had it not been for the limits of the company’s policy.

There will be no recovery hereunder where the extra contractual obligations or excess of limits
liability (or both) have been incurred due to fraud committed by a member of the board of directors
or a duly elected corporate officer of the company, acting individually, collectively, or in
collusion with a member of the board of directors, a duly elected corporate officer, or a partner
of any other corporation, partnership, or organization involved in the defense or settlement of a
claim on behalf of the company.

The date on which any extra contractual obligations or excess of limits liability (or both) is
incurred by the company will be deemed, in all circumstances, to be the date of loss under the
company’s policy. In no event will the reinsurer’s total liability for extra contractual
obligations or excess of limits liability (or both) exceed the following limits with respect to any
one occurrence, which limits are in addition to such reinsurer’s limits of liability, as set forth
in the REINSURANCE COVERAGE ARTICLE, with respect to ultimate net loss arising out of such
occurrence.

	1.	 	The reinsurer’s share, if applicable, of the Section A limit;
	 
	2.	 	The reinsurer’s share, if applicable, of the maximum possible limit under Section B.; or
	 
	3.	 	The reinsurer’s share, if applicable, of the Section C limit;

The limitations set forth above in this paragraph apply to their respective Sections of the
REINSURANCE COVERAGE ARTICLE.

REPORTS AND REMITTANCES ARTICLE

	A.	 	Within 75 calendar days after the close of each month, as respects all policies subject to
this agreement that are underwritten by the company’s London offices, and within 45 calendar
days after the close of each month, as respects all other policies subject to this agreement,

23

 

	 	 	the company will furnish the reinsurer with a report summarizing the premium ceded less return
premium and ceding commission, ultimate net loss paid, loss adjustment expense paid, extra
contractual obligations paid, excess of limits liability paid, monies recovered, and net balance
due either party. Said monthly reports will also include the following information for each
policy subject to this agreement that is written or renewed during the month:

	 	1.	 	First named insured;
	 
	 	2.	 	Policy effective date;
	 
	 	3.	 	Policy expiration date;
	 
	 	4.	 	Policy limits;
	 
	 	5.	 	Policy attachment point(s);
	 
	 	6.	 	Policy premium;
	 
	 	7.	 	Premium ceded to reinsurers;
	 
	 	8.	 	Paid ultimate net loss;
	 
	 	9.	 	Reserves for outstanding ultimate net loss;
	 
	 	10.	 	Paid loss adjustment expense; and
	 
	 	11.	 	Reserves for outstanding loss adjustment expense.

	 	 	Amounts due the reinsurer will accompany said reports. Except with respect to amounts due under
paragraph C. of this Article, any balances due the company will be paid within 45 calendar days
after the company has furnished the reinsurer with the report.
	 
	B.	 	Semi-annually the company will provide the reinsurer with a report listing all claims subject
to this agreement to which the company has assigned the claim code of “D”, “P”, or “R”. Such
reports will be valued as of June 30th and December 31st, respectively,
and will contain with respect to each claim listed the following information:

	 	1.	 	First named insured;
	 
	 	2.	 	Policy effective date;
	 
	 	3.	 	Date of loss;
	 
	 	4.	 	Date of report;
	 
	 	5.	 	Amount paid;
	 
	 	6.	 	Amount reserved;
	 
	 	7.	 	Status of claim (i.e., whether open or closed); and
	 
	 	8.	 	Claim code.

	 	 	In addition, the company will furnish the reinsurer with such other information as may be
required by the reinsurer for completion of its NAIC interim and/or annual statements.
	 
	C.	 	If the amount due the company for the sum of ultimate net loss, loss adjustment expense,
extra contractual obligations, or excess of limits liability (whether individually or
collectively) recoverable under this agreement for any one occurrence is in excess of:

	 	1.	 	$1,500,000 with respect to policies subject to Section A of the REINSURANCE COVERAGE
ARTICLE;

24

 

	 	2.	 	$5,000,000 with respect to policies subject to Section B of the REINSURANCE COVERAGE
ARTICLE; or
	 
	 	3.	 	$1,500,000 with respect to policies subject to Section C of the REINSURANCE COVERAGE
ARTICLE;

the reinsurer will, upon the company’s demand and its receipt of satisfactory proofs of loss (as
defined in the LOSS SETTLEMENTS ARTICLE), remit the amount due the company within five business
days.

LOSS SETTLEMENTS ARTICLE

The reinsurer agrees to abide by all settlements made by the company whether under strict policy
conditions or by way of compromise including settlements involving disputed interpretations of
policy terms and/or coverage. All settlements, compromises, and adjustments made by the company,
whether involving coverage issues or otherwise, will be binding on the reinsurer in proportion to
its percentage participation. Such settlements, compromises, or adjustments will be considered
satisfactory proofs of loss, and amounts falling to the share of the reinsurer will be payable to
the company, subject to the provisions of the REPORTS AND REMITTANCES ARTICLE and the LOSS
SETTLEMENTS ARTICLE.

The company will likewise at its sole discretion commence, continue, defend, compromise, settle, or
withdraw from actions, suits, or proceedings and generally do all such matters and things relating
to any claim or loss as in its judgment may be beneficial or expedient, and the reinsurer will be
liable for its share of all payments made and costs and expenses incurred in connection therewith
or in taking legal advice therefore (including those which are the result of actions or disputes
between original insured(s) and the company).

OFFSET ARTICLE

The company or the reinsurer 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 or on account of losses or otherwise,
due from one party to the other party hereto, under the terms and within the subject matter of this
agreement, and any predecessor and successor agreements of this agreement.

In the event of an insolvency of a party hereto, offset shall only be allowed in accordance with
the provisions of Section 7427 of the Insurance Law of the State of New York.

SALVAGE AND SUBROGATION ARTICLE

The reinsurer will be credited with its proportionate share of salvage or subrogation (or both) in
respect of claims and settlements under this agreement, less its share of recovery expense. Unless
the company and the reinsurer agree to the contrary, the company will enforce its right

25

 

to salvage or subrogation (or both) and will prosecute all claims arising out of such right.
Should the company refuse or neglect to enforce this right, the reinsurer is hereby empowered and
authorized to institute appropriate action in the name of the company.

The reinsurer will benefit proportionately from all reductions of ultimate net loss by salvage,
compromise or otherwise. If the amount recovered exceeds the recovery expense, such expense will
be borne by each party in proportion to its benefit from the recovery. If the recovery expense
exceeds the amount recovered, the amount recovered (if any) will be applied to the reimbursement of
recovery expense and the remaining expense will be borne by each party in proportion to its
liability for the loss before recovery was attempted.

Notwithstanding anything to the contrary in this agreement, if the reinsurers initiate an action to
secure salvage and/or subrogation in the name of the company, and there is no such recovery, or if
the amount recovered is insufficient to cover the expenses incurred in pursuing salvage and/or
subrogation, the reinsurers initiating such action will be jointly and severally liable for 100% of
such excess expense. Further, said reinsurers will be jointly and severally liable for 100% of any
damages to the company, including reimbursement of any compensatory or punitive damages (or both)
resulting from the action.

DELAYS, ERRORS, OR OMISSIONS ARTICLE

Any inadvertent delay, omission, or error will not relieve either party hereto from any liability,
which would attach to it hereunder if such delay, omission or error had not been made, provided
such delay, omission, or error is rectified immediately upon discovery.

ENTIRE AGREEMENT, INTERPRETATION ARTICLE

This agreement represents the entire agreement between the company and the reinsurers with respect
to business covered hereunder. There are no understandings between the parties other than as
expressed in this agreement. All prior agreements, understandings and representations made by the
company and the reinsurers are superseded by this agreement. Any change or modification of this
agreement will be documented by an amendment of this agreement, signed by the parties to the
agreement.

ACCESS TO RECORDS ARTICLE

The reinsurer or its duly designated representatives will have, upon providing reasonable advance
notice to the company, access to the company’s underwriting, accounting, or claim files, other than
proprietary or privileged communications, pertaining to the subject matter of this agreement during
the period that this agreement is in force and subsequent to its expiration or termination until
all claims are closed. If any amount is overdue from a reinsurer to the company for any reason,
other than a disputed payment, the reinsurer will have such access to records only upon payment of
such overdue amounts to the company or by placing the overdue

26

 

amounts in a trust or an escrow account acceptable by the company, pending resolution of the
dispute. The reinsurer may, at its own expense, reasonably make copies of such books and records
and in such event agrees to pay the company’s reasonable expenses (including staff and other
overhead costs) in procuring such copies.

If the reinsurer makes any inspection of the company’s claim files under this agreement and, as a
result of the inspection the claim is contested or disputed, the reinsurer will provide the
company, at the company’s request, a summary of any reports completed by the reinsurer’s personnel
or by third parties on behalf of the reinsurer outlining the findings of the inspection and
identifying the reasons for contesting or disputing the subject claim. The reinsurer will provide
to the company a copy of any such reports within 15 days of the company’s request for same.
Nothing in this Article requires the company to maintain or make available any document for a
period longer than that required under the company’s document retention policies or procedures.

CONFIDENTIALITY ARTICLE

All terms and conditions of this agreement and any materials provided in the course of inspection
will be kept confidential by the reinsurer as against third parties, unless the disclosure is
required pursuant to process of law or unless the disclosure is to the reinsurer’s
retrocessionaires, financial auditors, or governing regulatory bodies. Disclosing or using this
information for any purpose beyond the scope of this agreement, or beyond the exceptions set forth
above, is expressly forbidden without the prior consent of the company.

INSOLVENCY ARTICLE

(This Article will apply severally to each reinsured company referenced within the definition of
the company in the Preamble to this agreement. Further, this Article and the laws of the
domiciliary state will apply in the event of the insolvency of any company intended to be covered
hereunder. In the event of a conflict between any provision of this Article and the laws of the
domiciliary state of any company intended to be covered hereunder, that domiciliary state’s laws
will prevail.)

	A.	 	In the event of the insolvency of the company, this reinsurance will be payable directly to
the company, or to its liquidator, receiver, conservator or statutory successor, immediately
upon demand on the basis of the liability of the company without diminution because of the
insolvency of the company or because the liquidator, receiver, conservator or statutory
successor of the company has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor of the company will
give written notice to the reinsurer of the pendency of a claim against the company, which
would involve a possible liability on the part of the reinsurer, indicating the policy or bond
reinsured, within a reasonable time after such claim is filed in the conservation or
liquidation proceeding or in the receivership. It is further agreed that during the pendency
of such claim the reinsurer may investigate such claim and interpose, at its own expense, in
the proceeding

27

 

	 	 	where such claim is to be adjudicated, any defense or defenses that it may deem available to the
company or its liquidator, receiver, conservator, or statutory successor. The expense thus
incurred by the reinsurer will be chargeable, subject to the approval of the Court, against the
company as part of the expense of conservation or liquidation to the extent of a pro rata share
of the benefit, which may accrue to the company solely as a result of the defense undertaken by
the reinsurer.

	B.	 	Where two or more of the reinsurers are involved in the same claim and a majority in interest
elects to interpose defense to such claim, the expense will be apportioned in accordance with
the terms of the agreement as though such expense had been incurred by the company.

	C.	 	The reinsurance will be payable by the reinsurer to the company or to its liquidator,
receiver, conservator, or statutory successor, except as provided by Section 4118(a) (1) (A)
and 1114 (c) of the New York Insurance Law or except (a) where the agreement specifically
provides another payee of such reinsurance in the event of the insolvency of the company or
(b) where the reinsurer with the consent of the original insured or insureds has voluntarily
assumed such policy obligations of the company as direct obligations of the reinsurer to the
payees under such policies and in substitution for the obligations of the company to the
payees. Then, and in that event only, the company, with the prior approval of the certificate
of assumption on New York risks by the Superintendent of Insurance of the State of New York,
is entirely released from its obligation and the reinsurer will pay any loss directly to
payees under such policy.

	D.	 	Notwithstanding paragraphs A., B., and C., where the company is authorized under the
Insurance Companies Act (Canada) to insure risks in Canada, in the event of the insolvency of
the company, reinsurance payable in respect of the insurance business in Canada of the company
will be payable to the Chief Agent in Canada of the company or to the liquidator, receiver,
conservator or statutory successor appointed in Canada in respect of the insurance business in
Canada of the company without diminution because of the insolvency of the company or because
the company or a liquidator, receiver, conservator or statutory successor of the company has
failed to pay all or any portion of any claim. All other terms and conditions of paragraphs
A., B., and C. remain in effect and apply to this paragraph D., which will prevail if there is
a conflict or inconsistency.

ARBITRATION ARTICLE

	A.	 	As a condition precedent to any right of action under this agreement, any and all disputes
arising under or relating to this agreement, including its formation and validity, will be
finally and fully determined in Hamilton, Bermuda under the provisions of The Bermuda
International Conciliation and Arbitration Act of 1993 (exclusive of the Conciliation Part of
such Act), as may be amended and supplemented, by a Board composed of three arbitrators to be
selected for each controversy as follows:

In the event of a dispute, controversy or claim, any party may notify the other party or parties
to such dispute, controversy or claim of its desire to arbitrate the matter, and at the time of

28

 

such notification the party desiring arbitration will notify any other party or parties of the
name of the arbitrator selected by it. The other party who has been so notified will within 30
calendar days thereafter select an arbitrator and notify the party desiring arbitration of the
name of such second arbitrator. If the party notified of a desire for arbitration will fail or
refuse to nominate the second arbitrator within 30 calendar days following receipt of such
notification, the party who first served notice of a desire to arbitrate will, within an
additional period of 30 calendar days, apply to the Supreme Court of Bermuda for the appointment
of a second arbitrator and in such a case the arbitrator appointed by such court will be deemed
to have been nominated by the party or parties who failed to select the second arbitrator. The
two arbitrators, chosen as above provided, will within 30 calendar days after the appointment of
the second arbitrator choose a third arbitrator. In the event of the failure of the first two
arbitrators to agree on a third arbitrator within said 30 calendar day period, the third
arbitrator will be drawn automatically utilizing the Dow Jones Industrial Average on the third
working day after both names have been chosen in writing. A Dow Jones Industrial Average ending
in an even number before the decimal point will be deemed to be the selection of the claimant’s
name and the Dow Jones Industrial Average ending in an odd number before the decimal point will
be deemed to be the selection of the respondent’s name. The three arbitrators will decide by
majority. The umpire will also act as Chair of the Tribunal and, in the event that no majority
can be reached, the verdict of the umpire will prevail.

	B.	 	All claims, demands, denials of claims and notices pursuant to this Article will be given in
writing and given by hand, prepaid express courier, airmail or telecopier properly addressed
to the appropriate party and will be deemed as having been effected only upon actual receipt.

	C.	 	The Board of Arbitration will fix, by a notice in writing to the parties involved, a
reasonable time and place for the hearing and may prescribe reasonable rules and regulations
governing the course and conduct of the arbitration proceeding, including without limitation
discovery by the parties. The Board will be relieved of all judicial formality and will not
be bound by the strict rules of procedure evidence. The Board will interpret this agreement
as if it were an honorable engagement rather than as merely a legal obligation.

	D.	 	The Board will, within 90 calendar days following the conclusion of the hearing, render its
decision on the matter or matters in controversy in writing and will cause a copy thereof to
be served on all the parties thereto. In case the Board fails to reach a unanimous decision,
the decision of the majority of the members of the Board will be deemed to be the decision of
the Board. Such decision will be a complete defense to any attempted appeal or litigation of
such decision of the Board of Arbitration by, any court or other body to the fullest extent
permitted by applicable law.

	E.	 	Any order as to the costs of the arbitration will be in the sole discretion of the Board, who
may direct to whom and by whom and in what manner they will be paid.

	F.	 	All awards made by the Arbitration Board will be final and no right of appeal will lie from
any award rendered by the Arbitration Board. The parties agree that the Supreme Court of
Bermuda: (i) will not grant leave to appeal any award based upon a question of law arising out
of the award; (ii) will not grant leave to make an application with respect to an award;

29

 

(iii) and will not assume jurisdiction upon any application by a party to determine any issue of
law arising in the course of the arbitration proceeding.

All awards made by the Arbitration Board may be enforced in the same manner as a judgment or
order from the Supreme Court of Bermuda and judgment may be entered pursuant to the terms of the
award by leave from the Supreme Court of Bermuda.

	G.	 	If the company and more than one reinsurer are involved in the same dispute(s) or
difference(s) arising out of this agreement, and the company requests consolidated arbitration
with those reinsurers in an initial notice of arbitration or response, then those reinsurers
will constitute and act as one party for purposes of the arbitration and thus will select a
single party-appointed arbitrator among them. If the company requests consolidation in its
notice of arbitration, then both parties will elect their party-appointed arbitrators within
45 calendar days of the commencement of the arbitration proceeding. If the company requests
consolidation in its response, then (i) that response will be appended to the company’s notice
of arbitration to the additional reinsurer(s) joined in the proceeding, (ii) any arbitral
appointment made before that response will be of no effect, and (iii) the reinsurers will
select their arbitrator within 45 calendar days of their receipt of those pleadings. For
purposes of this paragraph, any instance in which two or more of the reinsurers have not paid
their proportional shares of the same balance claimed due by the company will be deemed to
involve the same dispute(s) or difference(s) arising out of this Agreement. Communications
will be made by the company to each of the reinsurers constituting one party. Nothing in this
paragraph will impair the rights of reinsurers to assert several rather than joint defenses or
claims, change their liability under this agreement from several to joint, or impair their
rights to retain separate counsel in connection with the arbitration.

	H.	 	Unless prohibited by law, the Supreme Court of Bermuda will have exclusive jurisdiction over
any and all court proceedings that either party may initiate in connection with the
arbitration, including proceedings to compel, stay, or enjoin arbitration or to confirm,
vacate, modify, or correct an arbitration award.

GOVERNING LAW ARTICLE

This agreement, and any dispute, controversy, or claim arising out of or relating to this
agreement, will be governed by and construed according to the laws of the State of New York, except
with regard to:

	A.	 	The payment of punitive damages; and
	 
	B.	 	The procedural law required under the ARBITRATION ARTICLE of this agreement,

which will be construed in accordance with the laws of Bermuda.

30

 

Notwithstanding the foregoing, as to rules regarding credit for reinsurance, the rules of all
applicable states or other jurisdictions will pertain thereto.

CURRENCY REVALUATION AND FOREIGN EXCHANGE ARTICLE

	I.	 	It is understood and agreed that any original limit(s) or original sub-limit(s) of liability,
underlying limit(s) or attachment point(s) of a policy in currencies other than United States
of America (“U.S.”) Dollars, Euros, or United Kingdom Pounds Sterling will be converted into
its(their) U.S. dollar equivalent(s) using the same rate of exchange used by the company when
such policy was entered by the company into its own books of account. In the event that there
is a subsequent change in the parity value of the U.S. dollar (from that used by the company
when such policy was entered by the company into its own books of account) which results in:

	 	A.	 	The reinsurer’s maximum limit of liability for such policy (as specified in the
REINSURANCE COVERAGE ARTICLE) being exceeded;
	 
	 	B.	 	Such policy being subject to Section A instead of Section B of this agreement (or
subject to Section B instead of Section A of this agreement);
	 
	 	C.	 	Any minimum initial attachment point threshold in U.S. Dollars, which is required by
the REINSURANCE COVERAGE ARTICLE in order for such policy to be reinsured hereunder, not
being met; or
	 
	 	D.	 	A change in the company’s retained percentage under the provisions of B. of the
REINSURANCE COVERAGE ARTICLE (if applicable);

	 	 	then:

	 	1.	 	In the case of A. above, the company will be held covered for such excess limit;
	 
	 	2.	 	In the case of B. above, the company’s policy will remain subject to the section of
this agreement that applied based on the exchange rate that was used by the company when
such policy was entered by the company into its own books of account; and
	 
	 	3.	 	In the case of C. above, the required minimum initial attachment point threshold will
be deemed to have been met for such policy to be reinsured hereunder;
	 
	 	4.	 	In the case of D. above, the company’s retention under the provisions of Section B of
the REINSURANCE COVERAGE ARTICLE (if applicable) will be deemed unchanged from what it was
when such policy was entered by the company into its own books of account;

31

 

	 	 	until the next renewal of the policy, at which time:

	 	a.	 	The warranted reinsurers’ maximum U.S. dollar limit of liability;
	 
	 	b.	 	Section A or Section B under the REINSURANCE COVERAGE ARTICLE of this agreement;
	 
	 	c.	 	The minimum initial attachment point threshold in U.S. Dollars, which is required by
the REINSURANCE COVERAGE ARTICLE in order for such policy to be reinsured hereunder; and
	 
	 	d.	 	The company’s retention under provisions of Section B. of the REINSURANCE COVERAGE
ARTICLE (if applicable);

	 	 	will apply to such policy based on the exchange rate used by the company when such renewal is
entered by the company into its own books of account.

	II.	 	All amounts due to either the company or the reinsurer under this
agreement will be paid in United States of America (U.S.) Dollars
subject to paragraphs III. and IV. below.
	 
	III.	 	Net subject written premium, as well as any subsequent adjustments
thereto, collected or returned by the company in other than U.S.
Dollars will be paid to, or by, the reinsurer in U.S. Dollars at the
same rates of exchange at which the company entered such transaction
into its own books of account.
	 
	IV.	 	Amounts due the company for ultimate net loss, loss adjustment
expense, extra contractual obligations, or excess of limits liability
hereunder in other than U.S. Dollars will be converted into U.S.
Dollars at the same rates of exchange at which the company entered
the payment(s) of such loss into its own books of account.
	 
	V.	 	The sign “$” in this agreement refers to United States of America (U.S.) Dollars. The sign
“€” refers to Euros, the currency of the European Union. The sign “£” refers to United
Kingdom Pounds Sterling. For the purposes of determining the manner in which policies are to
be ceded to this agreement, the limits and attachment points set forth in this agreement that
are to apply to a subject policy, based upon said policy’s issuing company, attachment point
and limit, will be those limits and attachment points stated in the currency(ies) in which the
policy is issued; however, in the event a policy is issued with limits or attachment points
(or both) in a currency other than one of those set forth in this subparagraph V., such limit
and attachment point will be converted to U.S. Dollars and said policy will be ceded as if it
were originally written in U.S. Dollars.

32

 

SERVICE OF SUIT ARTICLE

(This Article is not intended to conflict with or override the parties’ obligation to arbitrate
their disputes in accordance with the ARBITRATION ARTICLE.)

	A.	 	This paragraph A. applies:

	 	1.	 	Only to policies that are subject to Section A or Section B of the REINSURANCE COVERAGE
ARTICLE; and
	 
	 	2.	 	To a reinsurer unauthorized in any jurisdiction that has authority over the company and
in which a subject suit has been instituted.

	 	 	In the event any reinsurer hereon fails to pay any amount claimed due hereunder, such reinsurer,
at the request of the company, will submit to the jurisdiction of a court of competent
jurisdiction within England or Bermuda and will comply with all requirements necessary to give
that court jurisdiction.

	B.	 	This paragraph B. applies:

	 	1.	 	Only to policies that are subject to Section C of the REINSURANCE COVERAGE ARTICLE; and
	 
	 	2.	 	To a reinsurer either:

	 	a.	 	Domiciled outside the United States of America; or
	 
	 	b.	 	Unauthorized in any state, territory or district of the United States of
America that has jurisdiction over the company and in which a subject suit has been
instituted.

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

Service of process in such suit may be made upon Mendes and Mount, LLP, 750 Seventh Avenue, New
York, New York 10019-6829, when such suit is instituted in the state of New York; Mendes and
Mount, LLP, 725 South Figueroa, 19th Floor, Los Angeles, California 90017-5524, when such suit
is instituted in the state of California; either of the foregoing if

33

 

the suit is not instituted in New York or California; or another party as specifically
designated in the INTERESTS AND LIABILITIES AGREEMENT for such reinsurer.

However, if another party is so designated, the reinsurer in question recognizes that the laws
of the states of New York and California require that service be made on a law firm located in
the respective state if a suit is instituted in that state, so that if the party designated
above is not located in California as respects a suit instituted in California, or New York as
respects a suit instituted in New York, the applicable office of Mendes and Mount stipulated
above must be used for service of suit unless the provisions of the final paragraph of this
Article apply.

The agent for service of process 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 will enter a general appearance upon the
reinsurer’s behalf in the event such a suit is instituted.

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

AGENCY ARTICLE

For purposes of sending and receiving notices and payments required by this agreement, the
reinsured company that is set forth first in the definition of company in the Preamble to this
agreement will be deemed the agent of all other reinsured companies referenced in the Preamble. In
no event, however, will any reinsured company be deemed the agent of another with respect to the
terms of the INSOLVENCY ARTICLE.

INTERMEDIARY ARTICLE

Aon Re Inc., an Illinois corporation, or one of its affiliated corporations duly licensed as a
reinsurance intermediary, is hereby recognized as the intermediary negotiating this agreement for
all policies reinsured hereunder. All communications relating to this agreement will be
transmitted to the company or the reinsurers through the intermediary. Payments by the company to
the intermediary will be deemed payment to the reinsurers. Payments by the reinsurers to the
intermediary will be deemed payment to the company only to the extent that such payments are
actually received by the company.

34

 

RESERVES AND FUNDING ARTICLE

	A.	 	As respects policies subject to Section C of the REINSURANCE COVERAGE ARTICLE only, this
Article applies to the reinsurer in the event that the company is unable to recognize a
statutory credit in any state having jurisdiction over the company’s reserves as respects said
reinsurer’s obligations hereunder.
	 
	B.	 	As regards policies issued by the company coming within the scope of this agreement, the
company agrees that when it will file with the insurance regulatory authority or set up on its
books reserves for unearned premium, losses, and loss adjustment expense reinsured hereunder,
which it will be required by law to set up, it will forward to the reinsurer a statement
showing the proportion of such reserves which is applicable to the reinsurer. The reinsurer
hereby agrees to fund such reserves in respect of:

	 	1.	 	Unearned premium;
	 
	 	2.	 	Known outstanding losses that have been reported to the reinsurer and loss adjustment
expense relating thereto;
	 
	 	3.	 	Losses and loss adjustment expense paid by the company but not recovered from the
reinsurer; plus
	 
	 	4.	 	Reserves, including incurred-but-not-reported (IBNR) reserves as determined by the
company, for losses and loss adjustment expense relating thereto;

All of which are hereinafter referred to as “reinsurer’s obligations”, by funds withheld, cash
advances, a letter of credit, or a trust. The reinsurer will have the option of determining the
method of funding provided it is acceptable to the insurance regulatory authorities having
jurisdiction over the company’s reserves.

	C.	 	When funding by a letter of credit, the reinsurer will apply for and secure timely delivery
to the company of a clean, irrevocable and unconditional letter of credit issued by a bank and
containing provisions acceptable to the company and any insurance regulatory authorities
having jurisdiction over the company in an amount equal to the reinsurer’s obligations. Such
letter of credit will be issued for a period of not less than one year and will be
automatically extended for one year from its date of expiration or any future expiration date
unless 30 calendar days (60 calendar days where required by insurance regulatory authorities)
prior to the expiration date of such letter of credit the issuing bank notifies the company by
certified or registered mail that the issuing bank elects not to consider the letter of credit
extended for any additional period.

35

 

	D.	 	The reinsurer and company agree that the letters of credit provided by the reinsurer pursuant
to the provisions of this agreement may be drawn upon at any time, notwithstanding any other
provision of this agreement, and be utilized by the company or any successor, by operation of
law, of the company including, without limitation, any liquidator, rehabilitator, receiver, or
conservator of the company for the following purposes, unless otherwise provided for in a
separate trust agreement:

	 	1.	 	To reimburse the company for the reinsurer’s obligations, the payment of which is due
under the terms of this agreement and which has not been otherwise paid;
	 
	 	2.	 	To make refund of any sum which is in excess of the actual amount required to pay the
reinsurer’s obligations under this agreement;
	 
	 	3.	 	To fund an account with the company for the reinsurer’s obligations. Such cash deposit
will be held in an interest-bearing account separate from the company’s other assets, and
interest thereon not in excess of the prime rate will accrue to the benefit of the
reinsurer.
	 
	 	4.	 	If prior to any expiration date the issuing bank has sent notice that it elects not to
consider the letter of credit extended for any additional period.
	 
	 	 	 	This subparagraph 4. will only apply if the reinsurer has failed to replace the expiring
letter of credit at least 15 calendar days prior its expiration with an irrevocable and
unconditional, letter of credit issued by another bank and containing provisions acceptable
to the company and any insurance regulatory authorities having jurisdiction over the company
in an amount equal to the reinsurer’s obligations of said reserves.

	E.	 	In the event the amount drawn by the company on any letter of credit is in excess of the
actual amount required for D.1., D.2. or D.4. above, the company will promptly return to the
reinsurer the excess amount so drawn. All of the foregoing will be applied without diminution
because of insolvency on the part of the company or the reinsurer.
	 
	F.	 	The issuing bank will have no responsibility whatsoever in connection with the propriety of
withdrawals made by the company or the disposition of funds withdrawn, except to ensure that
withdrawals are made only upon the order of properly authorized representatives of the
company.
	 
	G.	 	At annual intervals, or more frequently as agreed but never more frequently than quarterly,
the company will prepare a specific statement of the reinsurer’s obligations, for the sole
purpose of amending the letter of credit, in the following manner:

	 	1.	 	If the statement shows that the reinsurer’s obligations exceed the balance of credit as
of the statement date, the reinsurer will, within 30 calendar days after receipt of notice
of such excess, secure delivery to the company of an amendment to the letter of credit
increasing the amount of credit by the amount of such difference;

36

 

	 	2.	 	If, however, the statement shows that the reinsurer’s obligations are less than the
balance of credit as of the statement date, the company will, within thirty (30) calendar
days after receipt of written request from the reinsurer, release such excess credit by
agreeing to secure an amendment to the letter of credit reducing the amount of credit
available by the amount of such excess credit.

TAXES ARTICLE

The company will pay all taxes (except Federal Excise Tax) on premiums reported to the reinsurers
on this Agreement.

FEDERAL EXCISE TAX ARTICLE

(This Article is applicable to those reinsurers, excepting Underwriters at Lloyd’s London and other
reinsurers exempt from Federal Excise Tax, who are domiciled outside the United States of America.)

Only as respects policies subject to Section C of the REINSURANCE COVERAGE ARTICLE, the reinsurers
will allow the company to deduct, for the purpose of paying Federal Excise Tax, the applicable
percentage of any premium payable hereon (as imposed under Section 4371 of the Internal Revenue
Service Code) to the extent such premium is subject to such tax. In the event of any return of
such premium, the reinsurers will deduct the aforesaid percentage from the return premium payable
hereon and the company or its agent will recover such tax from the United States Government.

SURVIVAL ARTICLE

All Articles of this agreement will survive the termination of this agreement until all obligations
between the company and the reinsurers have been finally settled.

37EX-10.7

 

Exhibit 10.7

Healthcare Liability Quota Share

Reinsurance Contract

Effective: January 1, 2007

issued to

Allied World Assurance Company, Ltd

Hamilton, Bermuda

Allied World Assurance Company (U.S.) Inc.

Wilmington, Delaware

Newmarket Underwriters Insurance Company

Concord, New Hampshire

Allied World Assurance Company (Europe) Limited

Dublin, Ireland

Allied World Assurance Company (Reinsurance) Limited

Dublin, Ireland

and any or all of the affiliated or subsidiary insurance companies

that are or may hereafter come under

common control, ownership and/or management

(hereinafter referred to collectively as the “Company”)

by

The Subscribing Reinsurer(s) Executing

the Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the “Reinsurer”)

Wherever the word “Company” is used in this Contract, such term shall be held to include any or all
of the affiliated or subsidiary companies that are or may hereafter come under common control,
ownership and/or management, provided that notice be given to the Reinsurer of any such affiliated
or subsidiary companies that may hereafter come under common control, ownership and/or management
of the Company. For purposes of this Contract, an “affiliated” company shall be a company in which
at least a 50.0% ownership interest is held by one or any combination of the following: Allied
World Assurance Company, Ltd; Allied World Assurance Company (U.S.) Inc.; Newmarket Underwriters
Insurance Company; Allied World Assurance Company (Europe) Limited; or Allied World Assurance
Company (Reinsurance) Limited.

Article I — Classes of Business Reinsured

	A.	 	By this Contract the Company obligates itself to cede to the Reinsurer and the Reinsurer
obligates itself to accept quota share reinsurance of the Company’s net liability under
policies incepting, renewing or having an anniversary date on or after the effective date
hereof, and classified by the Company as follows:

	 	1.	 	Coverage A: Healthcare Liability business written by the Company in Bermuda with
policy limits greater than $10,000,000 each occurrence, each insured; and

 

 

	 	2.	 	Coverage B: Healthcare Liability business written by the Company in the United
States of America.

	B.	 	It is understood that, as respects policies written on a claims made basis, the Company may
issue prior acts coverages and extended reporting coverage endorsements.

	C.	 	The liability of the Reinsurer with respect to each cession hereunder shall commence
obligatorily and simultaneously with that of the Company, subject to the terms, conditions and
limitations hereinafter set forth.

Article II — Commencement and Term

	A.	 	This Contract is effective at 12:01 A.M., Standard Time, January 1, 2007, (as defined in the
Company’s policies) in respect of policies incepting, renewing or having an anniversary date
on and after that time and date and shall remain in full force and effect until
12:01 A.M., Standard Time, January 1, 2008.

	B.	 	At termination or expiration, the Reinsurer shall remain liable for all losses under policies
in force until their expiration, anniversary or renewal.

	C.	 	Notwithstanding the foregoing, at termination or expiration of this Contract, at the
Company’s sole option, the Company will have the option to cut off this Contract and the
Reinsurer shall incur no liability for losses occurring or claims made (as applicable)
subsequent to the date of termination or expiration. Should the Company exercise this cutoff
option, the Reinsurer shall return all unearned premium as of the date of termination or
expiration less any ceding commission previously allowed thereon with respect to policies in
force as of the date of termination or expiration.

	D.	 	Notwithstanding any other provisions herein, the Reinsurer shall remain liable in respect of
all liabilities under policies where the Company is obligated by applicable law or regulatory
requirements to continue coverage under such policies until the Company is no longer obligated
to do so.

	E.	 	Should this Contract be terminated or expire while a loss covered hereunder is in progress,
the Reinsurer shall be responsible for the loss in progress in the same manner and to the same
extent it would have been responsible had the Contract expired the day following the
conclusion of the loss in progress.

Article III — Special Termination

	A.	 	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract on a
cutoff basis at any time by giving written notice to the Subscribing Reinsurer by certified
mail with 30 days notice, return receipt requested, in the event of any of the following
circumstances:

	 	1.	 	The Subscribing Reinsurer ceases underwriting operations; or

 

 

	 	2.	 	A State Insurance Department or other legal authority orders the Subscribing
Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under
regulatory supervision; or
	 
	 	3.	 	The Subscribing Reinsurer has become insolvent or has been placed into
liquidation or receivership (whether voluntary or involuntary), or there has been
instituted against it proceedings for the appointment of a receiver, liquidator,
rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever
name, to take possession of its assets or control of its operations; or
	 
	 	4.	 	The Subscribing Reinsurer’s surplus has been reduced by
20.0% of the amount of
surplus at the inception of this Contract, or if the Subscribing Reinsurer has lost any
part of, or has reduced, its paid-up capital; or
	 
	 	5.	 	The Subscribing Reinsurer has merged with or has become acquired or controlled by
any company, corporation or unaffiliated individual(s) not controlling the Subscribing
Reinsurer’s operations at the inception of this Contract; or
	 
	 	6.	 	The Subscribing Reinsurer has reinsured its entire liability under this Contract
without the other party’s prior written consent; or
	 
	 	7.	 	The Subscribing Reinsurer has been assigned an A.M. Best’s rating of less than
“A-” (a Standard & Poor’s Insurance Solvency International rating of less than “BBS”
will apply as respects alien Subscribing Reinsurers other than Underwriting Members of
Lloyd’s, London, and a Standard & Poor’s Lloyd’s Syndicate Stability rating of less than
three crowns will apply as respects Underwriting Members of Lloyd’s, London).

	B.	 	The Company will have the option to commute the Subscribing Reinsurer’s liability for
losses on policies covered by this Contract as of the effective date of termination. In the
event the Company and the Subscribing Reinsurer cannot agree on the capitalized value of the
Subscribing Reinsurer’s liability under such policies, they will appoint an actuary and/or
appraiser to assess such liability and will share equally any expense of the actuary and/or
appraiser. If the Company and the Subscribing Reinsurer cannot agree on an actuary and/or
appraiser, the Company and the Subscribing Reinsurer will each nominate three individuals, of
whom the other party will decline two, and the final decision will be made by drawing lots.
Payment by the Subscribing Reinsurer of the amount of liability ascertained will constitute a
complete and final release of the Subscribing Reinsurer with respect to its liability under
this Contract.

Article IV — Territory (BRMA 51D)

This Contract shall be worldwide in its geographical scope.

Article V — Exclusions

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

	 	1.	 	Nuclear risks as defined in the “Nuclear Incident Exclusion Clause — Liability —
Reinsurance (U.S.A.),” the “Nuclear Incident Exclusion Clause — Liability — Reinsurance

Page 3

 

	 	 	 	(Canada)” and the “Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide
Excluding U.S.A. & Canada)” attached to and forming part of this Contract.
	 
	 	2.	 	All 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, however 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.
	 
	 	3.	 	Loss or damage caused by or resulting from 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, but this
exclusion shall not apply to loss or damage covered under a standard policy with a
standard War Exclusion Clause.
	 
	 	4.	 	Multi-year policies, but not excluding policies with terms of one year plus odd time.
	 
	 	5.	 	Policies with rate guarantees.

	B.	 	If the Company is bound, without the knowledge and contrary to the instructions of the
Company’s supervisory underwriting personnel, on any business falling within the scope of one
or more of the exclusions set forth in paragraph A, the exclusion shall be suspended with
respect to such business until 30 days after an underwriting supervisor of the Company
acquires knowledge thereof.

Article VI — Special Acceptances

	A.	 	Any reinsurance falling within the scope of one or more of the exclusions set forth in
paragraph A of the Exclusions Article that is specially accepted by the Reinsurer from the
Company shall be covered under this Contract and be subject to the terms hereof, except as
such terms shall be modified by the special acceptance. Any Subscribing Reinsurer shall be
deemed to have agreed to a special acceptance if it has not responded to the Company’s special
acceptance request within five business days after receiving the applicable underwriting
information.
	 
	B.	 	As respects business written by the Company in Bermuda, the Company may request a special
acceptance for policies with attachment points less than or equal to $10,000,000 that:

	 	1.	 	Are classified by the Company as Tier 4 or Tier 5; and/or
	 
	 	2.	 	Have bed counts of more than 1,500;

	 	 	for those policies with limits greater than $15,000,000 but less than or equal to $25,000,000.
Any reinsurance falling within the scope of this paragraph B that is specially accepted by the
Reinsurer from the Company shall be covered under this Contract and be subject to the terms
hereof, except as such terms shall be modified by the special

Page 4

 

	 	 	acceptance. It is hereby understood and agreed that the Reinsurer has specially accepted the
Hospital for Special Surgery and VHA Risk Retention Group policies as of the effective date
of this Contract.

Article VII — Reinsurance Coverage

	A.	 	Coverage A: As respects business subject to this Contract described in subparagraph 1 of
paragraph A of the Classes of Business Reinsured Article, the Company shall cede to the
Reinsurer and the Reinsurer agrees to accept 100% of the Company’s net liability; however, the
liability of the Reinsurer shall not exceed the following:

	 	1.	 	As respects policies with attachment points equal to or greater than $5,000,000 and
less than or equal to $10,000,000 that:

	 	a.	 	Are classified by the Company as Tier 4 or Tier 5; and/or
	 
	 	b.	 	Have bed counts of more than 1,500;

	 	 	 	$15,000,000 each loss, each policy (exclusive of loss in excess of policy limits, extra
contractual obligations and loss adjustment expense), unless otherwise specially accepted
in accordance with the provisions of paragraph B of the Special Acceptances Article;
	 
	 	2.	 	As respects all other policies subject to this Coverage A, $25,000,000 each loss,
each policy (exclusive of loss in excess of policy limits, extra contractual obligations
and loss adjustment expense).

	B.	 	Coverage B: As respects business subject to this Contract described in subparagraph 2 of
paragraph A of the Classes of Business Reinsured Article, the Company shall cede to the
Reinsurer and the Reinsurer agrees to accept 100% of the Company’s net liability; however, the
liability of the Reinsurer shall not exceed $15,000,000 each loss, each policy (exclusive of
loss in excess of policy limits, extra contractual obligations and loss adjustment expense).
	 
	C.	 	It is understood and agreed that loss in excess of policy limits, extra contractual
obligations and loss adjustment expense, as defined herein, will be considered part of the
Company’s “net liability” and be subject to the provisions of paragraphs A and B above, but
the liability of the Reinsurer for loss in excess of policy limits, extra contractual
obligations and loss adjustment expense shall be in addition to the limits of liability set
forth therein.
	 
	D.	 	The Company shall retain, net and underinsured, at least a 60.0% part of 100% share in the
interests and liabilities of the Reinsurer hereunder.

Article VIII — Definitions

	A.	 	“Net liability” as used herein shall be defined as the Company’s gross liability
remaining after actual recoveries made from inuring reinsurance.

Page 5

 

	B.	 	The following shall apply as respects loss in excess of policy limits and extra contractual
obligations, as defined herein:

	 	1.	 	In the event the Company pays or is held liable to pay an amount of loss in excess
of its policy limit, but otherwise within the terms of its policy (hereinafter called
“loss in excess of policy limits”) or any punitive, exemplary, compensatory or
consequential damages, other than loss in excess of policy limits (hereinafter called
“extra contractual obligations”) because of alleged or actual bad faith, negligence or
fraud on its part in rejecting an offer of settlement within policy limits, or in the
preparation of the defense or in the trial of an action against its insured or reinsured
or in the preparation or prosecution of an appeal consequent upon such an action, or in
otherwise handling a claim under a policy subject to this Contract, the loss in excess of
policy limits and/or the extra contractual obligations shall be added to the Company’s
loss, if any, under the policy involved, and the sum thereof shall be subject to the
provisions of the Reinsurance Coverage Article. However, for the purposes of this
Contract, the sum of any loss in excess of policy limits and extra contractual
obligations shall not exceed the following as respects any one loss, any one policy:

	 	a.	 	$15,000,000 as respects policies subject to Coverage A of the Reinsurance
Coverage Article with attachment points equal to or greater than $5,000,000 and less
or equal to $10,000,000 that:

	 	i.	 	Are classified by the Company as Tier 4 or Tier 5; and/or
	 
	 	ii.	 	Have bed counts of more than 1,500;

	 	 	 	unless otherwise specially accepted in accordance with the provisions of
paragraph B of the Special Acceptances Article;
	 
	 	b.	 	$25,000,000 as respects all other policies subject to Coverage
A of the Reinsurance Coverage Article; or
	 
	 	c.	 	$15,000,000 as respects policies subject to Coverage B of the
Reinsurance Coverage Article.

	 	2.	 	An extra contractual obligation shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.
	 
	 	3.	 	Notwithstanding anything stated herein, this Contract shall not apply to any loss
in excess of policy limits or any extra contractual obligation incurred by the Company as
a result of any fraudulent and/or criminal act by any officer or director of the Company
acting individually or collectively or in collusion with any individual or corporation or
any other organization or party involved in the presentation, defense or settlement of
any claim covered hereunder.
	 
	 	4.	 	Recoveries from any form of insurance or reinsurance which protects the Company
against claims the subject matter of this paragraph shall inure to the benefit of this
Contract.

	C.	 	“Loss adjustment expense” as used herein shall be defined as all expenses incurred by the
Company in connection with a specific claim, including litigation expenses, interest on
judgments and declaratory judgment expenses or other legal expenses and costs incurred

Page 6

 

	 	 	in connection with coverage questions and legal actions connected thereto, but not
including office expenses or salaries of the   Company’s regular employees.
	 
	D.	 	“Declaratory judgment expense” as used herein shall mean all expenses incurred by the Company
in connection with declaratory judgment actions brought to determine the Company’s policy
obligations that are allocable to specific  policies and claims subject to this Contract.
Declaratory judgment expense shall be deemed to have been fully incurred by the Company on the
date of the actual or alleged loss under the Company’s policy giving rise to the action.
	 
	E.	 	“Gross written premium” as used herein shall be defined as the original gross written
premiums of the Company for the classes of business reinsured hereunder, less return
premiums and less premiums ceded for reinsurance which inures to the benefit of this
Contract and facultative reinsurance, if any.
	 
	F.	 	“Policy” as used herein shall be defined as policies, contracts and binders of insurance or
reinsurance issued by the Company. In the event the Company issues multiple policies to any
one insured, for the purposes of this Contract a policy shall be defined as each insured’s per
claim, per occurrence or aggregate (if applicable) limit (or sum of per claim, per occurrence
of aggregate limits in the case of policies written on a layered basis) applying to the same
insured interest under the Company’s original policy or policies. The Company shall be the
sole judge as to what constitutes: each original insured, policy, insured interest and each
per claim, per occurrence or aggregate limit under its original policy or policies.

Article IX — Savings Clause

(Applicable only if the Subscribing Reinsurer is domiciled in the State of New York): In no
event shall coverage for extra contractual obligations be provided to the extent that such coverage
is not permitted under New York law.

Article X — Other Reinsurance

The Company shall be at liberty to effect specific reinsurance either for its net retention
or the common account of itself and the Reinsurer.

Article XI — Claims and Loss Adjustment Expense

	A.	 	Losses shall be reported by the Company in summary form as hereinafter provided. Further,
the Company shall notify the Reinsurer whenever a claim involves a fatality, amputation,
spinal cord damage, brain damage, blindness, extensive burns or multiple fractures, regardless
of liability. The Reinsurer shall have the right to participate, at its own expense, in the
defense of any claim or suit or proceeding involving this reinsurance.
	 
	B.	 	All loss settlements made by the Company, whether under strict policy conditions or by way of
compromise, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as
the case may be, its proportion of each such settlement in accordance with the Reports and
Remittances Article. It is agreed, however, that if the Reinsurer’s share of any loss is equal
to or greater than $2,500,000 as respects Coverage A of the Reinsurance

Page 7

 

	 	 	Coverage Article or $500,000 as respects Coverage B of the Reinsurance Coverage Article, the
Reinsurer will pay its share of said loss as promptly as possible after receipt of reasonable
evidence of the amount paid by the Company.
	 
	C.	 	In the event of a claim under a policy subject hereto, the Reinsurer shall be liable for
its proportionate share of loss adjustment expense incurred by the Company in connection
therewith and shall be credited with its proportionate share of any recoveries of such
expense.

Article XII — Salvage and Subrogation

The Reinsurer shall be credited with its proportionate share of salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and
employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or
making such recovery) on account of claims and settlements involving reinsurance hereunder. The
Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part
of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such
rights.

Article XIII — Original Conditions (BRMA 37B)

	A.	 	All reinsurance under this Contract shall be subject to the same rates, terms,
conditions, waivers and interpretations, and to the same modifications and alterations as the
respective policies of the Company. However, in no event shall this be construed in any way to
provide coverage outside the terms and conditions set forth in this Contract. The Reinsurer
shall be credited with its exact proportion of the original premiums received by the Company,
prior to disbursement of any dividends, but after deduction of premiums, if any, ceded by the
Company for inuring reinsurance.
	 
	B.	 	Nothing herein shall in any manner create any obligations or establish any rights against the
Reinsurer in favor of any third party or any persons not parties to this Contract.

Article XIV — Follow the Fortunes

The Reinsurer’s liability shall be subject to the same rates, terms, conditions, waivers and
interpretations, and to the same modifications and alterations as the respective policies of the
Company, and will attach simultaneously with that of the Company, the true intent of this Contract
being that the Reinsurer follow the fortunes of the Company in respect of the policies reinsured
under this Contract. Nothing will in any manner create any obligations or establish any rights
against the Reinsurer in favor of any third parties or any persons not party to this Contract,
except as provided by the Insolvency Article.

Article XV — Commission (BRMA 10A)

	A.	 	The Reinsurer shall allow the Company a 24.25% commission on all premiums ceded to the
Reinsurer hereunder. The Company shall allow the Reinsurer return commission on return
premiums at the same rate.

Page 8

 

	B.	 	It is expressly agreed that the ceding commission allowed the Company includes provision
for all dividends, commissions, taxes, assessments, and all other expenses of whatever nature,
except loss adjustment expense.

Article XVI — Reports and Remittances

	A.	 	Within 30 days after the end of each month, the Company shall report to the Reinsurer:

	 	1.	 	Ceded gross written premium for the month;
	 
	 	2.	 	Commission thereon;
	 
	 	3.	 	Ceded losses and loss adjustment expense paid during the month (net of any
recoveries during the month under the “cash call” provisions of the Claims and Loss
Adjustment Expense Article).

	 	 	The positive balance of (1) less (2) less (3) shall be remitted by the Company with its report.
Any balance shown to be due the Company shall be remitted by the Reinsurer as promptly as
possible after receipt and verification of the Company’s report.
	 
	B.	 	Within 30 days after the end of each month, the Company shall provide the Reinsurer with a
bordereau statement of policies subject to this Contract for underwriting purposes, setting
forth the following:

	 	1.	 	Account name;
	 
	 	2.	 	Location;
	 
	 	3.	 	Premium;
	 
	 	4.	 	Limit;
	 
	 	5.	 	Attachment point;
	 
	 	6.	 	Self-insured retention data;
	 
	 	7.	 	Aggregate coverage indication;
	 
	 	8.	 	Batch/integrated occurrence coverage indication;
	 
	 	9.	 	Percentage rate change from the prior year;
	 
	 	10.	 	Premium deviation from actuarial indication;
	 
	 	11.	 	For renewal policies, the information set forth in subparagraphs 1 through 8 above
for the expiring policy.

Page 9

 

	C.	 	Within 60 days after the end of each calendar quarter, the Company shall report
to the Reinsurer the following:

	 	1.	 	The ceded unearned premiums and ceded outstanding loss
reserves as of the end of the quarter;
	 
	 	2.	 	A list of all claims subject to this Contract coded by the Company as “C,” “D,”
“P” and “R” as of the end of the quarter;
	 
	 	3.	 	Open and closed claim activity by the Company’s designation during the quarter;
	 
	 	4.	 	Any upward movement of the severity designation of any claims subject to
this Contract coded by the Company as “C,” “D,” “P” and “R,” to be reported on a
segregated basis.

	D.	 	Annually, the Company shall furnish the Reinsurer with such information as the Reinsurer may
require to complete its Annual Convention Statement.

Article XVII — Late Payments

	A.	 	The provisions of this Article shall not be implemented unless specifically invoked,
in writing, by one of the parties to this Contract.
	 
	B.	 	In the event any premium, loss or other payment due either party is not received by the
intermediary named in the Intermediary Article (BRMA 23A) (hereinafter referred to as the
“Intermediary”) by the payment due date, the party to whom payment is due may, by notifying
the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to
pay, an interest penalty on the amount past due calculated for each such payment on the last
business day of each month as follows:

	 	1.	 	The number of full days which have expired since the due date or the last monthly
calculation, whichever the lesser; times
	 
	 	2.	 	1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall
Street Journal on the first business day of the month for which the calculation is made;
times
	 
	 	3.	 	The amount past due, including accrued interest.

	 	 	It is agreed that interest shall accumulate until payment of the original amount due plus
interest penalties have been received by the Intermediary.
	 
	C.	 	The establishment of the due date shall, for purposes of this Article, be determined as follows:

	 	1.	 	As respects any routine payment, adjustment or return due either party, the due
date shall be as provided for in the applicable section of this Contract. In the event a
due date is not specifically stated for a given payment, it shall be deemed due 30 days
after the date of transmittal by the Intermediary of the initial billing for each such
payment.

Page 10

 

	 	2.	 	As respects a “cash call” made in accordance with the last sentence of
paragraph B of the Claims and Loss Adjustment Expense Article, payment shall be deemed
due 30 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If
such loss or claim payment is not received within the 30 days, interest will accrue on
the payment or amount overdue in accordance with paragraph B above, from the date the
proof of loss or demand for payment was transmitted to the Reinsurer.
	 
	 	3.	 	As respects any payment, adjustment or return due either party not otherwise
provided for in subparagraphs 1 and 2 of this paragraph, the due date shall be deemed as
30 days following transmittal of written notification that the provisions of this
Article have been invoked.

	 	 	For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon
receipt by the Intermediary.
	 
	D.	 	Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from
contesting the validity of any claim, or from participating in the defense of any claim or
suit, or prohibiting either party from contesting the validity of any payment or from
initiating any arbitration or other proceeding in accordance with the provisions of this
Contract. If the debtor party prevails in arbitration or other proceeding, then any interest
penalties due hereunder on the amount in dispute shall be null and void. If the debtor party
loses in such proceeding, then the interest penalty on the amount determined to be due
hereunder shall be calculated in accordance with the provisions set forth above unless
otherwise determined by such proceedings. If a debtor party advances payment of any amount it
is contesting, and proves to be correct in its contestation, either in whole or in part, the
other party shall reimburse the debtor party for any such excess payment made plus interest on
the excess amount calculated in accordance with this Article.
	 
	E.	 	Interest penalties arising out of the application of this Article that are $100 or less from
any party shall be waived unless there is a pattern of late payments consisting of three or
more items over the course of any 12-month period.

Article XVIII — Offset

Each party hereto shall have, and may exercise at any time and from time to time, the right
to offset any and all balances due from a party to the other arising under this Contract. In the
event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the
provisions of any applicable law governing offset entitlement.

Article XIX — Access to Records

The Reinsurer or its duly appointed representative shall have, upon providing reasonable
advance notice to the Company, access to the Company’s books and records pertaining to the business
covered during the period that this Contract is in force and subsequent to its termination or
expiration until all claims are closed. The Reinsurer’s right to inspect premium books and premium
records will terminate five years after the termination or expiration of this Contract.
Notwithstanding the provisions of the preceding, if undisputed balances due from the Reinsurer
under this Contract have not been paid for the two most recent reported three-month periods or if
any undisputed cash call is outstanding, the Reinsurer shall not have access to any of the
Company’s records relating to this Contract without the specific consent of the Company.

Page 11

 

Article XX — Confidentiality

	A.	 	For a period of five years following the termination or expiration of this Contract, the
Reinsurer undertakes to treat the terms of this Contract (and any confidential, proprietary
information relating thereto provided in writing by the Company, whether directly or through
an authorized agent) (hereinafter called the “Confidential Information”) as confidential.
Confidential Information shall not include documents, information or data which the Reinsurer
can show: (1) is publicly known or has become publicly known through no unauthorized act of
the receiving party, (2) has been rightfully received from a third person without obligation
of confidentiality, or (3) was known by the Reinsurer prior to the placement of this Contract
without an obligation of confidentiality or is independently developed by the receiving party
without reliance on the Confidential Information.
	 
	B.	 	Absent the written consent of the Company, the Reinsurer will not disclose any Confidential
Information to any third parties, including any affiliated companies, except: (1) when
required by retrocessionaires subject to the business ceded to this Contract, (2) when
required by applicable law or regulation or by legal process, or (3) when required by external
actuaries, auditors or counsel in the normal course of business.
	 
	C.	 	Notwithstanding the above, in the event the receiving party is required by court order, other
legal process or any regulatory authority to release or disclose any or all of the
Confidential Information, the receiving party agrees to provide the other party with written
notice of same at least 10 days prior to such release or disclosure and to use its
commercially reasonable best efforts to assist such party (at such party’s cost) in
maintaining the confidentiality provided for in this Article.
	 
	D.	 	The provisions of this Article shall extend to the officers, directors and employees of the
Reinsurer, and shall be binding upon their successors and assigns.
	 
	E.	 	Except as expressly set forth above, the parties agree and acknowledge that this Article is
not intended to restrict or limit the conduct of the other party’s current or proposed
business.

Article XXI — Errors and Omissions

Any inadvertent delay, omission or error shall not relieve either party hereto from any
liability which would attach to it hereunder if such delay, omission or error had not been made,
provided such omission or error is rectified immediately upon discovery.

Article XXII — Currency (BRMA 12A)

	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.

Page 12

 

Article XXIII — Currency Revaluation

It is agreed that underwriting to contractual limits will be done in terms of United States
(U.S.) dollar equivalent on the basis of exchange rates in effect at the time of inception of new
or renewal business or at the time an addition to an existing risk takes place. In the event there
is a reduction in parity value of the U.S. dollar from that existing at the time the risk was
written which results in the contractual limits being exceeded, the Company shall be held covered
for such excess until next renewal of the risk, at which time underwriting will then conform to the
contractual U.S. dollar limits in effect at the time.

Article XXIV — Taxes (BRMA 50C)

In consideration of the terms under which this Contract is issued, the Company will not claim a
deduction in respect of the premium hereon when making tax returns, other than income or profits
tax returns, to any state or territory of the United States of America, the District of Columbia or
Canada.

Article XXV — Federal Excise Tax

	A.	 	The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax 1.0%
of the premium payable hereon to the extent such premium is subject to Federal Excise Tax.
	 
	B.	 	In the event of any return of premium becoming due hereunder the Reinsurer will deduct 1.0%
from the amount of the return and the Company or its agent should take steps to recover the
Tax from the United States Government.

Article XXVI — Security

	A.	 	If required by any applicable law, regulation or regulatory authority, or as otherwise
provided in a master reinsurance security agreement between the Company and any reinsurer
hereunder (such agreement to be incorporated by reference herein, but only as between the
parties to such an agreement), the Reinsurer shall secure its Obligations to the Company
hereunder through one or more of the following methods, which the Reinsurer shall select at
its option:

	 	1.	 	Funds withheld: funds otherwise due to the Reinsurer under this Contract that are
subject to withdrawal, transfer or substitution solely by the Company and held under its
exclusive control;
	 
	 	2.	 	Letters of credit: one or more clean, irrevocable and unconditional evergreen
letters of credit issued by a bank or banks acceptable to the Company in its sole
discretion that meet the requirements of any applicable law, regulation or regulatory
authority, and, in any event, would permit the Company and all members of its
intercompany pool, if any, to take credit for reinsurance in their respective states of
domicile assuming the Reinsurer were an unauthorized reinsurer in such states; or

Page 13

 

	 	3.	 	Reinsurance trust account: funds deposited pursuant to a trust agreement in form and
substance, and with a third party trustee, in each case satisfactory to the Company in
its sole discretion that meets the requirements of any applicable law, regulation or
regulatory authority, and, in any event, would permit the Company and all members of its
intercompany pool, if any, to take credit for reinsurance in their respective states of
domicile assuming the Reinsurer were an unauthorized reinsurer in such states. (With
respect to Lloyd’s Syndicates, the Company agrees that the Lloyd’s U.S. Credit for
Reinsurance Trust Fund is, in form and substance, and with a third party trustee,
satisfactory to the Company for purposes of this provision; and that paragraph E shall
not apply to such syndicates where the requirements of the Lloyd’s U.S. Credit for
Reinsurance Trust Fund have been met.)

	 	 	In the event that the Reinsurer at any time fails to meet its security obligations as set forth
in this Article, the Company shall be entitled to hold back, as funds withheld, any amounts
otherwise due to the Reinsurer under this Contract or any other agreement between the Company
and the Reinsurer.
	 
	B.	 	The term “Obligations” shall mean the Reinsurer’s share of 100%, or any higher percentage
required by any applicable law, regulation or regulatory authority, of: (1) losses and loss
adjustment expenses paid by the Company, but not recovered from the Reinsurer;

	 	(2)	 	reserves for losses and loss adjustment expenses reported and outstanding;
	 
	 	(3)	 	reserves for losses and loss adjustment expenses incurred but not reported; and
	 
	 	(4)	 	unearned premium.

	C.	 	The security required under this Article shall be adjusted by the Company periodically, but
not more frequently than quarterly.
	 
	D.	 	Notwithstanding any other provision of this Contract, any letters of credit may be drawn upon
and/or assets in any reinsurance trust account may be withdrawn by the Company at anytime: (1)
to reimburse the Company for the Reinsurer’s share of returned premiums upon policy
cancellation; (2) to reimburse the Company for the Reinsurer’s share of surrenders and
benefits or losses paid by the Company; (3) to pay any other amount the Company claims is due
under this Contract; (4) in the event that the Company receives notice of nonrenewal of any
letter of credit or termination of any trust agreement; or (5) as funds withheld for the
Reinsurer’s Obligations under this Contract. Additionally, any funds withheld may be applied
as respects items (1) through (4) above.
	 
	E.	 	Prior to depositing any assets into a reinsurance trust account, the Reinsurer shall execute
assignments or endorsements in blank, or transfer legal title of such assets to the trustee,
so that the Company, or the trustee upon the Company’s direction, may negotiate any such
assets without the consent or signature of the Reinsurer or any other entity. Notwithstanding
the composition of assets in any trust account, all settlements of account between the Company
and the Reinsurer shall be in cash or its equivalent.
	 
	F.	 	Unless the Reinsurer shall be in default of any provision of this Contract, simple interest
shall be credited to the Reinsurer on funds withheld each time the Obligations are adjusted at
the one-year LIBOR rate for U.S. Dollars then in effect.
	 
	G.	 	The Company may, at its discretion, require payment of any sum in default instead of
resorting to any security held, and it shall be no defense to any such claim that the
Company might have had recourse to any such security.

Page 14

 

	H.	 	For purposes of this Article, “any applicable law, regulation or regulatory authority”
shall include but not be limited to all laws and regulations affecting the ability of the
Company and all members of its intercompany pool, if any, to take credit for reinsurance, and
all laws and regulations applicable to foreign branches of the Company.
	 
	I.	 	This Article shall survive the expiration or termination of this Contract.

Article XXVII — Insolvency

	A.	 	In the event of the insolvency of the one or more of the reinsured companies, this
reinsurance shall be payable directly to the company, or to its liquidator, receiver,
conservator or statutory successor immediately upon demand on the basis of the liability of
the company without diminution because of the insolvency of the company or because the
liquidator, receiver, conservator or statutory successor of the company has failed to pay all
or a portion of any claim. It is agreed, however, that 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 company which would involve a possible liability on the part
of the Reinsurer, indicating the policy or bond reinsured, within a reasonable time after such
claim is filed in the conservation or liquidation proceeding or in the receivership. It is
further agreed that during the pendency of such claim the Reinsurer may investigate such claim
and interpose, at its own expense, in the proceeding where such claim is to be adjudicated,
any defense or defenses that 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 the approval of the Court, against the company as part of the expense
of conservation or liquidation to the extent of a pro rata share of the benefit which may
accrue to the company solely as a result of the defense undertaken by the Reinsurer.
	 
	B.	 	Where two 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 the Contract as though such expense had been incurred by the company.
	 
	C.	 	The reinsurance shall be payable by the Reinsurer to the company or to its liquidator,
receiver, conservator, or statutory successor, except (1) where this Contract specifically
provides another payee of such reinsurance in the event of the insolvency of the company, or
(2) where the Reinsurer with the consent of the direct insured or insured have voluntarily
assumed such policy obligations of the company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligations of the company to the
payees.
	 
	D.	 	Notwithstanding paragraphs A, B and C, where the company is authorized under the Insurance
Companies Act (Canada) to insure in Canada risks, in the event of the insolvency of the
company, reinsurance payable in respect of the insurance business in Canada of the company
shall be payable to the Chief Agent in Canada of the company or to the liquidator, receiver,
conservator or statutory successor appointed in Canada in respect of the insurance business in
Canada of the company without diminution because of the insolvency of the company or because
the company or a liquidator, receiver, conservator or statutory successor of the company has
failed to pay all or any portion of any claim. All other terms and conditions of paragraphs A,
B and C remain in effect and apply to this paragraph D which shall prevail if there is a
conflict or inconsistency.

Page 15

 

Article XXVIII — Arbitration

	A.	 	Any and all disputes arising under or relating to this Contract, including its formation
and validity, will be finally and fully determined in Hamilton, Bermuda under the provisions
of The Bermuda International Conciliation and Arbitration Act of 1993 (exclusive of the
Conciliation Part of such Act), as may be amended and supplemented, by a Board composed of
three arbitrators to be selected for each controversy as follows:

In the event of a dispute, controversy or claim, any party may notify the other party or
parties to such dispute, controversy or claim of its desire to arbitrate the matter, and
at the time of such notification the party desiring arbitration will notify any other
party or parties of the name of the arbitrator selected by it. The other party who has
been so notified will within 30 calendar days thereafter select an arbitrator and notify
the party desiring arbitration of the name of such second arbitrator. If the party
notified of a desire for arbitration will fail or refuse to nominate the second
arbitrator within 30 calendar days following receipt of such notification, the party who
first served notice of a desire to arbitrate will, within an additional period of 30
calendar days, apply to the Supreme Court of Bermuda for the appointment of a second
arbitrator and in such a case the arbitrator appointed by such court will be deemed to
have been nominated by the party or parties who failed to select the second arbitrator.
The two arbitrators, chosen as above provided, will within 30 calendar days after the
appointment of the second arbitrator choose a third arbitrator. In the event of the
failure of the first two arbitrators to agree on a third arbitrator within said 30
calendar day period, the third arbitrator will be drawn automatically utilizing the Dow
Jones Industrial Average on the third working day after both names have been chosen in
writing. A Dow Jones Industrial Average ending in an even number before the decimal point
will be deemed to be the selection of the claimant’s name and the Dow Jones Industrial
Average ending in an odd number before the decimal point will be deemed to be the
selection of the respondent’s name. For purposes of this paragraph, zero shall be
considered an even number. The three arbitrators will decide by majority. The umpire will
also act as Chair of the Tribunal and, in the event that no majority can be reached, the
verdict of the umpire will prevail.

	B.	 	All claims, demands, denials of claims and notices pursuant to this Article will be given in
writing and given by hand, prepaid express courier, airmail or telecopier properly addressed
to the appropriate party and will be deemed as having been effected only upon actual receipt.
	 
	C.	 	The Board of Arbitration will fix, by a notice in writing to the parties involved, a
reasonable time and place for the hearing and may prescribe reasonable rules and regulations
governing the course and conduct of the arbitration proceeding, including without limitation
discovery by the parties. The Board will be relieved of all judicial formality and will not be
bound by the strict rules of procedure evidence. The Board will interpret this Contract as if
it were an honorable engagement rather than as merely a legal obligation.
	 
	D.	 	The Board will, within 90 calendar days following the conclusion of the hearing, render its
decision on the matter or matters in controversy in writing and will cause a copy thereof to
be served on all the parties thereto. In case the Board fails to reach a unanimous decision,
the decision of the majority of the members of the Board will be deemed to be the decision of
the Board. Such decision will be a complete defense to any attempted appeal or

Page 16

 

	 	 	litigation of such decision of the Board of Arbitration by, any court or other body to
the fullest extent permitted by applicable law.
	 
	E.	 	Any order as to the costs of the arbitration will be in the sole discretion of the Board, who
may direct to whom and by whom and in what manner they will be paid.
	 
	F.	 	All awards made by the Arbitration Board will be final and no right of appeal will lie from
any award rendered by the Arbitration Board. The parties agree that the Supreme Court of
Bermuda: (1) will not grant leave to appeal any award based upon a question of law arising out
of the award; (2) will not grant leave to make an application with respect to an award; (3)
and will not assume jurisdiction upon any application by a party to determine any issue of law
arising in the course of the arbitration proceeding.
	 
	 	 	All awards made by the Arbitration Board may be enforced in the same manner as a judgment
or order from the Supreme Court of Bermuda and judgment may be entered pursuant to the
terms of the award by leave from the Supreme Court of Bermuda.
	 
	G.	 	If the Company and more than one reinsurer are involved in the same dispute(s) or
difference(s) arising out of this Contract, and the Company requests consolidated arbitration
with those reinsurers in an initial notice of arbitration or response, then those reinsurers
will constitute and act as one party for purposes of the arbitration and thus will select a
single party-appointed arbitrator among them. If the Company requests consolidation in its
notice of arbitration, then both parties will elect their party-appointed arbitrators within
45 calendar days of the commencement of the arbitration proceeding. If the Company requests
consolidation in its response, then (1) that response will be appended to the Company’s notice
of arbitration to the additional reinsurer(s) joined in the proceeding, (2) any arbitral
appointment made before that response will be of no effect, and (3) the reinsurers will select
their arbitrator within 45 calendar days of their receipt of those pleadings. For purposes of
this paragraph, any instance in which two or more of the reinsurers have not paid their
proportional shares of the same balance claimed due by the Company will be deemed to involve
the same dispute(s) or difference(s) arising out of this Contract. Communications will be made
by the Company to each of the reinsurers constituting one party. Nothing in this paragraph
will impair the rights of reinsurers to assert several rather than joint defenses or claims,
change their liability under this Contract from several to joint, or impair their rights to
retain separate counsel in connection with the arbitration.
	 
	H.	 	Unless prohibited by law, the Supreme Court of Bermuda will have exclusive jurisdiction
over any and all court proceedings that either party may initiate in connection with the
arbitration, including proceedings to compel, stay, or enjoin arbitration or to confirm,
vacate, modify, or correct an arbitration award.

Article XXIX — Service of Suit

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

It is agreed that, in the event the Reinsurer fails to pay any amount claimed to be due hereunder,
the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court

Page 17

 

of competent jurisdiction within Bermuda and will comply with all requirements of this
jurisdiction; and all matters arising hereunder shall be determined in accordance with the law and
practice of Bermuda. Nothing in this Article constitutes or should be understood to constitute a
waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in
Bermuda.

Article XXX — Agency Agreement

If more than one reinsured company is named as a party to this Contract, the first named
company shall be deemed the agent of the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this Contract, and for purposes of
remitting or receiving any monies due any party.

Article XXXI — Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of
New York.

Article XXXII — Severability

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

Article XXXIII — Other Terms and Conditions

	A.	 	Assignment
	 
	 	 	This Contract shall be binding upon and inure to the benefit of the Company and the Reinsurer
and their respective successors and assigns provided, however, 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 at its sole discretion. This paragraph shall not be construed to
preclude the appointment by the Company of an agent to manage and collect reinsurance
recoverable on behalf of the Company.
	 
	B.	 	Entire Agreement
	 
	 	 	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 signed by both the Company and the Reinsurer as an amendment to this Contract or as
otherwise clearly and unambiguously agreed to by all affected parties by an exchange of
documentation.

Page 18

 

	C.	 	Headings
	 
	 	 	The headings preceding the text of the articles and paragraphs of this Contract shall not
affect the meaning, interpretation, construction or effect of this Contract.
	 
	D.	 	Waiver
	 
	 	 	The failure of the Company or the 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 stop the parties from thereafter demanding full and complete compliance nor
prevent the parties form exercising any remedy.
	 
	E.	 	Notices
	 
	 	 	For purposes of sending and receiving notices and payments required by this Contract other than
in respect of the Service of Suit Article and the Security Article herein, the reinsured
company that is set forth first in the “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 Insolvency Article.
	 
	F.	 	Special Conditions
	 
	 	 	It is hereby deemed that the Company will not write policies subject to this Contract with
minimum premium rates per million dollars of limit less than those stated in the Company’s
current underwriting guidelines.

Article XXXIV — Intermediary (BRMA 23A)

Benfield Inc. 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 Reinsurer through Benfield Inc.
Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer.
Payments by the Reinsurer 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.

Signed for an on behalf of the Company in the Signing Pages attached hereto.

Page 19

 

Signing Page

to the

Healthcare Liability Quota Share

Reinsurance Contract

Effective: January 1, 2007

issued to

Allied World Assurance Company, Ltd

Hamilton, Bermuda

Allied World Assurance Company (U.S.) inc.

Wilmington, Delaware

Newmarket Underwriters Insurance Company

Concord, New Hampshire

Allied World Assurance Company (Europe) Limited

Dublin, Ireland

Allied World Assurance Company (Reinsurance) Limited

Dublin, Ireland

and any or all of the affiliated or subsidiary insurance companies

that are or may hereafter come under

common control, ownership and/or management

In Witness Whereof, the Company by its duly authorized representatives has executed this Contract
as of the dates undermentioned at:

Hamilton,
Bermuda, this 13th day of April in the year 2007.

/s/ Frank N. D’Orazio

Allied World Assurance
Company, Ltd

Page 20

 

Signing Page

to the

Healthcare Liability Quota Share

Reinsurance Contract

Effective: January 1, 2007

issued to

Allied World Assurance Company, Ltd

Hamilton, Bermuda

Allied World Assurance Company (U.S.) Inc.

Wilmington, Delaware

Newmarket Underwriters insurance Company

Concord, New Hampshire

Allied World Assurance Company (Europe) Limited

Dublin, Ireland

Allied World Assurance Company (Reinsurance) Limited

Dublin, Ireland

and any or all of the affiliated or subsidiary insurance companies

that are or may hereafter come under

common control, ownership and/or management

In Witness Whereof, the Company by its duly authorized representatives has executed this Contract
as of the dates undermentioned at:

NY, NY, this 13 day of April in the year 2007.

/s/
Susan Morgan

Allied World Assurance
Company (U.S.) Inc.

Newmarket Underwriters Insurance Company

Page 21

 

Signing Page

to the

Healthcare Liability Quota Share

Reinsurance Contract

Effective: January 1, 2007

issued to

Allied World Assurance Company, Ltd

Hamilton, Bermuda

Allied World Assurance Company (U.S.) Inc.

Wilmington, Delaware

Newmarket Underwriters Insurance Company

Concord, New Hampshire

Allied World Assurance Company (Europe) Limited

Dublin, Ireland

Allied World Assurance Company (Reinsurance) Limited

Dublin, Ireland

and any or all of the affiliated or subsidiary insurance companies

that are or may hereafter come under

common control, ownership and/or management

In Witness Whereof, the Company by its duly authorized representatives has executed this
Contract as of the dates undermentioned at:

                    ,                     , this 16 day of April in the year 2007.

	 	 	 	 	 
	 

	 	/s/ John Redmond
 

	 	 
	 

	 	Allied World Assurance Company (Europe) Limited	 	 
	 

	 	Allied World Assurance Company (Reinsurance) Limited	 	 

			
	 	 	 
	Page 22

 

 

Signing Page

to the

Interests and Liabilities Agreement

of

Transatlantic Reinsurance Company

New York, New York

with respect to the

Healthcare Liability Quota Share

Reinsurance Contract

Effective: January 1, 2007

issued to and duly executed by

Allied World Assurance Company, Ltd

Hamilton, Bermuda

Allied World Assurance Company (U.S.) Inc.

Wilmington, Delaware

Newmarket Underwriters Insurance Company

Concord, New Hampshire

Allied World Assurance Company (Europe) Limited

Dublin, Ireland

Allied World Assurance Company (Reinsurance) Limited

Dublin, Ireland

and any or all of the affiliated or subsidiary insurance companies

that are or may hereafter come under

common control, ownership and/or management

In Witness Whereof, the Company by its duly authorized representative has executed this Agreement
as of the date undermentioned at:

Hamilton, BERMUDA, this 13th day of April in the year 2007.

	 	 	 	 	 
	 

	 	/s/ Frank N. D’Orazio
 

Allied World Assurance Company, Ltd
	 	 

			
	 	 	 
	Page 3 of 5
	 	 

 

 

Signing Page

to the

Interests and Liabilities Agreement

of

Transatlantic Reinsurance Company

New York, New York

with respect to the

Healthcare Liability Quota Share

Reinsurance Contract 
Effective:
January 1, 2007

issued to and duly executed by

Allied World Assurance Company, Ltd

Hamilton, Bermuda

Allied World Assurance Company (U.S.) Inc.

Wilmington, Delaware

Newmarket Underwriters Insurance Company

Concord, New Hampshire

Allied World Assurance Company (Europe) Limited

Dublin, Ireland

Allied World Assurance Company (Reinsurance) Limited

Dublin, Ireland

and any or all of the affiliated or subsidiary insurance companies

that are or may hereafter come under

common control, ownership and/or management

In Witness Whereof, the Company by its duly authorized representative has executed this Agreement
as of the date undermentioned at:

Hamilton,
BERMUDA, this
13th day of April in the year 2007.

	 	 	 	 	 
	 

	 	/s/ Frank N. D’Orazio
 

Allied World Assurance Company, Ltd
	 	 

			
	 	 	 
	Page 3 of 5
	 	 

 

 

Signing Page

to the

Interests and Liabilities Agreement

of

Transatlantic Reinsurance Company 
New
York, New York

with respect to the

Healthcare Liability Quota Share

Reinsurance Contract

Effective: January 1, 2007

issued to and duly executed by

Allied World Assurance Company, Ltd

Hamilton, Bermuda

Allied World Assurance Company (U.S.) Inc.

Wilmington, Delaware

Newmarket Underwriters Insurance Company

Concord, New Hampshire

Allied World Assurance Company (Europe) Limited

Dublin, Ireland

Allied World Assurance Company (Reinsurance) Limited

Dublin, Ireland

and any or all of the affiliated or subsidiary insurance companies

that are or may hereafter come under

common control, ownership and/or management

In Witness Whereof, the Company by its duly authorized representative has executed this Agreement
as of the date undermentioned at:

NY, NY
this 13 day of April in the year 2007.

	 	 	 	 	 
	 

	 	/s/ Susan Morgan
 

Allied World Assurance Company (U.S.) Inc.
	 	 
	 

	 	Newmarket Underwriters Insurance Company	 	 

			
	 	 	 
	Page 4 of 5
	 	 

 

 

Signing Page

to the

Interests and Liabilities Agreement

of

Transatlantic Reinsurance Company

New York, New York

with respect to the

Healthcare Liability Quota Share

Reinsurance Contract

Effective: January 1, 2007

issued to and duly executed by

Allied World Assurance Company, Ltd

Hamilton, Bermuda

Allied World Assurance Company (U.S.) Inc.

Wilmington, Delaware

Newmarket Underwriters Insurance Company

Concord, New Hampshire

Allied World Assurance Company (Europe) Limited

Dublin, Ireland

Allied World Assurance Company (Reinsurance) Limited

Dublin, Ireland

and any or all of the affiliated or subsidiary insurance companies

that are or may hereafter come under

common control, ownership and/or management

In Witness Whereof, the Company by its duly authorized representative has executed this Agreement
as of the date undermentioned at:

                    ,
                    , this 16 day of April in the year 2007.

	 	 	 	 	 
	 

	 	/s/ John Redmond
 

Allied World Assurance Company (Europe) Limited
	 	 
	 

	 	Allied World Assurance Company (Reinsurance) Limited	 	 

			
	 	 	 
	Page 5 of 5
	 	 

 

 

Signing Page

to the

Interests and Liabilities Agreement

of

Transatlantic Reinsurance Company

New York, New York

with respect to the

Healthcare Liability Quota Share

Reinsurance Contract

Effective: January 1, 2007

issued to and duly executed by

Allied World Assurance Company, Ltd

Hamilton, Bermuda

Allied World Assurance Company (U.S.) Inc.

Wilmington, Delaware

Newmarket Underwriters Insurance Company

Concord, New Hampshire

Allied World Assurance Company (Europe) Limited

Dublin, Ireland

Allied World Assurance Company (Reinsurance) Limited

Dublin, Ireland

and any or all of the affiliated or subsidiary insurance companies

that are or may hereafter come under

common control, ownership and/or management

In Witness Whereof, the Company by its duly authorized representative has executed this Agreement
as of the date under mentioned at:

                    ,
                    , this 16 day of April in the year 2007.

	 	 	 	 	 
	 

	 	/s/ John Redmond	 	 
	 

	 	 	 	 
	 

	 	Allied World Assurance Company (Europe) Limited
	 	 
	 

	 	Allied World Assurance Company (Reinsurance) Limited	 	 

			
	 	 	 
	Page 5 of 5

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