Document:

exv10w13

Exhibit 10.13

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

(hereinafter called the “Company”)

by

THE UNDERWRITERS AT LLOYD’S

who are signatories hereto, each for the

proportion underwritten and not one for another

(hereinafter called the “Reinsurers”)

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

	 	 	 
	EXHIBIT “I” — FIRST EXCESS:

	 	a 15.00% share
	EXHIBIT “II” — SECOND EXCESS:

	 	a 25.00% share

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

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

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

 

 

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

(hereinafter called the “Company”)

by

ASPEN INSURANCE UK LTD.

CONNECTICUT

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

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

	 	 	 
	EXHIBIT “A” — FIRST EXCESS:

	 	a 12.50% share
	EXHIBIT “B” — SECOND EXCESS:

	 	a 0.00% share

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

Signed in Rocky Hill, Connecticut, this           day of      , 2009,

	 	 	 	 	 
	 	 	ASPEN RE AMERICA for and on behalf of
	 	 	ASPEN INSURANCE UK LTD.
	 

	 	 
	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 

	 	 
	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

(hereinafter called the “Company”)

by

EMPLOYERS MUTUAL CASUALTY COMPANY

IOWA

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

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

	 	 	 
	EXHIBIT “A” — FIRST EXCESS:

	 	a 05.00% share
	EXHIBIT “B” — SECOND EXCESS:

	 	a 05.00% share

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

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

	 	 	 	 	 
	 	 	EMPLOYERS MUTUAL CASUALTY COMPANY
	 

	 	 
	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 

	 	 
	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

(hereinafter called the “Company”)

by

HANNOVER RUCKVERSICHERUNG AG

HANNOVER, GERMANY

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

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

	 	 	 
	EXHIBIT “A” — FIRST EXCESS:

	 	a 25.00% share
	EXHIBIT “B” — SECOND EXCESS:

	 	a 20.00% share

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

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

	 	 	 	 	 
	 	 	HANNOVER RUCKVERSICHERUNG AG
	 

	 	 
	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 

	 	 
	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

(hereinafter called the “Company”)

by

PARTNER REINSURANCE COMPANY OF THE U.S.

NEW YORK

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

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

	 	 	 
	EXHIBIT “A” — FIRST EXCESS:

	 	a 17.50% share
	EXHIBIT “B” — SECOND EXCESS:

	 	a 25.00% share

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

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

	 	 	 	 	 
	 	 	PARTNER REINSURANCE COMPANY OF THE U.S.
	 

	 	 
	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 

	 	 
	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

(hereinafter called the “Company”)

by

SWISS REINSURANCE AMERICA CORPORATION

NEW YORK

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

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

	 	 	 
	EXHIBIT “A” — FIRST EXCESS:

	 	a 12.50% share
	EXHIBIT “B” — SECOND EXCESS:

	 	a 12.50% share

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

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

	 	 	 	 	 
	 	 	SWISS REINSURANCE AMERICA CORPORATION BY:
	 	 	Swiss Re
	 

	 	 
	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 

	 	 
	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

 

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

(hereinafter called the “Company”)

by

TRANSATLANTIC REINSURANCE COMPANY

NEW YORK

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

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

	 	 	 
	EXHIBIT “A” — FIRST EXCESS:

	 	a 12.50% share
	EXHIBIT “B” — SECOND EXCESS:

	 	a 12.50% share

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

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

	 	 	 	 	 
	 	 	TRANSATLANTIC REINSURANCE COMPANY
	 

	 	 
	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 

	 	 
	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

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

	 	 	 	 	 
	 	 	PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY
	 

	 	 
	 	 
	 

	 	BY	 	 
	 

	 	 	 	 
	 

	 	 
	 	 
	 

	 	TITLE	 	 
	 

	 	 	 	 

 

1.

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

INDEX

					
	 	 	 	 	 
	ARTICLE
	 	SUBJECT
	 	PAGE
	 
	 	 
	 	 

	 	 	 	 	 
	ARTICLE 1 BUSINESS COVERED
	 	 	1	 
	ARTICLE 2 COMMENCEMENT AND TERMINATION
	 	 	1	 
	ARTICLE 3 SPECIAL TERMINATION
	 	 	2	 
	ARTICLE 4 EXCLUSIONS
	 	 	4	 
	ARTICLE 5 WARRANTY
	 	 	10	 
	ARTICLE 6 GENERAL CONDITIONS
	 	 	10	 
	ARTICLE 7 RETENTION AND LIMIT
	 	 	11	 
	ARTICLE 8 DEFINITION OF TERRORISM
	 	 	11	 
	ARTICLE 9 REINSTATEMENT
	 	 	12	 
	ARTICLE 10 PREMIUM
	 	 	12	 
	ARTICLE 11 DEFINITION OF LOSS OCCURRENCE
	 	 	12	 
	ARTICLE 12 NET LOSS
	 	 	14	 
	ARTICLE 13 EXTRA-CONTRACTUAL OBLIGATIONS/LOSS EXCESS OF POLICY LIMITS
	 	 	15	 
	ARTICLE 14 TERRORISM RECOVERY
	 	 	16	 
	ARTICLE 15 NET RETAINED LINE
	 	 	17	 
	ARTICLE 16 NOTICE OF LOSS AND LOSS SETTLEMENT
	 	 	18	 
	ARTICLE 17 COMMUTATION (As respects Workers’ Compensation Claims)
	 	 	19	 
	ARTICLE 18 ERRORS AND OMISSIONS
	 	 	20	 
	ARTICLE 19 OFFSET
	 	 	20	 
	ARTICLE 20 CURRENCY
	 	 	20	 
	ARTICLE 21 FEDERAL EXCISE TAX AND OTHER TAXES
	 	 	20	 
	ARTICLE 22 ACCESS TO RECORDS
	 	 	21	 
	ARTICLE 23 INSOLVENCY
	 	 	22	 
	ARTICLE 24 ARBITRATION
	 	 	23	 
	ARTICLE 25 SERVICE OF SUIT
	 	 	26	 
	ARTICLE 26 CONFIDENTIALITY
	 	 	27	 
	ARTICLE 27 PRIVACY
	 	 	28	 
	ARTICLE 28 LATE PAYMENTS
	 	 	29	 
	ARTICLE 29 RESERVES
	 	 	30	 
	ARTICLE 30 MODE OF EXECUTION
	 	 	33	 
	ARTICLE 31 VARIOUS OTHER TERMS
	 	 	33	 
	ARTICLE 32 INTERMEDIARY
	 	 	36	 

 

2.

ATTACHMENTS

NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE U.S.A.

(BRMA 35A)

EXHIBIT I — CASUALTY FIRST EXCESS OF LOSS REINSURANCE

EXHIBIT II — CASUALTY SECOND EXCESS OF LOSS REINSURANCE

 

1.

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

ARTICLE 1

BUSINESS COVERED

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

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

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

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

ARTICLE 2

COMMENCEMENT AND TERMINATION

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

 

2.

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

ARTICLE 3

SPECIAL TERMINATION

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

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

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

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

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

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

“A-”.

b. As respects Reinsurers domiciled outside the United States of America, other than
Lloyd’s Syndicates (i) the Reinsurer’s Capital & Surplus

 

3.

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

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

6. There is either:

a. a severance or obstruction of free and unfettered communication and/or normal
commercial or financial intercourse between the United States of America and the
country in which the Reinsurer is incorporated or has its principal office as a
result of war, currency regulations or any circumstances arising out of political,
financial or economic uncertainty; or

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

B. In the event the Company elects termination, the Company shall with the notice of termination
specify that termination will be on a Run-Off basis or a Cut-Off basis. In the event that the
Company elects to Cut-Off and thus relieve the Reinsurer for losses occurring subsequent to the
Reinsurer’s specified termination date, the Reinsurer shall within thirty (30) days of the
termination date return the liability for the unearned portion of any ceded premium paid hereunder,
calculated as of the termination date, and cash in that amount (less any applicable ceding
commission allowed thereon) and the minimum premium provisions, if any, shall be waived. If the
Company elects “Run-Off”, the Reinsurer shall remain liable to the Company under this Contract with
respect to losses arising from Policies placed into effect and ceded hereunder with effective dates
(new or renewal Policy

 

4.

period) prior to the termination date until those policies naturally expire, are cancelled or
non-renewed or their next annual anniversary, provided such period shall not exceed eighteen (18)
months from the date of termination elected under this Article.

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

ARTICLE 4

EXCLUSIONS

	 	 	This Contract shall not cover:
	 
	A.	 	1. Reinsurance treaty business, including pro rata
and excess of loss, assumed by the Company, but
not to include business from affiliated
companies;

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

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

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

5. Any liability of the Company arising by contract, operation of law, or otherwise, from
its participation or membership, whether voluntary or involuntary, in any insolvency fund.
“Insolvency Fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund
or other arrangement, howsoever denominated,

 

5.

established or governed, which provides for any assessment of or payment of assumption by
the Company of part or all of any claim, debt, charge, fee, or other obligation of an
insurer, or its successors or assigns, which has been declared by any competent authority to
be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part;

6. Financial Guarantee and Insolvency;

7. Loss resulting from an act of Certified or Non-Certified Terrorism, as defined in the
Article entitled DEFINITION OF TERRORISM of this Contract, that involves the use,
release, or escape of nuclear materials, or directly or indirectly results in nuclear
reaction or radiation or radioactive contamination; or that is carried out by means of the
dispersal or application of pathogenic or poisonous biological or chemical materials that
are released;

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

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

9. Umbrella Liability;

10. Public Utilities;

11. Pharmaceutical and Medical Device Manufacturers.

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

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

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

 

6.

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

14. Repair, cleaning or demolition of any vessel or barge used as petroleum tanker;

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

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

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

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

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

Furthermore, Reinsurers agree that this exclusion does not apply to operations meeting all
standards of any statute, ordinance, regulation or license requirement of any federal, state
or local government which apply to those operations, where the Company has attached the
Solutions 2000 Liability PMAG — 04 (07 98) “Pesticide or Fertilizer Applicator Amended
Exclusions with Amendment of Limits of Insurance” to an original policy. Furthermore, this
exclusion does not apply to fields on which the insured, or any contractor or subcontractor
working on the behalf of the insured, is performing operations, where the company has
attached the Solutions 2000 Liability PMAG — 04 (07 98) “Pesticide or Fertilizer Applicator
Amended Exclusions with Amendment of Limits of Insurance” to an original Policy.

 

 

7.

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

17. Manufacture of liquid petroleum gas or petroleum;

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

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

20. All mining operations;

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

22. Blasting;

23. Nursing Homes;

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

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

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

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

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

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

	 	a.	 	School districts;
	 
	 	b.	 	Municipally-owned buildings or properties;
	 
	 	c.	 	Municipalities named as an additional Insured;

30. Auto Liability;

 

 8.

a. As a taxicab, public livery or bus;

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

c. Ambulances;

d. Rent-a-car and leasing operations;

e. Vehicles carrying passengers for hire or reward;

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

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

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

31. Products Liability:

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

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

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

d. Products liability written without an annual aggregate limit;

32. Malpractice or Professional Liability, except:

	 	a.	 	Druggists’ Liability;
	 
	 	b.	 	Printers’ Liability;
	 
	 	c.	 	Barbers’ and Beauticians’ Liability (including nail salons);
	 
	 	d.	 	Agricultural Consultants’ Liability;
	 
	 	e.	 	Funeral Directors’ or Morticians’ Professional Liability;
	 
	 	f.	 	Pastoral Professional Liability written in conjunction with a liability risk;
	 
	 	g.	 	Incidental malpractice written in conjunction with a liability risk;
	 
	 	h.	 	Opticians;
	 
	 	i.	 	Hearing Aid Providers
	 
	 	j.	 	Florists.

33. Mold Exclusion – attached, applicable to Exhibit II only;

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

 

 9.

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

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

37. Occupational Accident when written as such.

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

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

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

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

c. Operations subject to Jones Act;

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

39. Roofing Contractors;

40. Scaffolding installations (except residential and commercial up to three (3) stories);

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

B. If any business falling within the scope of one or more of the exclusions is assigned to the
Company under an Assigned Risk Plan, such exclusion(s) shall not apply to the portion of the limits
of liability prescribed by the Assigned Risk Plan which come within the Company’s retention and
limits of liability of the Reinsurer.

C. If without the knowledge and contrary to the instructions of its supervisory underwriting
personnel, insurance coverages are provided involving one or more of the above exclusions, except
A(1), A(2), A(3), A(4), A(5), A(6), A(7), A(8), A(11), A(15), A(16), A(19), A(24), and A(25) either
by an inadvertent acceptance or by an existing insured extending its operations, the reinsurance
coverage provided hereunder shall apply from inception and for a period of thirty (30) days or
longer if required by law, but not to exceed the lesser of eighteen (18) months or Policy
anniversary, after said supervisory underwriting personnel receives knowledge thereof and promptly
notifies the Reinsurers upon discovery.

D. Any exclusion listed above other than exclusions A(1), A(2), A(3), A(4), A(5), A(6), A(7), A(8),
A(11), A(15), A(16), A(19), A(24), and A(25), shall be automatically waived as

 

 10.

respects a Policy issued by the Company on a risk with respect to which only a minor or incidental
part of the operations covered involves the exclusion. An incidental part of an insured’s regular
operations shall mean not greater than ten percent (10%) of the insured’s regular operations.

E. Notwithstanding the exclusions set forth in the above paragraphs, the Reinsurers may grant a
Special Acceptance on a risk or operation excluded above or waive the application or the exclusion
to a specific insured for the term of the Policy covered, after receiving an oral or written
request from the Company.

ARTICLE 5

WARRANTY

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

Commercial General Liability

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

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

Business Automobile Liability

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

Directors, Officers and Managers Liability

Directors and Officers Indemnity

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

Workers’ Compensation and Employers’ Liability

     For the purpose of determining the amount of loss sustained by the Company for accidents under
Workers’ Compensation and Employers’ Liability, it is deemed that the amount of loss applicable to
any one employee under this Contract shall not exceed seven million five hundred thousand dollars
($7,500,000).

ARTICLE 6

GENERAL CONDITIONS

     For the purposes of this Contract, the following general conditions shall apply:

 

 11.

- As respects Occupational Disease, retention and limit applies to each employee.

- Recoveries from the Minnesota Workers’ Compensation Reinsurance Association shall inure to
the benefit of Reinsurers hereunder.

- Employee Benefits Liability and Directors, Officers and Managers business covered on a
claims-made basis.

ARTICLE 7

RETENTION AND LIMIT

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

ARTICLE 8

DEFINITION OF TERRORISM

A. An “Act of Terrorism” shall mean any act, including both Certified Acts of Terrorism in
accordance with the Terrorism Risk Insurance Act of 2002, the Terrorism Risk Insurance Extension
Act of 2005 and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) and any
subsequent extension and those not so certified, or preparation in respect of action, or threat of
action designed to influence the government de jure or de facto of any nation or any political
division thereof, or in pursuit of any political, religious, ideological, or similar purpose to
intimidate the public or a section of the public of any nation by any person or group(s) of persons
whether acting alone or on behalf of or in connection with any organization(s) or government(s) de
jure or de facto, and which:

1. involves violence against one or more persons; or

2. involves damage to property; or

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

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

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

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

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

 

 12.

ARTICLE 9

REINSTATEMENT

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

ARTICLE 10

PREMIUM

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

ARTICLE 11

DEFINITION OF LOSS OCCURRENCE

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

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

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

2. If no Occurrence or accident Policy is identified as being involved, then the date of the
“Loss Occurrence” shall be the date the first claim is made or discovered under a
claims-made or losses discovered Policy. If the first claim from a Loss Occurrence is made
under an extended reporting period endorsement, the date of Loss for the Loss Occurrence
shall be the date the first claim is made. If after ten (10) years from the expiration date
of this Contract, the Company identifies an

 

 13.

Occurrence Policy, the date of Loss for all claims-made and losses discovered Policies shall
remain as first established.

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

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

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

F. The date of Loss on which the Company has sustained an occupational disease or cumulative injury
Loss, as respects each employee, shall be deemed to be the date of Loss under the original Policy
as determined by the Company.

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

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

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

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

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

4. It has resulted in a disability or death.

 

 14.

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

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

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

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

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

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

ARTICLE 12

NET LOSS

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

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

C. All Loss Adjustment Expenses paid by the Company as a result of Net Losses covered hereunder
shall be divided between the Company and the Reinsurers, without regard to the limit of this
Contract, in proportion to their share of the Net Loss. “Loss Adjustment Expenses” shall mean and
include but not be limited to: (i) expenses sustained in connection with adjustment, defense,
settlement and litigation of claims and suits, satisfaction of judgments, resistance to or
negotiations concerning a Loss (which shall include the expenses and the pro rata share of the
salaries of the Company’s field

 

 15.

employees according to the time occupied in adjusting such Loss and the expenses of the Company’s
employees while diverted from their normal duties to the service of field adjustment but shall not
include any salaries of officers or normal overhead expenses of the Company), (ii) legal expenses
and costs incurred in connection with coverage questions regarding specific claims and legal
actions, including Declaratory Judgment Expenses, connected thereto, (iii) all interest on
judgments other than prejudgment interest when added to a judgment except when included in Net
Loss, and (iv) expenses sustained to obtain recoveries, salvages or other reimbursements, or to
secure the reverse or reduction of a verdict or judgment.

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

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

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

ARTICLE 13

EXTRA-CONTRACTUAL OBLIGATIONS/LOSS EXCESS OF POLICY LIMITS

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

B. “Loss Excess of Policy Limits” means any amount of Loss, together with any legal costs and
expenses incurred in connection therewith, paid as damages or in settlement by

 

 16.

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

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

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

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

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

ARTICLE 14

TERRORISM RECOVERY

A. As respects the Insured Losses of the Company for each Program Year, to the extent the Company’s
total reinsurance recoverables for Insured Losses, whether collected or not, when combined with the
financial assistance available to the Company under the Act

 

 17.

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

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

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

ARTICLE 15

NET RETAINED LINE

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

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

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

D. Permission is hereby granted the Company to carry (i) underlying reinsurance and (ii) layers of
catastrophe reinsurance both below and above this layer of coverage and

   

 

18.

recoveries made on the latter shall be disregarded for all purposes of this Contract and shall
inure to the sole benefit of the Company.

E. Recoveries from the Minnesota Workers’ Compensation Reinsurance Association shall inure to the
benefit of Reinsurers hereunder.

ARTICLE 16

NOTICE OF LOSS AND LOSS SETTLEMENT

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

B. Prompt notice shall be given to the Reinsurers by the Company on any Loss Occurrence wherein the
Company’s reserve exceeds fifty percent (50%) of the Company’s Loss retention. In addition, the
Company shall promptly advise the Reinsurer of all bodily injury losses involving the following
major injuries:

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

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

 

19.

ARTICLE 17

COMMUTATION (As respects Workers’ Compensation Claims)

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

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

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

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

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

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

 

20.

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

ARTICLE 18

ERRORS AND OMISSIONS

     Inadvertent delays, errors or omissions made by the Company in connection with this Contract
shall not relieve the Reinsurer from any liability which would have attached had such error or
omission not occurred, provided always that such error or omission shall be rectified as soon as
possible, provided that the liability of the Reinsurer shall not extend beyond the coverage
provided by this Contract nor to extend coverage to Policies that are not the Business Covered
hereunder. This Article shall not apply to a sunset provision, if any in this Contract, nor to a
commutation made in connection with this Contract.

ARTICLE 19

OFFSET

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

ARTICLE 20

CURRENCY

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

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

ARTICLE 21

FEDERAL EXCISE TAX AND OTHER TAXES

 

21.

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

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

ARTICLE 22

ACCESS TO RECORDS

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

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

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

 

22.

Company shall give the Reinsurer access to such document.

D. Notwithstanding any other provision to the contrary, once a claim and all directly related
claims are finally settled by the Company, the Reinsurer shall be entitled to review all reasonable
and applicable claims records that support a Company request for payment of a claim hereunder for
Net Loss for Business Covered hereunder. In the event that the Reinsurer shall have paid an amount
for Net Loss to the Company and the records do not support the obligation of the Reinsurer to have
paid the claim, the Company shall promptly return any payment made in error.

ARTICLE 23

INSOLVENCY

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

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

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

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

D. Where two (2) or more Reinsurers are involved in the same claim and a majority in interest elect
to interpose defense to such claim, the expense shall be apportioned in

 

23.

accordance with the terms of this Contract as though such expense had been incurred by the Company.

ARTICLE 24

ARBITRATION

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

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

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

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

 

24.

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

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

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

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

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

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

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

 

25.

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

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

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

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

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

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

Q. In the event of an order of consolidation by the Board, the arbitrator appointed by the original
Reinsurer shall be subject to being, and may be, replaced within thirty (30) days of the decision
to have a consolidated arbitration by an arbitrator named collectively by the Reinsurers or in the
absence of agreement, by the Lead Reinsurer, or if there is no Lead Reinsurer involved in the
dispute, the Reinsurer with the largest participation in this Contract affected by the dispute. In
the event two (2) or more Reinsurers affected by the dispute

 

26.

each have the same largest participation, they shall agree among themselves as to the replacement
arbitrator, if any, to be appointed. The umpire shall be the final determiner in the event of any
dispute over replacement of that arbitrator. All other aspects of the arbitration shall be
conducted as provided for in this Article provided that (1) each party actively participating in
the consolidated arbitration will have the right to its own attorney, position, and related claims
and defenses; (2) each party will not, in presenting its position, be prevented from presenting its
position by the position set forth by any other party; and (3) the cost and expense of the
arbitration, exclusive of Attorneys’ fees (which will be borne exclusively by the respective
retaining party unless otherwise determined by the Board) but including the expense of any
stenographer which shall be borne by each party actively participating in the consolidated
arbitration or as the Board shall determine to be fair and appropriate under the circumstances.

ARTICLE 25

SERVICE OF SUIT

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

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

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

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

 

27.

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

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

ARTICLE 26

CONFIDENTIALITY

A. The information, data, statements, representations and other materials provided by the Company
or the Reinsurer to the other arising from consideration and participation in this Contract whether
contained in the reinsurance submission, this Contract, or in materials or discussions arising from
or related to this Contract, may contain confidential or proprietary information as expressly
indicated by the disclosing party (“Disclosing Party”) in writing from time to time to the other
party of the respective parties (“Confidential Information”). This Confidential Information is
intended for the sole use of the parties to this Contract (and their affiliates involved in
management or operation of assumed reinsurance business, retrocessionaires, prospective
retrocessionaires, intermediaries involved in such placements, respective auditors and legal
counsel) as may be necessary in analyzing and/or accepting a participation in and/or executing
their respective responsibilities under or related to this Contract. Disclosing or using
Confidential Information relating to this Contract, without the prior written consent of the
Disclosing Party, for any purpose beyond (i) the scope of this Contract, (ii) the reasonable extent
necessary to perform rights and responsibilities expressly provided for under this Contract, (iii)
the reasonable extent necessary to administer, report to and effect recoveries from retrocessional
Reinsurers, (iv) the reporting to regulatory or other governmental authorities as may be legally
required or (v) persons with a need to know the information, (all of the preceding persons or
entities who are legally obligated by either written agreement or otherwise to maintain the
confidentiality of the Confidential Information) is expressly forbidden. Copying, duplicating,
disclosing, or using Confidential Information for any purpose beyond this expressed purpose is
forbidden without the prior written consent of the Disclosing Party.

B. Should a party (“Receiving Party”) receive a third party demand pursuant to subpoena, summons,
or court or governmental order, to disclose Confidential Information that has been provided by
another party to this Contract, the Receiving Party shall make

 

28.

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

ARTICLE 27

PRIVACY

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

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

2. The applicable provisions of the Health Insurance Portability and Accountability Act
(“HIPAA”) and the related requirements of any regulations promulgated thereunder including
without limitation the Federal Privacy Regulations as contained in 45 CFR Part 160 and 164
(the “Federal Privacy Regulations”). The Company and the Reinsurer will only use protected
health information as permitted by law.

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

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

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

C. Non-Public Personal Information. “Non-Public Personal Information” shall for the
purpose of this Contract mean financial or health information that personally identifies an

 

29.

individual, including claimants under Policies reinsured under this Contract, and which information
is not otherwise available to the public.

ARTICLE 28

LATE PAYMENTS

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

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

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

 

30.

eight percent (8%) simple interest. If the sum of the compensating additional amount computed in
respect of any overdue payment is less than one quarter of one percent (0.25%) of the amount
overdue, or one thousand dollars ($1,000), whichever is greater, and/or the overdue period is one
week or less, then the interest amount shall be waived. The basis point standards referred to
above shall be doubled if the late payment is due from a Reinsurer who is no longer an active
reinsurance market. Interest shall cease to accrue upon the party’s payment of an overdue amount
to the Intermediary.

ARTICLE 29

RESERVES

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

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

1. Clean, irrevocable, and unconditional evergreen letter(s) of credit issued and confirmed,
if confirmation is required by the applicable insurance regulatory authorities, by a
qualified United States financial institution as defined under the Insurance Law of the
Company’s domiciliary state and acceptable to the Company and to insurance regulatory
authorities;

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

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

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

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

 

31.

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

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

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

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

	 	1.	 	Established letter of credit (or subsequent cash deposit);
	 
	 	2.	 	Established trust account (or subsequent cash deposit); or
	 
	 	3.	 	Funds Deposit;

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

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

1. To make payment to and reimburse the Company for the Reinsurer’s share of Net Loss and
Loss Adjustment Expense and other amounts paid by the Company under its Policies and for
which the Reinsurer is responsible under this Contract that is due to the Company but unpaid
by the Reinsurer including but not limited to the Reinsurer’s share of premium refunds and
returns; and

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

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

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

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

 

32.

d. has concluded that the trustee or issuing (or confirming) bank’s financial
condition is such that the value of the security represented by the letter of credit
or trust account may be in jeopardy;

and under any of those circumstances where the Reinsurer’s entire Obligations, or part
thereof, under this Contract remain unliquidated and undischarged at least thirty (30) days
prior to the stated expiration date or at the time the Company learns of the possible
jeopardy to the security represented by the letter of credit or trust account.

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

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

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

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

H. Any assets deposited to a trust account will be valued according to their current fair market
value and will consist only of cash (U.S. legal tender), certificates of deposit issued by a
qualified United States financial institution as defined under the Insurance Law of the Company’s
domiciliary state and payable in cash, and investments of the types no less conservative than those
specified in Section 1404 (a)(1)(2)(3)(8) and (10) of the New York Insurance Law and which are
admitted assets under the Insurance Law of the Company’s domiciliary state. Investments issued by
the parent, subsidiary, or affiliate of either the

 

33.

Company or the Reinsurer will not be eligible investments. All assets so deposited will be
accompanied by all necessary assignments, endorsements in blank, or transfer of legal title to the
trustee in order that the Company may negotiate any such assets without the requirement of consent
or signature from the Reinsurer or any other entity.

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

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

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

ARTICLE 30

MODE OF EXECUTION

A. This Contract may be executed by:

1. an original written ink signature of paper documents;

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

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

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

ARTICLE 31

VARIOUS OTHER TERMS

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

 

34.

provision shall not be construed to preclude the assignment by the Company of reinsurance
recoverables to another party for collection.

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

C. This Contract shall constitute the entire agreement between the parties with respect to the
Business Covered hereunder. There are no understandings between the parties other than as
expressed in this Contract. Any change or modification of this Contract shall be null and void
unless made by amendment to the Contract and signed by both parties.

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

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

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

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

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

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

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

 

35.

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

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

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

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

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

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

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

 

36.

suit or proceeding, provided the Company shall have the right to make any decision in the event of
disagreement over any matter of defense or settlement.

ARTICLE 32

INTERMEDIARY

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

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

 

1.  

NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE U.S.A. (BRMA 35A)

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

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

Limited Exclusion Provision*

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

	 	(a)	 	become effective on or after 1st May, 1960, or
	 
	 	(b)	 	become effective before that date and contain the Limited
Exclusion Provision set out above; provided this paragraph 2 shall not be
applicable to Family Automobile Policies, Special Automobile Policies, or
policies or combination policies of a similar nature, issued by the Company on
New York risks, until 90 days following approval of the Limited Exclusion
Provision by the Governmental Authority having jurisdiction thereof.

 

2.

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

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

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

Broad Exclusion Provision*

It is agreed that the policy does not apply:

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

(a) with respect to which an insured under the policy is also an insured under a
nuclear energy liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or

(b) resulting from the hazardous properties of nuclear material and with respect to
which (1) any person or organization is required to maintain financial protection
pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the
insured is, or had this policy not been issued would be, entitled to indemnity from
the United States of America, or any agency thereof, under any agreement entered
into by the United States of America, or any agency thereof, with any person or
organization.

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

 

3.

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

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

(b) the nuclear material is contained in spent fuel or waste at any time possessed,
handled, used, processed, stored, transported or disposed of by or on behalf of an
insured; or

(c) the (injury, sickness, disease, death or destruction) (bodily injury or property
damage arises out of the furnishing by an insured of services, materials, parts or
equipment in connection with the planning, construction, maintenance, operation or
use of any nuclear facility, but if such facility is located within the United
States of America, its territories, or possessions or Canada, this exclusion (c)
applies only to (injury to or destruction of property at such nuclear facility)
(property damage to such nuclear facility and any property thereat.

	IV.	 	As used in this endorsement:
	 
	 	 	“Hazardous properties” include radioactive, toxic or explosive properties; “nuclear
material” means source material, special nuclear material or byproduct material; “source
material”, “special nuclear material”, and “byproduct material” have the meanings given them
in the Atomic Energy Act of 1954 or in any law amendatory thereof; “spent fuel” means any
fuel element or fuel component, solid or liquid, which has been used or exposed to radiation
in a nuclear reactor; “waste” means any waste material (1) containing byproduct material
other than tailings or wastes produced by the extraction or concentration of uranium or
thorium from any ore processed primarily for its source material content, and (2) resulting
from the operation by any person or organization of any nuclear facility included under the
first two paragraphs of the definition of nuclear facility; “nuclear facility” means:
	 
		 	(a) any nuclear reactor,
	 
		 	(b) any equipment or device designed or used for (1) separating the isotopes of uranium or
plutonium, (2) processing or utilizing spent fuel, or (3) handling, processing or packaging
waste,
	 
		 	(c) any equipment or device used for the processing, fabricating or alloying of special
nuclear material if at any time the total amount of such material in the custody of the
insured at the premises where such equipment or device is located

 

4.

	 	 	consists of or contains
more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250
grams of uranium 235,
	 
		 	(d) any structure, basin, excavation, premises or place prepared or used for the storage or
disposal of waste, and includes the site on which any of the foregoing is located, all operations conducted on such
site and all premises used for such operations; “nuclear reactor” means any apparatus designed or
used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass
of fissionable material;

	 	 	 	(With respect to injury to or destruction of property, the word “injury” or
“destruction” (“property damage” includes all forms of radioactive contamination of
property. (includes all forms of radioactive contamination of property.
	 
	 	V.	 	The inception dates and thereafter of all original policies affording coverages
specified in this paragraph 3, whether new, renewal or replacement, being policies
which become effective on or after 1st May, 1960, provided this paragraph 3 shall not
be applicable to:
	 
	 		 	(a) Garage and Automobile Policies issued by the Company on New York risks, or
	 
	 		 	(b) statutory liability insurance required under Chapter 90, General Laws of
Massachusetts, until 90 days following approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.

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

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

 

 

EXHIBIT I — Page 1

EXHIBIT I

CASUALTY FIRST EXCESS OF LOSS REINSURANCE

EFFECTIVE JANUARY 1, 2009

issued to

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY 

ARTICLE 7

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for each and every Loss
Occurrence, for one hundred percent (100%) of the excess Net Loss above an initial Net Loss to the
Company of one million dollars ($1,000,000) but the Reinsurers shall not be liable for more than
four million dollars ($4,000,000) of Net Loss in each and every Loss Occurrence.

B. The Reinsurers shall be liable to, indemnify and reinsure the Company for each and every Loss
Occurrence for one hundred percent (100%) of the Company’s Net Loss involving any Act of Terrorism,
irrespective of the number and kinds of perils involved, but the Reinsurers shall not be liable for
more than four million dollars ($4,000,000) for Net Loss arising from Acts of Terrorism during the
term of this Contract, as defined in the Article entitled DEFINITION OF TERRORISM.

C. As respects to all Net Loss arising from Mold, the Reinsurers shall be liable to, indemnify and
reinsure the Company for one hundred percent (100%) of the Company’s excess Net Loss above an
initial Net Loss to the Company of one million dollars ($1,000,000) from Mold, as such term is
defined in the Company’s Policy, but the Reinsurers shall not be liable for more than four million
dollars ($4,000,000) for all Net Loss arising from Mold during the term of the Contract.

 

 

EXHIBIT I — Page 2

ARTICLE 9

REINSTATEMENT

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

B. For each amount so reinstated, the Company agrees to pay an additional premium. For the
purposes of calculating the reinstatement premium, the Contract retention and limit specified in
the Article entitled RETENTION AND LIMIT of this Contract shall be deemed to consist of two (2)
sections:

     
Section A – The Reinsurers’ limit for Net Loss of one million dollars ($1,000,000) in each and
every Loss Occurrence, excess of the Company’s retention of one million dollars ($1,000,000) in
each and every Loss Occurrence.

     Section B – The Reinsurers’ limit for Net Loss of three million dollars ($3,000,000) in each
and every Loss Occurrence, excess of the Company’s retention of two million dollars ($2,000,000) in
each and every Loss Occurrence.

C. 1. Under Section A., the Company shall pay an additional premium calculated by multiplying
thirty five percent (35%) of the reinsurance premium for this Contract by the percentage that the
amount reinstated under Section A. bears to the Section

A. limit (one million dollars ($1,000,000)). Nevertheless, the liability of the Reinsurers under
Section A. shall never be more than one million dollars ($1,000,000) in respect of any one Loss
Occurrence, nor more than three million dollars ($3,000,000) in respect of all losses occurring
during the Contract term. It is further understood that reinstatement premium for Section A. only
applies to Loss Occurrences that are recovered under Section A.

C.2. Under Section B., the Company shall pay an additional premium calculated by multiplying sixty
five percent (65%) of the reinsurance premium for this Contract by the percentage that the amount
reinstated under Section B. bears to the Section

B. limit (three million dollars ($3,000,000)). Nevertheless, the liability of the Reinsurers
under Section B. shall never be more than three million dollars ($3,000,000) in respect of any one
Loss Occurrence, nor more than nine million dollars ($9,000,000) in respect of all losses occurring
during the Contract term. It is further understood that reinstatement premium for Section B. only
applies to Loss Occurrences that are recovered under Section B.

D. Recoveries under Section A. shall be entirely disregarded for purposes of determining the Net
Loss for purposes of Section B.

 

 

EXHIBIT I — Page 3

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

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

ARTICLE 10

PREMIUM

A. The premium payable to Reinsurers shall be calculated by applying a rate of two point three nine
percent (2.39%) to the Company’s Subject Matter Premium Income.

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

C. The Company shall pay the Reinsurers a deposit premium of one million one hundred fifty seven
thousand five hundred forty eight dollars ($1,157,548), in four (4) equal installments of two
hundred eighty nine thousand three hundred eighty seven dollars ($289,387) each on January 1, April
1, July 1 and October 1, 2009. As promptly as possible after the termination of this Contract,
however no longer than sixty (60) days, the Company shall render a report to the Reinsurers showing
the actual reinsurance premium due hereunder, calculated as provided in Paragraph A. of this
Article; and, if the premium so calculated is greater than the previously paid deposit premium, the
balance shall be remitted by the Company with its report. However, in no event shall the premium
to the Reinsurers for the Contract be less than nine hundred twenty six thousand thirty eight
dollars ($926,038).

 

 

EXHIBIT II — Page 1

EXHIBIT II

CASUALTY SECOND EXCESS OF LOSS REINSURANCE

EFFECTIVE JANUARY 1, 2009

issued to

PENN MILLERS INSURANCE COMPANY 

AMERICAN MILLERS INSURANCE COMPANY 

ARTICLE 7

RETENTION AND LIMIT

A. The Reinsurers shall be liable to, indemnify and reinsure the Company for each and every Loss
Occurrence, for one hundred percent (100%) of the excess Net Loss above an initial Net Loss to the
Company of five million dollars ($5,000,000) but the Reinsurers shall not be liable for more than
five million dollars ($5,000,000) of Net Loss in each and every Loss Occurrence. Coverage as
provided in this Exhibit II shall not cover the Company’s Net Loss involving any Act of Terrorism
as defined in the Article entitled DEFINITION OF TERRORISM.

B. Coverage as provided in this Exhibit II of this Contract does not apply to any loss, damage,
cost, claim or expense, of the Company or its insured(s) including but not limited to B(1) – B(4).
below, whether preventative, remedial or otherwise, directly or indirectly arising out of, relating
to, caused by or contributed to by any mold, mildew, spores, fungus, wet or dry rot, or any of
their scent or by-products, or of any materials containing them, at any time even if there is any
other cause or event contributing concurrently or in any other sequence to the loss:

1. Any claim relating to supervision, instructions, recommendations, warnings or advice
given or which should have been given in connection with the above; or

2. Any claim if a failure to investigate, detect or remediate mold, mildew, spores, fungus,
wet or dry rot or any of their scent or by products, or any of their materials containing
them; or

3. Any alleged or actual obligation of the Company and/or its insured(s) to share damages
with or repay someone else who must pay damages because of such injury or damage, either in
equity or in tort; or

4. Any costs and/or expenses incurred by the Company and/or its insured(s) in investigating
or defending any claim or suit seeking damages for, or determining Policy Obligations
relating to, such loss, damage, cost, claim or expense.

ARTICLE 9

 

 

EXHIBIT II — Page 2

REINSTATEMENT

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

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

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

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

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

ARTICLE 10

PREMIUM

A. The premium payable to Reinsurers shall be calculated by applying a rate of point seven eight
six six percent (.7866%) to the Company’s Subject Matter Premium Income.

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

 

 

EXHIBIT II — Page 3

C. The Company shall pay the Reinsurers a deposit premium of three hundred eighty thousand nine
hundred seventy four dollars ($380,974), in four (4) equal installments of ninety five thousand two
hundred forty three dollars and fifty cents ($95,243.50) each on January 1, April 1, July 1 and
October 1, 2009. As promptly as possible after the termination of this Contract, however no longer
than sixty (60) days, the Company shall render a report to the Reinsurers showing the actual
reinsurance premium due hereunder, calculated as provided in Paragraph A. of this Article; and, if
the premium so calculated is
greater than the previously paid deposit premium, the balance shall be remitted by the Company with
its report. However, in no event shall the premium to the Reinsurers for the Contract be less than
three hundred four thousand seven hundred eighty dollars ($304,780).exv10w14

Exhibit 10.14

UMBRELLA QUOTA SHARE REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES BARRE, PENNSYLVANIA

(hereinafter called the “Company”)

by

PARTNER REINSURANCE COMPANY OF THE U.S.

NEW YORK

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

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

a 25.00% share

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

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

	 	 	 	 	 
	 	PARTNER REINSURANCE

COMPANY OF THE U.S.

 	 
	 	BY  	
 	 
	 
	 	 	TITLE	
 	 
	 	 	 	 	 
	 

 

 

UMBRELLA QUOTA SHARE REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES BARRE, PENNSYLVANIA

(hereinafter called the “Company”)

by

SWISS REINSURANCE AMERICA CORPORATION

NEW YORK

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

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

a 25.00% share

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

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

	 	 	 	 	 
	 	SWISS REINSURANCE AMERICA 

CORPORATION BY: Swiss Re

 	 
	 	BY  	
 	 
	 
	 	 	TITLE	
 	 
	 	 	 	 	 
	 

 

 

UMBRELLA QUOTA SHARE REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES BARRE, PENNSYLVANIA

(hereinafter called the “Company”)

by

ASPEN INSURANCE UK LTD.

CONNECTICUT

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

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

a 07.50% share

of the liability described in the attached Contract and, as
consideration, the Reinsurer shall receive a 07.50% share of
the premium named therein.

Signed in Rocky Hill, Connecticut, this         day of                                         , 2009,

	 	 	 	 	 
	 	ASPEN RE AMERICA on and behalf of 
ASPEN
INSURANCE UK LTD.

 	 
	 	BY  	
 	 
	 
	 	 	TITLE	
 	 
	 	 	 	 	 
	 

 

 

UMBRELLA QUOTA SHARE REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES BARRE, PENNSYLVANIA

(hereinafter called the “Company”)

by

HANNOVER RUCKVERSICHERUNG AG

HANNOVER, GERMANY

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

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

a 42.50% share

of the liability described in the attached Contract and, as
consideration, the Reinsurer shall receive a 42.50% share of
the premium named therein.

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

	 	 	 	 	 
	 	HANNOVER RUCKVERSICHERUNG AG

 	 
	 	BY  	
 	 
	 
	 	 	TITLE	
 	 
	 	 	 	 	 
	 

 

 

and signed in Wilkes Barre, Pennsylvania, this day      of                     200_.

	 	 	 	 	 
	 	PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

 	 
	 	BY  	
 	 
	 
	 	 	TITLE	
 	 
	 	 	 	 	 
	 

UMBRELLA QUOTA SHARE REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

issued to

PENN MILLER INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

 

 

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

UMBRELLA QUOTA SHARE REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

INDEX

	 	 	 	 	 	 	 
	ARTICLE	 	SUBJECT	 	PAGE
	ARTICLE 1

	 	BUSINESS COVERED
	 	 	1	 
	ARTICLE 2

	 	COMMENCEMENT AND TERMINATION
	 	 	2	 
	ARTICLE 3

	 	PORTFOLIO ASSUMPTION
	 	 	3	 
	ARTICLE 4

	 	SPECIAL TERMINATION
	 	 	3	 
	ARTICLE 5

	 	EXCLUSIONS
	 	 	6	 
	ARTICLE 6

	 	REINSURANCE COVERAGE
	 	 	8	 
	ARTICLE 7

	 	PREMIUM AND COMMISSION
	 	 	10	 
	ARTICLE 8

	 	REPORTS AND REMITTANCES
	 	 	10	 
	ARTICLE 9

	 	NET LOSS
	 	 	12	 
	ARTICLE 10

	 	EXTRA-CONTRACTUAL OBLIGATIONS/LOSS EXCESS OF

POLICY LIMITS
	 	 	13	 
	ARTICLE 11

	 	TERRORISM RECOVERY
	 	 	14	 
	ARTICLE 12

	 	NET RETAINED LINE
	 	 	15	 
	ARTICLE 13

	 	ERRORS AND OMISSIONS
	 	 	16	 
	ARTICLE 14

	 	OFFSET
	 	 	16	 
	ARTICLE 15

	 	CURRENCY
	 	 	16	 
	ARTICLE 16

	 	FEDERAL EXCISE TAX AND OTHER TAXES
	 	 	16	 
	ARTICLE 17

	 	ACCESS TO RECORDS
	 	 	17	 
	ARTICLE 18

	 	INSOLVENCY
	 	 	18	 
	ARTICLE 19

	 	ARBITRATION
	 	 	19	 
	ARTICLE 20

	 	SERVICE OF SUIT
	 	 	22	 
	ARTICLE 21

	 	CONFIDENTIALITY
	 	 	23	 
	ARTICLE 22

	 	PRIVACY
	 	 	24	 
	ARTICLE 23

	 	RESERVES
	 	 	25	 
	ARTICLE 24

	 	LATE PAYMENTS
	 	 	28	 
	ARTICLE 25

	 	MODE OF EXECUTION
	 	 	29	 
	ARTICLE 26

	 	VARIOUS OTHER TERMS
	 	 	30	 
	ARTICLE 27

	 	INTERMEDIARY
	 	 	32	 

ATTACHMENTS:

INSOLVENCY FUNDS EXCLUSION

NUCLEAR INCIDENT EXCLUSION CLAUSE-LIABILITY-REINSURANCE U.S.A.

(BRMA 35A)

NUCLEAR INCIDENT EXCLUSION CLAUSE-LIABILITY-REINSURANCE CANADA (BRMA 35D)

 

 

 1.

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

UMBRELLA QUOTA SHARE REINSURANCE CONTRACT

EFFECTIVE JANUARY 1, 2009

ARTICLE 1

BUSINESS COVERED

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

B. As respects all Business Covered hereof, where the coverage has been agreed upon between the
Company and the Reinsurer, this Contract shall cover self-insured obligations of the Company
assumed by it as a self-insurer including self-insured obligations in excess of any valid and
collectible insurance available to the Company to the same extent as if all types of insurance
covered by this Contract were afforded under the broadest forms of Policies issued by the Company
provided, such self-insured obligations are within the scope of underwriting criteria furnished by
the Company to the Reinsurer.

C. The term “Policies”, whenever used herein, shall mean all binders, policies, contracts,
certificates and other obligations, whether oral or written, of insurance or reinsurance that are
Business Covered, underwritten and bound by the Company in accordance with the Company’s current
Commercial Umbrella Underwriting and Rating guidelines (including amendments as agreed to by the
Reinsurer) as part of their Corporate Information Catalogue, except as excluded under the Article
entitled EXCLUSIONS.

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

 

2.

ARTICLE 2

COMMENCEMENT AND TERMINATION

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

B. At termination, at the Company’s option:

1. The Reinsurers shall remain liable for all Policies in force at termination of this
Contract; however, the liability of the Reinsurers shall cease with respect to losses
occurring subsequent to the first anniversary, natural expiration or cancellation of each
Policy ceded, whichever first occurs, but in no event for any losses occurring more than
eighteen (18) months after each such termination; (“Run-Off”) or

2. The Reinsurers shall be relieved of all liability hereunder for any losses occurring
with a date of loss subsequent to termination of this Contract (“Cut-Off’).

     The Company shall notify the Reinsurer not more than thirty (30) days after termination
whether such termination shall be on a Cut-Off or Run-Off basis.

C. The Company shall pay reinsurance premium for any Run-Off period in accordance with the Article
entitled PREMIUM of this Contract. If the Company elects the Cut-Off option, the Reinsurers
shall refund to the Company any unearned reinsurance premium applicable to the unexpired liability
(calculated on a pro rata basis) less any commission allowed by the Reinsurers thereon at
conclusion of the Run-Off if B(1) above is elected, or at termination if option B(2) above is
elected. The Reinsurers shall continue to be liable for their proportionate share of the
outstanding losses (reported or unreported) on Policies ceded hereunder with a date of loss prior
to the conclusion of the Run-Off, or termination, as the case may be.

D. Should any subject Policy be extended, continued, or renewed due to regulatory or other legal
restrictions, this Contract shall automatically provide extended coverage at the request of the
Company until those Policies are actually terminated by the Company. The Reinsurer shall be
entitled to reinsurance premium on such Policies as calculated by the Company in accordance with
the terms of this Contract. This provision shall not apply and the Reinsurer will not be liable for
longer than the Run-Off period elected above, in the event that the

 

3.

Company has secured reinsurance for the Business Covered that reinsures inforce Policies on
substantially similar terms as to risk retained and ceded, or has advised the Reinsurer that the
Company intends to hold the business net and for its own account.

E. Should this Contract terminate while a Loss Occurrence is in progress, the entire loss arising
out of the Loss Occurrence shall be subject to this Contract and its terms and conditions.

ARTICLE 3

PORTFOLIO ASSUMPTION

A. If agreed by the Company and the Reinsurer, at the end of each underwriting year (i.e. January
1) all unexpired liability in respect of the business ceded hereunder and the unearned premium
applicable thereto shall be transferred to the following underwriting year.

B. Furthermore, if agreed by the Company and the Reinsurer, the Reinsurer will accept a portfolio
transfer from previous underwriting years on the basis described in the preceding paragraph.

ARTICLE 4

SPECIAL TERMINATION

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

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

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

3. A party has: (a) become insolvent, (b) been placed under supervision (voluntarily or
involuntarily), (c) been placed into liquidation or receivership, or (d) had instituted
against it proceedings for the appointment of a

 

4.

supervisor, receiver, liquidator, rehabilitator, conservator or trustee in bankruptcy, or
other agent known by whatever name, to take possession of its assets or control of its
operations; or

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

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

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

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

6. There is either:

a. a severance or obstruction of free and unfettered communication and/or normal
commercial or financial intercourse between the United States of America and the
country in which the Reinsurer is incorporated or has its principal office as a
result of war, currency regulations or any circumstances arising out of political,
financial or economic uncertainty; or

 

5.

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

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

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

 

6.

ARTICLE 5

EXCLUSIONS

     This Contract Shall Not Cover:

	 	A.	 	The following General Categories:

1. War, as excluded by the provisions of the Company’s original Policy(ies).

2. Liability as a member or subscriber of any Pool, Association or Syndicate.

3. Insolvency Funds as per the attached Insolvency Funds Exclusion Clause.

4. Nuclear Incident Exclusion Clauses which are attached and made part of this
Contract:

a. Nuclear Incident Exclusion Clause — Liability — Reinsurance — U. S. A
(BRMA 35A).

b. Nuclear Incident Exclusion Clause — Liability — Reinsurance — Canada
(BRMA 35D).

5. Business accepted by the Company as reinsurance; except business accepted from
intra-company transactions.

B. The following Insurance Coverages:

1. Terrorism as provided in the Company’s Umbrella Underwriting and Rating
Guidelines as of January 1, 2003 and as revised by mutual agreement between the
Company and Reinsurer, or as referred to and approved by the Reinsurer.

     This Contract shall not cover loss resulting from an act of Certified or
Non-Certified terrorism, as defined in the Article entitled REINSURANCE
COVERAGE of this Contract, that involves the use, release, or escape of
nuclear materials, or directly or indirectly results in nuclear reaction or
radiation or radioactive contamination; or that is carried out by means of the
dispersal or application of pathogenic or poisonous biological or chemical
materials that are released.

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

 

7.

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

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

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

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

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

Furthermore, Reinsurers agree that this exclusion does not apply to operations
meeting all standards of any statute, ordinance, regulation or license requirement
of any federal, state or local government which apply to those operations, where
the Company has attached the Solutions 2000 Liability PMAG — 04 (07 98)
“Pesticide or Fertilizer Applicator Amended Exclusions with Amendment of Limits of
Insurance” to an original Policy. Furthermore, this exclusion does not apply to
fields on which the insured, or any contractor or subcontractor working on the
behalf of the insured, is performing operations, where the company has attached
the Solutions 2000 Liability PMAG — 04 (07 98) “Pesticide or Fertilizer
Applicator Amended Exclusions with Amendment of Limits of Insurance” to an
original Policy.

4. tobacco manufacturers/companies

 

8.

5. pharmaceutical and medical device manufacturers

C. If the Company is bound without knowledge of 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 this Article these exclusions, except
paragraphs A(1), A(2), A(3), A(4), A(5), B(1), B(2) and B(5) shall be suspended with
respect to such business until sixty (60) days after any Home Office underwriting
supervisor of the Company acquires knowledge of such business.

D. Upon receipt of such knowledge, the Company shall promptly advise the Reinsurer of the
scope of the Insured’s activities and the Reinsurer shall have the right to:

     Reinstate the exclusion involved upon expiration of the aforementioned sixty (60)
days waiting period, or waive such exclusion by Special Acceptance.

     The Reinsurer shall promptly advise the Company as to which of the above options set
forth in this Paragraph shall apply.

     Any exclusion listed above shall be automatically waived as respects a Policy issued
by the Company on a risk with respect to which only a minor or incidental part of the
operations covered involves the exclusion. An incidental part of an insured’s regular
operations shall mean not greater than ten percent (10%) of the insured’s regular
operations.

ARTICLE 6

REINSURANCE COVERAGE

A. The Company shall cede and the Reinsurer shall accept and be liable to, indemnify and reinsure
the Company for a quota share participation of the Company’s Net Loss for in force, new and
renewal excess/commercial umbrella Policies:

     For the first one million dollars ($1,000,000) of the Company’s Net Loss as respects
each Policy, each Loss Occurrence:

     The Reinsurers shall participate for seventy five percent (75%) of the
Company’s Net Loss as respects each Policy, each Loss Occurrence.

 

9.

     For the next four million dollars ($4,000,000) of the Company’s Net Loss as respects
each Policy, each Loss Occurrence:

     The Reinsurers shall participate for one hundred percent (100%) of the
Company’s Net Loss as respects each Policy, each Loss Occurrence.

B. Terrorism:

1. Notwithstanding the foregoing paragraph A in this Article, the Reinsurers’ liability for
a loss involving any Act of Terrorism, irrespective of the number and kinds of perils
involved, shall be limited to one million dollars ($1,000,000) of Net Loss in the aggregate
for all Loss Occurrences taking place during the term of this Contract.

2. An “Act of Terrorism” shall mean any act, including both Certified Acts of Terrorism in
accordance with the Terrorism Risk Insurance Act of 2002, the Terrorism Risk Insurance
Extension Act of 2005 and the Terrorism Risk Insurance Program Reauthorization Act of 2007
(“TRIPRA”) and any subsequent extension and those not so certified, or preparation in
respect of action, or threat of action designed to influence the government de jure or de
facto of any nation or any political division thereof, or in pursuit of any political,
religious, ideological, or similar purpose to intimidate the public or a section of the
public of any nation by any person or group(s) of persons whether acting alone or on behalf
of or in connection with any organization(s) or government(s) de jure or de facto, and
which:

a. involves violence against one or more persons; or

b. involves damage to property; or

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

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

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

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

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

 

10.

ARTICLE 7

PREMIUM AND COMMISSION

A. As premium for the Reinsurance Coverage provided hereunder, the Company shall cede and pay to
the Reinsurers their proportionate share of the unearned premium on the business in force at the
inception of this Contract for the business described herein. Additionally, the Company shall cede
to the Reinsurers their proportionate share of the net subject written premium on all Policies
written or renewed with an effective date on or after the inception of this Contract.

B. The Reinsurers shall allow the Company a thirty two percent (32%) ceding commission on all
premiums ceded to the Reinsurers hereunder. The Company shall allow the Reinsurers return
commission on return premiums at the same rate.

C. “Net Subject Written Premium” as used in this Contract shall mean the gross written premium of
the Company for the Business Covered, plus additions, less return premium for cancellations and
reductions, and less premium for reinsurance that inures to the benefit of this Contract.

ARTICLE 8

REPORTS AND REMITTANCES

A. The Company shall furnish the Reinsurers with bordereaux due at the end of each ninety (90) day
period, summarizing the ceded premium, net of any applicable return premium and ceding commission,
such reports to include the following items:

1. Name of Insured

2. Policy Number

3. Policy Limits

4. Effective/expiration dates

5. Premium written for the first one million dollars ($1,000,000) of limits

6. Premium written for limits excess of one million dollars ($1,000,000) up to four
million dollars ($4,000,000)

7. Ceding commission on premium written

8. Premium due Reinsurer

B. The Company shall promptly notify the Reinsurer of each claim which may involve the reinsurance
provided hereunder and of all subsequent developments relating thereto, stating the amount claimed
and estimate of the Company’s Net Loss and Loss Adjustment Expenses.

 

11.

C. The Company shall advise the Reinsurer of all claims which:

1. Are reserved by the Company for an amount in excess of fifty percent (50%) of the
underlying Policy limit, or

2. Any loss involving the following injuries (regardless of incurred loss or reserve
amount);

a. Originate from fatal injuries;

b. Originate from the following kinds of bodily injury:

Brain injuries resulting in impairment of physical function;

ii. Spinal injuries resulting in a partial or total paralysis of upper or
lower extremities;

iii. Amputation or permanent loss of use of upper or lower extremities;
Severe burn injuries;

iv. Loss of sight in one or both eyes;

v. Sexual molestation and/or rape.

     c. Claims involving Extra Contractual Obligations or Loss in Excess of Policy
Limits

     d. Any Declaratory Judgment Action

D. The Company shall have the responsibility to investigate, defend or negotiate settlements of all
claims and lawsuits related to Policies written by the Company and reinsured under this Contract.
The Reinsurer, at its own expense, may associate with the Company in the defense of any claim, suit
or other proceeding which involves or is likely to involve the reinsurance provided under this
Contract, and the Company shall cooperate in every respect in the defense of any such claim, suit
or proceeding.

E. The Company shall report at the end of each ninety (90) day period, Net Losses paid, Loss
Adjustment Expense paid, monies recovered and net balance due either party. The net balance shall
be paid within sixty (60) days after the close of the respective reporting period. Should payment
due from the Reinsurers exceed one hundred thousand dollars ($100,000) as respects any one Net
Loss, the Company may give the Reinsurers notice of payment made or its intention to make payment
on a certain date. If the Company has paid the loss, payment shall be made by the Reinsurers
immediately. If the Company intends to pay the loss by a certain date and has submitted a
reasonably satisfactory proof of loss or similar document, payment shall be due from the Reinsurers
twenty four (24) hours prior to that date, provided the Reinsurers have a period of five (5)
working days after receipt of said notice to dispatch the payment. Cash loss amounts specifically
remitted by the Reinsurers as set forth herein shall be credited to their next statement of
account.

 

12.

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

F. In addition, the Company shall furnish the Reinsurers a periodic statement showing the unearned
premium, the total reserves for outstanding Net Losses including Loss Adjustment Expense, and such
other information as may be required by the Reinsurers for completion of their NAIC annual
statements.

ARTICLE 9

NET LOSS

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

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

C. All Loss Adjustment Expenses paid by the Company as a result of Net Losses covered hereunder
shall be divided between the Company and the Reinsurers, without regard to the limit of this
Contract, in proportion to their share of the Net Loss. “Loss Adjustment Expenses” shall mean and
include but not be

 

13.

limited to: (i) expenses sustained in connection with adjustment, defense, settlement and
litigation of claims and suits, satisfaction of judgments, resistance to or negotiations
concerning a loss (which shall include the expenses and the pro rata share of the salaries of the
Company’s field employees according to the time occupied in adjusting such loss and the expenses
of the Company’s employees while diverted from their normal duties to the service of field
adjustment but shall not include any salaries of officers or normal overhead expenses of the
Company), (ii) legal expenses and costs incurred in connection with coverage questions regarding
specific claims and legal actions, including Declaratory Judgment Expenses, connected thereto,
(iii) all interest on judgments other than prejudgment interest when added to a judgment, and (iv)
expenses sustained to obtain recoveries, salvages or other reimbursements, or to secure the
reverse or reduction of a verdict or judgment.

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

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

ARTICLE 10

EXTRA-CONTRACTUAL OBLIGATIONS/LOSS EXCESS OF POLICY LIMITS

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

B. “Loss Excess of Policy Limits” means any amount of loss, together with any legal costs and
expenses incurred in connection therewith, paid as damages or in settlement by the Company in
excess of its Policy Limits, but otherwise within the coverage terms of the Policy, arising from
an allegation or claim of its insured, its

 

14.

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

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

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

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

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

ARTICLE 11

TERRORISM RECOVERY

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

 

15.

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

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

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

ARTICLE 12

NET RETAINED LINE

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

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

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

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

 

16.

ARTICLE 13

ERRORS AND OMISSIONS

     Inadvertent delays, errors or omissions made by the Company in connection with this Contract
shall not relieve the Reinsurer from any liability which would have attached had such error or
omission not occurred, provided always that such error or omission shall be rectified as soon as
possible, provided that the liability of the Reinsurer shall not extend beyond the coverage
provided by this Contract nor to extend coverage to Policies that are not the Business Covered
hereunder. This Article shall not apply to a sunset provision, if any in this Contract, nor to a
commutation made in connection with this Contract.

ARTICLE 14

OFFSET

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

ARTICLE 15

CURRENCY

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

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

ARTICLE 16

FEDERAL EXCISE TAX AND OTHER TAXES

A. To the extent that any portion of the reinsurance premium for this Contract is subject to the
Federal Excise Tax (as imposed under Section 4371 of the Internal Revenue Code) and the Reinsurer
is not exempt therefrom, the Reinsurers shall allow for the purpose of paying the Federal Excise
Tax, a deduction by the Company of the applicable percentage of the premium payable hereon. In
the event of any return of premium becoming due hereunder, the Reinsurers shall deduct the
applicable same percentage from the return premium payable hereon and the Company or its agent
shall take steps to recover the tax from the United

 

17.

States Government. In the event of any uncertainty, upon the written request of the Company, the
Reinsurer will immediately file a certificate signed by a senior corporate officer of the
Reinsurer certifying to its entitlement to the exemption from the Federal Excise Tax with respect
to one or more transactions.

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

ARTICLE 17

ACCESS TO RECORDS

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

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

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

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

 

18.

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

ARTICLE 18

INSOLVENCY

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

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

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

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

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

 

19.

ARTICLE 19

ARBITRATION

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

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

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

D. The claimant and respondent shall each submit initial briefs to the Board outlining the facts,
the issues in dispute and the basis, authority, and reasons for their respective positions within
thirty (30) days of the date of notice of appointment of the umpire. The claimant and the
respondent may submit a reply brief to the

 

20.

Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be
amended by the submitting party at any time, but not later than ten (10) days prior to the date of
commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration
hearing to new material contained in any amendments filed to the briefs but not previously
responded to.

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

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

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

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

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

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

 

21.

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

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

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

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

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

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

Q. In the event of an order of consolidation by the Board, the arbitrator appointed by the original
Reinsurer shall be subject to being, and may be, replaced within thirty (30) days of the decision
to have a consolidated arbitration by an arbitrator named collectively by the Reinsurers or in the
absence of agreement, by the Lead Reinsurer, or if there is no Lead Reinsurer involved in the
dispute, the

 

22.

Reinsurer with the largest participation in this Contract affected by the dispute. In the event
two (2) or more Reinsurers affected by the dispute each have the same largest participation, they
shall agree among themselves as to the replacement arbitrator, if any, to be appointed. The umpire
shall be the final determiner in the event of any dispute over replacement of that arbitrator. All
other aspects of the arbitration shall be conducted as provided for in this Article provided that
(1) each party actively participating in the consolidated arbitration will have the right to its
own attorney, position, and related claims and defenses; (2) each party will not, in presenting
its position, be prevented from presenting its position by the position set forth by any other
party; and (3) the cost and expense of the arbitration, exclusive of Attorneys’ fees (which will
be borne exclusively by the respective retaining party unless otherwise determined by the Board)
but including the expense of any stenographer which shall be borne by each party actively
participating in the consolidated arbitration or as the Board shall determine to be fair and
appropriate under the circumstances.

ARTICLE 20

SERVICE OF SUIT

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

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

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

 

23.

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

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

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

ARTICLE 21

CONFIDENTIALITY

A. The information, data, statements, representations and other materials provided by the Company
or the Reinsurer to the other arising from consideration and participation in this Contract whether
contained in the reinsurance submission, this Contract, or in materials or discussions arising from
or related to this Contract, may contain confidential or proprietary information as expressly
indicated by the disclosing party (“Disclosing Party”) in writing from time to time to the other
party of the respective parties (“Confidential Information”). This Confidential Information is
intended for the sole use of the parties to this Contract (and their affiliates involved in
management or operation of assumed reinsurance business, retrocessionaires, prospective
retrocessionaires, intermediaries involved in such placements, respective auditors and legal
counsel) as may be necessary in analyzing and/or accepting a participation in and/or executing
their respective responsibilities under or related to this Contract. Disclosing or using
Confidential Information relating to this Contract, without the prior written consent of the
Disclosing Party, for any purpose beyond (i) the scope of this Contract, (ii) the reasonable extent
necessary to perform rights and responsibilities expressly provided for under this Contract, (iii)
the reasonable extent necessary to administer, report to and effect recoveries from retrocessional
Reinsurers, (iv) the reporting to regulatory or other governmental authorities as may be legally
required or (v) persons with a need to know the

 

24.

information, (all of the preceding persons or entities who are legally obligated by either written
agreement or otherwise to maintain the confidentiality of the Confidential Information) is
expressly forbidden. Copying, duplicating, disclosing, or using Confidential Information for any
purpose beyond this expressed purpose is forbidden without the prior written consent of the
Disclosing Party.

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

ARTICLE 22

PRIVACY

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

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

2. The applicable provisions of the Health Insurance Portability and Accountability Act
(“HIPAA”) and the related requirements of any regulations promulgated thereunder including
without limitation the Federal Privacy Regulations as contained in 45 CFR Part 160 and 164
(the “Federal Privacy Regulations”). The Company and the Reinsurer will only use protected
health information as permitted by law.

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

 

25.

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

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

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

ARTICLE 23

RESERVES

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

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

1. Clean, irrevocable, and unconditional evergreen letter(s) of credit issued and
confirmed, if confirmation is required by the applicable insurance regulatory authorities,
by a qualified United States financial institution as defined under the Insurance Law of
the Company’s domiciliary state and acceptable to the Company and to insurance regulatory
authorities;

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

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

 

26.

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

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

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

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

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

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

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

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

3. Funds Deposit;

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

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

1. To make payment to and reimburse the Company for the Reinsurer’s share of Net Loss and
Loss Adjustment Expense and other amounts paid by the Company under its Policies and for
which the Reinsurer is responsible under this Contract that is due to the Company but
unpaid by the Reinsurer including but not limited to the Reinsurer’s share of premium
refunds and returns; and

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

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

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

 

27.

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

d. has concluded that the trustee or issuing (or confirming) bank’s financial
condition is such that the value of the security represented by the letter of
credit or trust account may be in jeopardy;

and under any of those circumstances where the Reinsurer’s entire Obligations, or part
thereof, under this Contract remain unliquidated and undischarged at least thirty (30) days
prior to the stated expiration date or at the time the Company learns of the possible
jeopardy to the security represented by the letter of credit or trust account.

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

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

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

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

 

28.

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

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

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

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

ARTICLE 24

LATE PAYMENTS

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

 

29.

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

C. If payment is made of overdue amounts within thirty (30) days of the Overdue Date, overdue
amounts will bear simple interest from the overdue date at a rate determined by the annualized one
month London Interbank Offered Rate for the first business day of the calendar month in which the
amount becomes overdue, as published in The Wall Street Journal, plus two hundred (200)
basis points to be calculated weekly. If payment is made of overdue amounts more than thirty (30)
days after the Overdue Date, overdue amounts will bear simple interest from the Overdue Date at a
rate determined by the annualized one month London Interbank Offered Rate for the first business
day of the calendar month in which the amount becomes overdue, as published in The Wall Street
Journal, plus four hundred (400) basis points to be calculated on a weekly basis, but in no
event less than eight percent (8%) simple interest. If the sum of the compensating additional
amount computed in respect of any overdue payment is less than one quarter of one percent (0.25%)
of the amount overdue, or one thousand dollars ($1,000), whichever is greater, and/or the overdue
period is one week or less, then the interest amount shall be waived. The basis point standards
referred to above shall be doubled if the late payment is due from a Reinsurer who is no longer an
active reinsurance market. Interest shall cease to accrue upon the party’s payment of an overdue
amount to the Intermediary.

ARTICLE 25

MODE OF EXECUTION

A. This Contract may be executed by:

1. an original written ink signature of paper documents;

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

3. electronic signature technology employing computer software and a digital signature or
digitizer pen pad to capture a person’s handwritten signature in such a manner that the
signature is unique to the person signing, is under the sole control of the person
signing, is capable of

 

30.

verification to authenticate the signature and is linked to the document signed in such a
manner that if the data is changed, such signature is invalidated.

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

ARTICLE 26

VARIOUS OTHER TERMS

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

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

C. This Contract shall constitute the entire agreement between the parties with respect to the
Business Covered hereunder. There are no understandings between the parties other than as
expressed in this Contract. Any change or modification of this Contract shall be null and void
unless made by amendment to the Contract and signed by both parties.

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

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

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

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

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

 

31.

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

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

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

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

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

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

 

32.

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

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

Q. When so requested in writing, the Company shall afford the Reinsurer or its representatives an
opportunity to be associated with the Company, at the expense of the Reinsurer, in the defense of
any claim, suit or proceeding involving this reinsurance, and the Company and the Reinsurer shall
cooperate in every respect in the defense of such claim, suit or proceeding, provided the Company
shall have the right to make any decision in the event of disagreement over any matter of defense
or settlement.

ARTICLE 27

INTERMEDIARY

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

 

INSOLVENCY FUNDS EXCLUSION

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, howsoever denominated, established or governed; which provides for any assessment of
or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other
obligation of an insurer, or its successors or assigns, which has been declared by any competent
authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee
or other obligation in whole or in part.

 

1.

 

NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE U.S.A.

(BRMA 35A)

 

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

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

     Limited Exclusion Provision*

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

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

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

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

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

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

 

2.

     Broad Exclusion Provision*

     It is agreed that the policy does not apply:

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

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

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

	 	(a)	 	the nuclear material (1) is at any nuclear facility owned by,
or operated by or on behalf of, an insured, or (2) has been discharged or
dispersed therefrom;
	 
	 	(b)	 	the nuclear material is contained in spent fuel or waste at
any time possessed, handled, used, processed, stored, transported or disposed
of by or on behalf of an insured; or
	 
	 	(c)	 	the (injury, sickness, disease, death or destruction

     (bodily injury or property damage arises out of the furnishing by an insured of
services, materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear facility, but if such
facility is located within the United States of America, its territories, or
possessions or Canada, this exclusion (c) applies only to (injury to or destruction
of properly at such nuclear facility (property damage to such nuclear facility and
any property thereat.

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

 

3.

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

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

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

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

	 	(a)	 	Garage and Automobile Policies issued by the Company on New York risks, or
	 
	 	(b)	 	statutory liability insurance required under Chapter 90,
General Laws of Massachusetts,
	 
	 	 	 	until 90 days following approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.

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

 

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

 

1.

 

NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE

CANADA (BRMA 35D)

 

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

2. Without in any way restricting the operation of paragraph 1 of this clause, it is agreed that
for all purposes of this Agreement all the original liability contracts of the Company, whether
new, renewal or replacement, of the following classes, namely:

     Personal Liability

     Farmers’ Liability

     Storekeepers’ Liability

which become effective on or after 31st December 1984, shall be deemed to include, from their
inception dates and thereafter, the following provision:

Limited Exclusion Provision

This Policy does not apply to bodily injury or property damage with respect to which the
Insured is also insured under a contract of nuclear energy liability insurance (whether the
Insured is unnamed in such contract and whether or not it is legally enforceable by the
Insured) issued by the Nuclear Insurance Association of Canada or any other group or pool
of insurers or would be an Insured under any such Policy but for its termination upon
exhaustion of its limits of liability.

With respect to property, loss of use of such property shall be deemed to be property
damage.

3. Without in any way restricting the operation of paragraph 1 of this clause, it is agreed that
for all purposes of this Agreement all the original liability contracts of the Company, whether
new, renewal or replacement, of any class whatsoever (other than Personal Liability, Farmers’
Liability, Storekeepers’ Liability or Automobile Liability contracts), which become effective on or
after 31st December 1984, shall be deemed to include from their inception dates and thereafter, the
following provision:

     Broad Exclusion Provision

     It is agreed that this Policy does not apply:

	 	(a)	 	To liability imposed by or arising under the Nuclear Liability Act; nor
	 
	 	(b)	 	To bodily injury or property damage with respect to which an Insured under
this Policy is also insured under a contract of nuclear energy liability insurance
(whether the Insured is unnamed in such contract and whether or not it is legally
enforceable by the Insured) issued by the Nuclear Insurance Association of Canada or
any other insurer or group or pool of insurers or would be an Insured under any such
Policy but for its termination upon exhaustion of its limit of liability; nor
	 
	 	(c)	 	To bodily injury or property damage resulting directly or indirectly from the
nuclear energy hazard arising from:

	 	i)	 	the ownership, maintenance, operation or use of a nuclear
facility by or on behalf of an Insured.
	 
	 	ii)	 	the furnishing by an Insured of services, materials, parts or
equipment in connection with the planning, construction, maintenance,
operation or use of any nuclear facility; and

 

2.

	 	iii)	 	the possession, consumption, use, handling, disposal or
transportation of fissionable substances, or of other radioactive material
(except radioactive isotopes, away from a nuclear facility, which have reached
the final stage of fabrication so as to be useable for any scientific,
medical, agricultural, commercial or industrial purpose) used, distributed,
handled or sold by an Insured.

As used in this Policy:

1. The term “nuclear energy hazard” means the radioactive, toxic, explosive or other hazardous
properties of radioactive material.

2. The term “radioactive material" means uranium, thorium, plutonium, neptunium, their
respective derivatives and compounds, radioactive isotopes of other elements and any other
substances that the Atomic Energy Control Board may, by regulation, designate as being prescribed
substances capable of releasing atomic energy, or as being requisite for the production, use or
application of atomic energy.

3. The term “nuclear facility” means:

	 	(a)	 	Any apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass of plutonium, thorium and
uranium or any one or more of them;
	 
	 	(b)	 	Any equipment or device designed or used for (1) separating the isotopes of
plutonium, thorium and uranium or any one or more of them, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste;
	 
	 	(c)	 	Any equipment or device used for the processing, fabricating or alloying of
plutonium, thorium or uranium enriched in the isotope uranium 233 or in the isotope
uranium 235, or any one or more of them if at any time the total amount of such
material in the custody of the Insured at the premises where such equipment or device
is located consists of or contains more than 25 grams of plutonium or uranium 233 or
any combination thereof, or more than 250 grams of uranium 235;
	 
	 	(d)	 	Any structure, basin, excavation, premises or place prepared or used for the
storage or disposal of waste radioactive material;

and includes the site on which any of the foregoing is located, together with all operations
conducted thereon and all premises used for such operations.

4. The term “fissionable substance” means any prescribed substance that is, or from which can be
obtained, a substance capable of releasing atomic energy by nuclear fission.

5. With respect to property, loss of use of such property shall be deemed to be property damage.

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