Document:

exv4w1

Exhibit 4.1

CUSIP NO. 707561 106

			
	 	 	 
	COMMON STOCK
	 	COMMON STOCK
	CERTIFICATE NO.
	 	SHARES

PENN MILLERS HOLDING CORPORATION

ORGANIZED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA

[SPECIMEN]

is the owner of:

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK WITH A

$0.01 PAR VALUE PER SHARE OF PENN MILLERS HOLDING CORPORATION

a Pennsylvania stock corporation.

     The shares represented by this certificate are transferable only on the stock transfer books
of Penn Millers Holding Corporation (the “Company”) by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and shall be held subject
to all the provisions contained in the Company’s official corporate papers filed with the
Department of State of the Commonwealth of Pennsylvania (copies of which are on file with the
Transfer Agent), to all of the provisions the holder by acceptance hereof, assents.

     This certificate is not valid unless countersigned and registered by the Transfer Agent and
Registrar.

     IN WITNESS WHEREOF, PENN MILLERS HOLDING CORPORATION has caused this certificate to be
executed by the signatures of its duly authorized officers and has caused its corporate seal to be
hereunto affixed.

Dated:

[SEAL]

	 	 	 
	President and Chief Executive Officer
	 	Secretary

 

 

PENN MILLERS HOLDING CORPORATION

The shares represented by this certificate are subject to a limitation contained in the articles of
incorporation (the “Articles”) to the effect that no person or entity may acquire more than 10% of
the issued and outstanding shares of common stock (“Voting Control”) of the Company. If Voting
Control of the corporation is acquired in violation of such limitation, all shares in excess of
Voting Control shall be considered from and after the date of acquisition to be “excess shares”,
and all shares deemed to be excess shares shall no longer be entitled to vote on any matter or to
take other shareholder action.

Preferred stock may be issued from time to time as a class without series or, if so determined by
the board of directors of the Company, either in whole or in part, in one or more series. The
board of directors of the Company has the authority to fix and determine, by resolution, the par
value, voting powers, full or limited, or no voting power, and such designations, preferences and
relative, participating, optional, or other special rights, if any, and the qualifications,
limitations, or restrictions thereof, if any, including specifically, but not limited to, the
dividend rights, conversion rights, redemption rights and liquidation preferences, if any, of any
wholly unissued series of preferred stock (or the entire class of preferred stock if none of such
shares have been issued), the number of shares constituting any such series and the terms and
conditions of the issue thereof. The Company will furnish to any shareholder upon request and
without charge a full description of each class of stock and any series thereof.

The shares represented by this certificate may not be cumulatively voted in the election of
directors of the Company. The Articles also require either (a) the affirmative vote of holders of
at least 80% of the issued and outstanding shares of common stock of the Company entitled to vote
or (b) the affirmative vote of 66 2/3% of the members of the board of directors of the
Company and the affirmative vote of holders of at least a majority of the votes which all
shareholders of the Company are then entitled to cast to amend provisions of the Articles with
respect to the approval of certain transactions.

 

 

The following abbreviations, when used in the inscription on the face of this certificate, shall be
construed as though they were written out in full according to applicable laws or regulations:

	 	 	 	 	 	 	 
	TEN COM -

	 	as tenants in common
	 	UNIF GIFTS MIN ACT -
	 	                     custodian                     
	 

	 	 	 	 	 	(Cust)                    (Minor)
	 
	 	 	 	 	 	 
	TEN ENT -

	 	as tenants by the entireties
	 	 	 	under Uniform Gifts to Minors Act
	 

	 	 	 	 	 	                    
                    
	 

	 	 	 	 	 	(State)
	 
	 	 	 	 	 	 
	JT TEN -

	 	as joint tenants with right of
survivorship and not as tenants
in common	 	 	 	 

Additional abbreviations may also be used though not in the above list.

For value received                      hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER OF ASSIGNEE

 

Please print or typewrite name and address including postal zip code of assignee.

                    
                     shares of the common stock represented by this
certificate and do hereby irrevocably constitute and appoint
                    
                    , attorney, to
transfer the said stock on the books of the within-named corporation with full power of
substitution in the premises.

	 	 	 	 	 
	DATED
	 	 	 	 
	 

	 	 
	 	 
	 

	 	 	 	NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the certificate in every particular without
alteration or enlargement or any change whatever.

	 	 	 
	SIGNATURE GUARANTEED:
	 	 
	 

	 	 
	 

	 	THE SIGNATURE(S) SHOULD BE GUARANTEED

BY AN ELIGIBLE GUARANTOR INSTITUTION,

(BANKS, STOCKBROKERS, SAVINGS AND LOAN

ASSOCIATIONS AND CREDIT UNIONS WITH

MEMBERSHIP IN AN APPROVED SIGNATURE

GUARANTEE MEDALLION PROGRAM), PURSUANT

TO SEC RULE 17Ad-15exv10w10

Exhibit 10.10

1.

WHOLE ACCOUNT, ACCIDENT YEAR AGGREGATE

EXCESS OF LOSS CONTRACT

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

INDEX

	 	 	 	 	 	 	 
	ARTICLE	 	SUBJECT	 	PAGE
	ARTICLE 1 BUSINESS COVERED	 	 	1	 
	ARTICLE 2 COMMENCEMENT AND TERMINATION	 	 	1	 
	ARTICLE 3 EXCLUSIONS	 	 	2	 
	ARTICLE 4 DEFINITIONS	 	 	3	 
	ARTICLE 5 RETENTION AND LIMITS	 	 	7	 
	ARTICLE 6 PREMIUM AND ADDITIONAL PREMIUM	 	 	7	 
	ARTICLE 7 FUNDS WITHHELD ACCOUNT AND PROFIT SHARING	 	 	8	 
	ARTICLE 8 INTEREST CREDIT	 	 	9	 
	ARTICLE 9 REPORTS AND REMITTANCES/LOSS PAYMENTS	 	 	9	 
	ARTICLE 10 COMMUTATION	 	 	10	 
	ARTICLE 11 FUNDS TRANSFER CLAUSE	 	 	11	 
	ARTICLE 12 NET RETAINED LINES AND INURING REINSURANCE PROTECTIONS	 	 	13	 
	ARTICLE 13 ULTIMATE NET LOSS	 	 	13	 
	ARTICLE 14 EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY	 	 	14	 
	ARTICLE 15 MATERIAL CHANGES	 	 	15	 
	ARTICLE 16 RESERVES	 	 	15	 
	ARTICLE 17 SALVAGE AND SUBROGATION	 	 	19	 
	ARTICLE 18 TAXES	 	 	20	 
	ARTICLE 19 ACCESS TO AND RETENTION OF RECORDS	 	 	20	 
	ARTICLE 20 SERVICE OF SUIT	 	 	21	 
	ARTICLE 21 ARBITRATION	 	 	22	 
	ARTICLE 22 INSOLVENCY	 	 	26	 
	ARTICLE 23 INTERMEDIARY	 	 	27	 
	ARTICLE 24 CONFIDENTIALITY	 	 	27	 
	ARTICLE 25 ORIGINAL CONDITIONS	 	 	28	 
	ARTICLE 26 REGULATORY COMPLIANCE AND REPRESENTATIONS AND WARRANTIES OF REASSURED	 	 	29	 
	ARTICLE 27 ERRORS AND OMISSIONS	 	 	30	 
	ARTICLE 28 CURRENCY	 	 	30	 
	ARTICLE 29 OFFSET	 	 	30	 
	ARTICLE 30 NOTICE	 	 	30	 
	ARTICLE 31 SPECIAL TERMINATION	 	 	31	 
	ARTICLE 32 VARIOUS OTHER TERMS	 	 	33	 

 

 

2.

CLAUSES ATTACHED HERETO AND FORMING PART OF THIS CONTRACT:

NUCLEAR INCIDENT EXCLUSION CLAUSE — PHYSICAL DAMAGE -

REINSURANCE — U.S.A. — BRMA 35B

NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE -

U.S.A. — BRMA 35A

INSOLVENCY FUND EXCLUSION CLAUSE

NUCLEAR, CHEMICAL, AND BIOLOGICAL TERRORISM EXCLUSION CLAUSE

SCHEDULE A — INURING REINSURANCE

SCHEDULE B — SAMPLE CALCULATION OF RETENTION

 

 

1.

WHOLE ACCOUNT, ACCIDENT YEAR AGGREGATE

EXCESS OF LOSS CONTRACT

(the “Contract”)

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

(the “Reassured”)

by

EACH REINSURER TAKING A REINSURER’S SHARE UNDER THE

INTERESTS AND LIABILITIES AGREEMENT

(each, the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

     In consideration of the payment of the Reinsurance Premium and subject to the terms,
conditions, exclusions and limitations contained in this Contract, the Reinsurer shall indemnify
the Reassured in respect of the net retained liability as herein provided and specified which may
accrue to the Reassured during the Term of this Agreement as a result of Ultimate Net Loss and
Loss Adjustment Expenses subject to this Agreement, during the Term, as defined below, under all
policies, unless specifically excluded, written by the Reassured in respect of business written by
the Reassured as of the Inception Date, including, but not limited to, business classified by the
Reassured as: Commercial Multiple Peril, Fire, Allied Lines, Inland Marine, Commercial Auto
Liability, Commercial Auto Physical Damage, Workers Compensation, Umbrella Liability, General and
Professional Liability, and Homeowner’s Multiple Peril (hereinafter “Business Covered”).

ARTICLE 2

COMMENCEMENT AND TERMINATION

     The Term of this Contract shall be from January 1, 2008, 12:01 AM Eastern Standard Time (the
“Inception Date”) through January 1, 2010, 12:00 AM Eastern Standard Time (the “Term”).

 

 

2.

ARTICLE 3

EXCLUSIONS

No reinsurance indemnity will be afforded under this Contract for:

1. Nuclear Incident, in accordance with the following clauses attached hereto:

a. Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance – U.S.A. –
BRMA 35B;

b. Nuclear Incident Exclusion Clause – Liability – Reinsurance – U.S.A. – BRMA 35A;

2. War Risks, in accordance with the War Risks Exclusion Clause attached hereto;

3. Insolvency, in accordance with the Insolvency Funds Exclusion Clause attached hereto;

4. Earthquake, when written as a separate policy;

5. Flood, when written as a separate policy (except for those policies in-force as of the
Inception Date);

6. Liability arising out of ownership, maintenance or use of any aircraft or flight
operations;

7. Insolvency and Financial Guarantee;

8. Pollution coverage written by the Reassured which does not contain ISO Pollution
Exclusion Endorsement IL 09 28 (Ed. 6/85) or as subsequently amended; however, this
exclusion does not apply to any risk located in a jurisdiction that has not approved the
ISO exclusion or where other regulatory constraints prohibit the Reassured from attaching
such endorsement.

9. Nuclear, Biological, or Chemical, Acts of Terrorism (per the attached Exclusion).

10. Losses arising from lines of business not written by the Reassured as of the Inception
Date, unless by written consent of the Reinsurer (such consent shall not be unreasonably
withheld).

11. Losses arising from any other company not named as the Reassured as of the Inception
Date.

 

 

3.

ARTICLE 4

DEFINITIONS

A. “Allocated Loss Adjustment Expenses” or “ALAE” shall mean: (a) allocated expenses and costs
sustained in connection with settlement and litigation of claims and suits, satisfaction of
judgments, and negotiations concerning a loss; (b) legal expenses and costs incurred in connection
with coverage questions and legal actions, including declaratory judgment actions connected
thereto, relating to a specific claim; and (c) all interest on judgments, and shall exclude any
overhead or internal fees and expenses payable by the Reassured whether or not paid to its managers
or apportioned to the cost of handling claims or losses.

B. “Change in Rates” as used in this Contract shall mean the percentage change in the rates for
Business Covered, which shall include changes in manual rates, increases or reductions in rating
plan net credits/net debits, and increases or decreases in the ratio of insurance to value for
property coverages. Change in Rates shall not include changes solely due to the impact on premiums
related to changes in the Reassured’s classification of underlying exposures. Change in Rates shall
be determined by the actual change in the Reassured’s rates for Business Covered during the 2008
Contract Year, and the Reassured’s planned rate changes for the Reassured’s 2009 Contract Year,
both as reflected in the Reassured’s Renewal Increases – Decreases Report as of December 31, 2008
(pursuant to the Article entitled REPORTS AND REMITTANCES/LOSS PAYMENTS hereof.
Change in Rates shall be weighted for each class and line of business in the Reassured’s SNEP
Budget for the 2009 Contract Year.

C. “Contract Year” as used in this Contract shall mean each twelve (12) month period after the
Inception Date during the Term.

D. “Discount Percentage” as used in this Contract have the meaning as set forth in the Article
entitled MATERIAL CHANGES (A)(2).

E. “Extra Contractual Obligations” or “ECO” shall have the meaning as set forth in the Article
entitled
EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY (B).

F. “Excess Limits Liability” or “ELL” shall have the meaning as set forth in EXTRA CONTRACTUAL
OBLIGATIONS AND EXCESS LIMITS LIABILITY(C).

G. “FWA” shall have the meaning as set forth in the Article entitled FUNDS WITHHELD
ACCOUNT AND PROFIT SHARING (A).

H. “Inception Date” shall have the meaning set forth in the Article entitled COMMENCEMENT AND
TERMINATION.

 

 

4.

I. “Interest Credit” shall have the meaning as set forth in the Article entitled INTEREST
CREDIT.

J. “Mix Factor” shall mean the impact on the projected 2009 Subject Loss Ratio due to any planned
change in mix of business, and shall be calculated as follows:

     (LR2 — LR1) — 2%, where

     LR1 equals the Reassured’s Subject Loss Ratio utilizing the loss ratio estimated by the
Reassured’s external actuary (The Reassured’s external actuary as at the inception of the Contract
is the firm, By the Numbers,) for the 2008 Contract Year weighted by the actual Subject Net Earned
Premium for the lines and classes of Business Covered for such Contract Year; and

     LR2 equals the Reassured’s projected Subject Loss Ratio, as defined hereinbelow, for the 2009
Contract Year computed by utilizing the loss ratios for each line and class of Business Covered
actually estimated by the Reassured’s external actuary for the 2008 Contract year and weighted by
the projected SNEP for the 2009 Contract Year pursuant to the SNEP Budget for the 2009 Contract
Year. [For the avoidance of doubt, the projected SNEP for the 2009 Contract Year SNEP Budget shall
be adjusted to remove the impact of any planned rate actions by the Company for the 2009 Contract
Year.]

The Mix Factor cannot be less than zero.

     For the purposes of this Contract, Subject Loss Ratio shall mean the applicable Subject
Ultimate Net Loss divided by the applicable SNEP.

K. “Obligations” shall have the meaning as set forth in the Article entitled RESERVES (E).

L. “Policy” or “policies” shall mean any one or all of the Reassured’s policies, binders,
contracts, or agreements of insurance or reinsurance, whether written or oral, that fall within
the description of Business Covered as stated in the Article entitled BUSINESS COVERED and
within all of the other terms and conditions of this Contract.

M. “Premium” shall have the meaning set forth in the Article entitled PREMIUM AND
ADDITIONAL PREMIUM (A).

N. “Property Catastrophe Loss Occurrence” as used in this Contract shall mean the sum of all
individual losses directly occasioned by any one disaster, accident or loss or series of
disasters, accidents or losses arising out of one event impacting Property Lines of Business which
occurs within the area of one state of the United States or province of Canada and states or
provinces contiguous thereto and to one another. However, the duration and extent of any one
“Property

 

 

5.

Catastrophe Loss Occurrence” shall be limited to all individual losses sustained by the Reassured
occurring during any period of 168 consecutive hours arising out of and directly occasioned by the
same event except that the term “Property Catastrophe Loss Occurrence” shall be further defined as
follows:

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

2. As regards riot, riot attending a strike, civil commotion, vandalism and malicious
mischief, all individual losses sustained by the Reassured occurring during any period of
72 consecutive hours within the area of one municipality or county and the municipalities
or counties contiguous thereto arising out of and directly occasioned by the same event.
The maximum duration of 72 consecutive hours may be extended in respect of individual
losses which occur beyond such 72 consecutive hours during the continued occupation of an
assured’s premises by strikers, provided such occupation commenced during the aforesaid
period.

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

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

     For all “Property Catastrophe Loss Occurrences” the Reassured may choose the date and
time when any such period of consecutive hours commences provided that it is not earlier
than the date and time of the occurrence of the first recorded individual loss sustained
by the Reassured arising out of that disaster, accident or loss and provided that only one
such period of 168 consecutive hours shall apply with respect to one event except for
those “Property Catastrophe Loss Occurrences” referred to in sub-paragraphs 1 and 2 of
this Definition where only one such period of 72 consecutive hours shall apply with
respect to one event.

     No individual losses occasioned by an event that would be covered by 72 hours clauses
may be included in any “Property Catastrophe Loss Occurrence” claimed under the 168 hours
provision.

 

 

6.

Losses arising, directly or indirectly, out of:

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

     or

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

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

     Losses arising from Fungi shall not in and of themselves constitute an event for the
purposes of recovery hereunder. For the purposes of this Contract, Fungi shall be taken to
include any type or form of fungus, mold or mildew and any mycotoxins, spores, scents or by
products produced or released by fungi.

O. “Property Lines of Business” as used in this Contract shall mean all business classified by the
Reassured as Property business including Auto Physical Damage (excluding collision).

P. “Reinsurance Premium” shall have the meaning set forth in the Article entitled PREMIUM AND
ADDITIONAL PREMIUM (B).

Q. “Reinsurer’s Expense” shall have the meaning set forth in Article entitled PREMIUM AND
ADDITIONAL PREMIUM (C).

R. “Retention” shall have the meaning as set forth in the Article entitled RETENTION AND
LIMITS (A).

S. “SNEP Budget” shall mean the Reassured’s budgeted SNEP detailed by line of business and class
of Business Covered for the applicable Contract Year as approved by the Reassured’s Board of
Directors.

T. “Subject Net Earned Premium” or “SNEP” shall mean the gross earned premium of the Reassured,
plus additions, less return premium for cancellations and refunds, and less premium for
reinsurance that inures to the benefit of this Contract.

 

 

7.

U. “Term” shall have the meaning set forth in the Article entitled COMMENCEMENT AND
TERMINATION.

V. “Trust Account” shall have the meaning as set forth in the Article entitled FUNDS TRANSFER
CLAUSE.

W. “Ultimate Net Loss” shall have the meaning as set forth in the Article entitled ULTIMATE
NET LOSS.

ARTICLE 5

RETENTION AND LIMITS

A. Retention. Subject to the Annual Limit and Aggregate Limit set forth below, the
Reinsurer agrees to indemnify the Reassured for the aggregate amount of Ultimate Net Loss
resulting from Business Covered in excess of the Retention as follows:

1. The Retention for the 2008 Contract Year shall be equal to 72.0% of SNEP.

2. For the 2009 Contract Year, the Retention shall be equal to: (a) the greater of 72.0%;
or (b) (72.0% divided by [1 + R]) plus M, where R is equal to the overall Change in Rates
and M is equal to the Mix Factor.

B. Annual Limit. The Reinsurer’s limit of liability for Ultimate Net Loss for any one
Contract Year shall not exceed 20.0% of SNEP for the applicable Contract Year.

C. Aggregate Limit. The Reinsurer’s aggregate limit of liability under this Contract for
the Term shall be equal to the sum of the two Annual Limits.

ARTICLE 6

PREMIUM AND ADDITIONAL PREMIUM

A. Premium. For each Contract Year, the Reassured shall pay a minimum and deposit amount
of $2,400,000 (the “Premium”), deposited to the Funds Withheld Account with effect from January 1
of the applicable Contract Year. The amount of the Premium shall be adjusted so that the Premium
equals 3.00% of SNEP with effect from January 1 of the applicable Contract Year and payable
pursuant to the Article entitled REPORTS AND REMITTANCES/LOSS PAYMENTS (B) hereunder.

 

 

8.

B. Additional Premium. For each Contract Year, there shall be an Additional Premium equal
to 20.0% of ceded Ultimate Net Loss, with effect from January 1 of each Contract Year, subject to
a maximum Additional Premium for any Contract Year equal to 4.0% of SNEP. The sum of Premium and
Additional Premium, for each Contract Year, shall be referred to herein as the “Reinsurance
Premium”.

C. Reinsurer’s Expense. The Reassured shall pay to the Reinsurer, via wire transfer of
immediately available funds, Reinsurer’s Expense equal to 33.0% of Premium. The Reinsurer’s
Expense shall be due in equal semi-annual installments of $396,000 on January 1 and July 1 of each
Contract Year (i.e. $792,000 of total Reinsurer’s Expense deposits for each Contract Year),
deducted from Premium and payable directly to the Reinsurer. Reinsurer’s Expense related to
adjustments of Premium shall be due in accordance with the Article entitled REPORTS AND
REMITTANCES/LOSS PAYMENTS for the quarter in which the adjustment is computed. For the
avoidance of doubt, Reinsurer’s Expense shall be a component of Premium and not in addition. The
Reinsurer’s Expense shall be non-returnable and fully earned when paid; for the sake of clarity,
this provision, in no way, shall limit the Reassured’s rights to recoveries of Ultimate Net Loss,
subject to the Reinsurer’s rights of commutation hereunder.

ARTICLE 7

FUNDS WITHHELD ACCOUNT AND PROFIT SHARING

A. The Reassured shall establish and maintain a Funds Withheld Account (“FWA”) and shall hold the
Reinsurance Premium in the FWA, net of the Reinsurer’s Expense (which shall be paid to the
Reinsurer). For the purposes of calculating interest credit in accordance with the Article
entitled INTEREST CREDIT, Premium shall be deemed credited to the FWA as of
January 1, 2008 and Additional Premium shall be deemed credited to the FWA with effect from
January 1 of the applicable Contract Year. The amount required to be maintained in the FWA shall
be calculated on a cumulative basis over the Term of the Contract as follows:

	 	 	 
	 

	 	100% of Premium (including subsequent adjustments) when due;
	Plus

	 	100% of Additional Premium when due;
	Less

	 	100% of all Reinsurer’s Expense when paid;
	Plus

	 	100% of all Interest Credits;
	Less

	 	100% of ceded Ultimate Net Loss paid.

B. Payment of FWA to Reinsurer. If this Contract is not commuted pursuant to the Article
entitled COMMUTATION hereunder on or before January 1, 2015, then the FWA shall be payable
to the Reinsurer at commutation.

 

 

9.

C. Profit Sharinq. If this Contract is commuted on or before January 1, 2015, then the
Reassured shall be entitled to a Profit Sharing equal to 100% of the residual balance of the FWA at
such commutation (in accordance with the Article entitled COMMUTATION). After January 1,
2015, the Profit Sharing shall be zero.

ARTICLE 8

INTEREST CREDIT

     The Reassured shall credit the FWA with interest (the “Interest Credit”) calculated quarterly
on a pro-rata basis at a rate calculated to be the equivalent of a 4.75% effective annual interest
rate. The Interest Credit shall continue to accrue in the event of insolvency, rehabilitation, or
liquidation of the Reassured.

ARTICLE 9

REPORTS AND REMITTANCES/LOSS PAYMENTS,

A. Loss Settlements. The Reassured shall investigate and adjust all claims and have the
right to settle all claims under its policies. All loss settlements made by the Reassured, other
than ex-gratia payments, provided they are within the terms of this Contract, shall be
unconditionally binding upon the Reinsurer.

B. Quarterly Report. Forty-five (45) days after each calendar quarter, the Reassured will
submit a report to the Reinsurer providing the following, for each Contract Year of this Contract
and cumulative amounts for the Contract, as applicable:

1. Subject Net Earned Premium

2. Paid Ultimate Net Loss

3. Incurred Ultimate Net Loss Premiums paid for reinsurances which inure to the benefit of
this Contract

4. Ceded Ultimate Net Loss paid and outstanding (including IBNR)

5. Reinsurance Premiums

For any quarter, any adjustments to Reinsurer’s Expenses and/or Premium shall be due and payable
with the quarterly report.

C. Annual Reports. Sixty (60) days after the end of Contract Year 2008, the Reassured shall
submit the following Reports:

 

 

10.

1. A report of the Reassured’s increases or decreases in policy renewals, by class and line
of business (the “Reassured’s Renewal Increases-Decreases Report”);

2. The calculation of the Company’s Retention for the 2009 Contract Year, including
supporting analysis. An example of the information required for this report is attached as
Schedule B and made a part of this Contract;

3. Any other information reasonably requested by the Reinsurer in respect of this Contract.

D. Loss Payments from FWA. Loss payments shall be made out of the FWA forty-five (45) days
after the end of the respective quarterly period. Loss payments shall be made out of the FWA first
until depleted. Thereafter the Reinsurer shall pay from other funds of the Reinsurer. Should the
Reinsurer have paid losses from its own funds and subsequently it is determined that this should
not have been the case because losses are restated or premiums are credited to the FWA, then all
necessary payments shall be reversed with interest as stipulated under the Article entitled
INTEREST CREDIT. The period for which interest shall be paid shall be from the time of the
Reinsurer’s initial payment to the time of the repayment to the Reinsurer.

ARTICLE 10

COMMUTATION

A. Commutation if FWA is Positive. The Reassured, at its sole option, may commute this
Contract at any time after expiration provided that the FWA up to January 1, 2015, after giving
effect to outstanding ceded Ultimate Net Loss (including IBNR), is in a positive balance as of that
date. Upon such commutation, the Reinsurer shall be released from any and all past, current and
future liabilities hereunder. Furthermore, the Reassured shall release the residual balance in the
FWA to the Reinsurer (if applicable, the Reinsurer will consent to the release of the assets in the
Trust Account), if any, and the Reinsurer shall immediately pay to the Reassured 100% of such
positive balance as Profit Sharing. The parties hereto shall execute a commutation and release
agreement to document such commutation.

B. Commutation if FWA is Neqative and Commutations after January 1, 2015. If the FWA
balance is not positive after giving effect to the aforementioned outstanding ceded Ultimate Net
Loss and/or if this Contract is commuted subsequent to January 1, 2015, commutation shall be upon
mutual written consent. Notwithstanding the foregoing, if this Contract has not been commuted prior
to December 31, 2019, then it shall be commuted as of such date. Upon commutation under either such
circumstance, the Reassured shall pay the balance of the FWA to the Reinsurer (pursuant to the
Funds Withheld and Profit Sharing Article), and the Reinsurer shall pay the Reassured the present
value of the ceded

 

 

11.

Ultimate Net Loss (if applicable, the Reinsurer shall release the amount of the assets in the
Trust Account) and the Reinsurer shall be released from any and all past, current, and future
liabilities hereunder. For the purposes of this provision, the present value of the ceded Ultimate
Net Loss shall be discounted to present value utilizing the Interest Credited Rate. If the
Reassured and the Reinsurer cannot agree on the amount of the present value of the ceded Ultimate
Net Loss, then they shall engage a mutually acceptable nationally recognized independent third
party actuary whose findings shall be binding. If the Reassured and the Reinsurer cannot agree on
the engagement of an actuarial firm within thirty (30) days after either requests one, it shall be
determined by drawing lots. The parties hereto shall execute a commutation and release agreement
to document such commutation.

C. Special Commutation Rights of the Reinsurer. If any of the following occurs: (i) the
Reassured fails to maintain an active underwriting operation; or (ii) its domiciliary state
insurance department or other legal authority having jurisdiction over the Reassured orders the
Reassured to cease underwriting business; or (iii) the Reassured, without the written consent of
the Reinsurer enters into an agreement to (a) become merged with, acquired, or controlled by any
company, corporation or individuals(s) not controlling or affiliated with the Reassured’s
operations at the Inception Date, or (b) directly or indirectly assigns essentially all of its
entire liability for its obligations under this Contract, or (c) any demutualization, without the
consent of the Reinsurer of the Reassured’s ultimate parent or any mutual holding company
controlling the Reassured (for the avoidance of doubt, this shall specifically not apply to any
capital raising activities of the Reassured, the Reassured’s ultimate parent, or any mutual or
downstream holding company affiliated with the Reassured, wherein the mutual holding company
structure of the Reassured’s ultimate parent is maintained), then this Contract shall terminate
and shall be immediately commuted as of the effective date of any of the events described above.
If the FWA balance is positive as of the effective date of any such commutation, the parties shall
release the liabilities of the Reinsurer and value the FWA as set forth in Article 10, Section A
hereinabove. In the event the FWA is negative as of the effective date of any such commutation,
parties shall release the liabilities of the Reinsurer and value the FWA as set forth in the
Article entitled COMMUTATION, Section B hereinabove.

ARTICLE 11

FUNDS TRANSFER CLAUSE

A. Circumstances for Funds Transfer. If any of the following occurs, to or by the
Reassured, then the Reassured shall, within ten (10) days, transfer to the Reinsurer the amount of
funds held in the FWA, and the Reinsurer shall transfer the amount equal to the FWA balance into a
trust account that complies with credit for reinsurance regulations under Pennsylvania law (the
“Trust Account”):

1. The Reassured does not maintain an AM Best rating of A- or better;

 

 

12.

2. A material change in management of the Reassured (defined as the departure of the Chief
Underwriting Officer, Chief Executive Officer and the Chief Financial Officer within a one
year period) occurs;

3. The Reassured’s policyholders’ surplus decreases by more than 25% as compared to the
Reassured’s policyholders’ surplus as of December 31, 2007, during any annual period;

4. The Reassured fails to deposit any additional assets as may be required in accordance
with the Article entitled FUNDS WITHHELD ACCOUNT AND PROFIT SHARING;

5. The Reassured fails to pay any amounts due to the Reinsurer within sixty (60) days of
the due date; or

6. The Reassured without written consent of the Reinsurer enters into an agreement with
respect to the merger, consolidation, assignment, or sale of the Reassured.

7. The Reassured fails to furnish any reports when due to the Reinsurer within sixty (60)
days after the due date of such 

Report(s).

B. Remedy if Reassured Fails to Comply. Failure of the Reassured to comply with any of the
provisions of the Article entitled FUNDS TRANSFER CLAUSE and/or if the Reassured fails to
maintain the value of the Trust Account as set forth in this Article, then this Contract shall
terminate immediately and shall be commuted between the parties as of the date of such
non-compliance. In such event, the maximum liability of the Reinsurer for ceded Ultimate Net
Losses under this Contract as of such commutation date shall be an amount equal to the total of
all Reinsurance Premiums paid less the Reinsurer’s Expense plus 100% of all Interest Credits due
under this Contract as of such date and the Reinsurer shall be released from any and all past,
current and future liabilities under the Contract as of such commutation date.

C. Notional Funds Withheld Balance to be Maintained. The Reassured shall calculate a
notional FWA balance as set forth in the Funds Withheld Account Article. The Reassured must remit
to the Reinsurer funds to maintain the value of the Trust Account equal or greater than the FWA
balance as of each quarter.

D. Costs of the Trust Account. The costs of the Trust Account shall be borne by the
Reassured.

 

 

13.

ARTICLE 12

NET RETAINED LINES AND INURING REINSURANCE PROTECTIONS

A. Contract Applies to Insurance Retained Net for Reassured’s Own Account. This Contract
applies only to that portion of any insurance which the Reassured retains net for its own account.
In calculating the amount of any Ultimate Net Loss hereunder, and also in computing the amount or
amounts of Ultimate Net Loss in excess of which this Contract attaches, only loss or losses in
respect of that portion of any insurance which the Reassured retains net for its own account shall
be included. All other applicable reinsurance shall inure to the benefit of this Contract.

B. Inuring Reinsurance Premiums. Reinsurance premiums ceded on account of any reinsurance
which inures to the benefit of this Contract shall be deducted from the calculation of the
Reassured’s SNEP for all purposes hereunder.

C. Reinsurer’s Liability Not Increased by Inability to Collect from any Other
Reinsurer. The amount of the Reinsurer’s liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Reassured to collect from any other
reinsurer, whether specific or general, any amount which may become due from them, whether such
inability arises from the insolvency of such other reinsurers or not.

D. Inuring Protection Deemed in Place. For the purposes of this Contract, the Reassured’s
inuring reinsurance protection as at April 1, 2008 shall be deemed in place for the entire Term of
this Contract unless otherwise prior agreed in writing by the Reinsurer. Such inuring reinsurances
shall be as set forth in Schedule A and made a part of this Contract.

ARTICLE 13

ULTIMATE NET LOSS

A. Ultimate Net Loss Definition. The term Ultimate Net Loss shall mean the actual loss
incurred (inclusive of paid loss, case reserves and reserves for losses incurred but not reported,
“IBNR”) by the Reassured that it retains for its own account resulting from covered claims in
settlement of the claims reinsured hereunder, including Allocated Loss Adjustment Expense,
pre-judgment interest, post-judgment interest, and payments attributable to Extra Contractual
Obligations and Excess Limits Liability.

B. Salvages, Recoveries, Etc. All salvages, recoveries, payments and reversals or
reductions of verdicts or judgments (net of the cost of obtaining such salvage, recovery, payment
or reversal or reduction of a verdict or judgment) whether 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 Ultimate Net Loss.

 

 

14.

C. Property Catastrophe Occurrence Limit. The maximum Property Catastrophe Loss
Occurrence that may contribute to Ultimate Net Loss shall be equal to $25,000,000 prior to the
application of the property catastrophe treaties (which are detailed in the Article entitled
NET RETAINED LINES AND INURING REINSURANCE PROTECTIONS, Paragraph [D][1]).

ARTICLE 14

EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY

A. Coverage for ECO/ELL. This Contract will extend to cover any losses arising from claims
related Extra Contractual Obligations and/or Excess Limits Liability.

B. Definition of ECO. “Extra Contractual Obligations” or “ECO” as used in this Contract
will mean those liabilities not covered under any other provision of this Contract, which
arise from the handling of any claim on Business Covered hereunder, such liabilities arising
because of, but not limited to, the following: failure by the Reassured to settle within the
Policy limit, by reason of alleged or actual negligence, fraud, or bad faith in rejecting an offer
of settlement, in the preparation of the defense, in the trial of any action against the insured
or reinsured, or in the preparation or prosecution of an appeal consequent to such action.

C. Definition of ELL. “Excess Limits Liability” or “ELL” as used in this Contract will
mean liability in excess of the Policy limit as a result of the Reassured’s alleged or
actual negligence, fraud, or bad faith in failing to settle and/or rejecting a settlement within
its Policy limit, in the preparation of the defense, in the trial of any action against the
insured or Reassured, or in the preparation or prosecution of an appeal consequent to such action.
Excess Limits Liability will mean any amounts for which the Reassured would have been
contractually liable to pay had it not been for the Policy limits.

D. No Recovery for ECO/ELL Arising from Fraud. There will be no recovery hereunder where
the Extra Contractual Obligation or Excess Limits Liability has been incurred due to fraud
committed by a member of the Board of Directors or a corporate officer of the Reassured,
acting individually, collectively, or in collusion with a member of the Board of Directors, a
corporate officer, or a partner of any other corporation, partnership, or organization involved in
the defense or settlement of a claim on behalf of the Reassured.

E. Date ECO/ELL Incurred. The date on which any Extra Contractual Obligation and/or Excess
Limits Liability is incurred by the Reassured will be deemed, in all circumstances, to be the date
of the original occurrence. Nothing in this Article will be construed to create a separate or
distinct occurrence apart from the original covered occurrence that gave rise to the Extra
Contractual Obligation

 

 

15.

and/or Excess Limits Liability discussed in the preceding paragraphs. In no event will the total
liability of the Reinsurer exceed its applicable limit of liability as set forth in the Article
entitled RETENTION AND LIMITS.

ARTICLE 15

MATERIAL CHANGES

A. Material Change in Claims Practice. A material change in claims practice shall be
deemed to have occurred if:

1. the Reassured’s claims handling and/or administration is, for whatever reason,
outsourced, outside the Reassured’s normal course of business, to an entity other than an
affiliated entity of the Reassured; and

2. as a result of the change referred to in paragraph A.1. of this Article, the Ultimate
Net Loss would reasonably be expected to have a discounted value back to the inception of
the Coverage Year, utilizing a 4.75% effective annual interest rate (the “Discount
Percentage”) of greater than 90.0% of the nominal value of such Ultimate Net Loss.

B. Remedy in the Event of Material Change in Claims Practice. In the event that there has
been a material change in claims practice, the Ultimate Net Loss shall be restated on a paid basis
as though such change had not occurred.

C. In the Event of Disagreement. If the Reassured and the Reinsurer cannot agree on the
value of the Discount Percentage and/or the impact of the restatement of the paid Ultimate Net
Loss described in paragraph C of this Article within a three (3) month period, the Reassured and
the Reinsurer shall engage an independent third-party nationally recognized actuarial firm that is
mutually acceptable to both parties to determine the Discount Percentage and/or such impact of the
restatement of the paid Ultimate Net Loss. In the event the parties cannot agree on the choice of
the independent third-party nationally recognized actuarial firm within such three (3) month
period, both parties shall nominate one firm and the chosen firm shall be selected by the drawing
of lots. The cost of such actuarial firm shall be borne equally by the parties. If the independent
third party actuarial firm makes this determination, such determination shall be binding upon the
Reassured and the Reinsurer.

ARTICLE 16

RESERVES

A. Security of Reinsurer’s Obligations. If any Reinsurer is unauthorized or otherwise
unqualified in any state or other United States jurisdiction, and if, without such security, a
financial penalty to the Reassured would result on any statutory statement or report it is
required to make or file with insurance regulatory

 

 

16.

authorities, then such Reinsurer will timely secure the Reinsurer’s share of Obligations under this
Contract in a manner, form, and amount acceptable to the Reassured and to all applicable insurance
regulatory authorities in accordance with this Article.

B. Timing and Form of Security. The Reinsurer shall secure such obligations, within thirty
(30) days after the receipt of the Reassured’s written request regarding the Reinsurer’s share of
obligations under this Contract (but not later than December 31) of each year by either (at the
Reinsurer’s option):

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
Reassured’s domiciliary state and acceptable to the Reassured and to insurance regulatory
authorities;

2. A trust account meeting at least the standards of the Insurance Law of the
Reassured’s domiciliary state; or

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

C. Payment of Security Costs. The costs of providing such security in excess of any FWA
maintained by the Reassured shall be borne by the Reinsurer, but the Reassured shall pay to the
Reinsurer such collateral costs (on a quarterly basis in arrears) at the rate of 0.50% per annum on
the face amount of such security provided.

D. Canadian Obligations. If any Reinsurer is unauthorized or otherwise unqualified in any
province or other Canadian jurisdiction, and if, without such security, a financial penalty to the
Reassured would result on any statement or report it is required to make or file with insurance
regulatory authorities, then such Reinsurer will fund 110% of its share of Canadian Obligations
under this Contract by Funds Deposit.

E. Definition of Obliqations for the Purposes of This Article. The “Obligations” referred
to herein means the then current (as of the end of each calendar quarter) sum of:

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

     2. The amount of Ultimate Net Losses and other amounts paid by the Reassured for which the
Reinsurer is responsible to the Reassured but has not yet paid;

 

 

17.

3. The amount of ceded reserves for Ultimate Net Losses for which the Reinsurer is
responsible to the Reassured; and

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

F. Draws Upon Security. The Reassured, or its successors in interest, may draw, at any
time and from time to time, with prior notice to the Reinsurer 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 Reassured or the
Reinsurer for one or more of the following purposes set forth below.

Draws shall be made only for the following purposes:

1. To make payment to and reimburse the Reassured for the Reinsurer’s share of Ultimate
Net Loss and other amounts paid by the Reassured under its Policies and for which the
Reinsurer is responsible under this Contract that is due to the Reassured 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 or trust account (if applicable) in the event that the Reassured:

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 Reassured of any required
increase in the amount of the letter of credit or trust account, or its
replacement or other continuation of the letter of credit or trust account at
least thirty (30) days before its stated expiration date;

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

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

 

 

18.

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

G. If the Reassured Draws to Obtain Cash Advance. If the Reassured draws on the letter of
credit or trust account to obtain a cash advance, the Reassured will hold the amount of the cash
advance so obtained in the name of the Reassured in any qualified United States financial
institution as defined under the Insurance Law of the Reassured’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 Reassured 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 Reassured.

     The Reassured will prepare and forward, at annual intervals or more frequently as determined
by the Reassured, but not more frequently than quarterly to the Reinsurer, a statement for the
purposes of this Article, showing the Reinsurer’s share of the 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 Reassured’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 the
Obligations set forth in the Reassured’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 cash advance, the
Reassured will release the excess thereof to the Reinsurer upon the Reinsurer’s written request.
The Reinsurer will not attempt to prevent the Reassured from holding the cash advance or Funds
Deposit so long as the Reassured is acting in accordance with this Article.

H. Assets Deposited in Trust Account. 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 Reassured’s domiciliary state and payable in cash, and
investments of the types no less conservative than those specified in Sections 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 Reassured’s domiciliary state. Investments issued by the parent, subsidiary,
or affiliate of either the Reassured or the Reinsurer will not be eligible investments.

 

 

19.

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 Reassured may negotiate any such assets
without the requirement of consent or signature from the Reinsurer or any other entity.

I. Settlements. All settlements of account between the Reassured 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. Successors in Interest. The Reassured’s “successors in interest” will include those by
operation of law, including without limitation, any liquidator, rehabilitator, receiver, or
conservator.

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

ARTICLE 17

SALVAGE AND SUBROGATION

A. Application of Recoveries. All recoveries, including but not limited to salvage,
subrogation, payments and reversals or reductions of verdicts or judgments (net of the cost of
obtaining such recovery, payment or reversal or reduction of a verdict or judgment) whether
recovered, received or obtained prior or subsequent to a 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 Ultimate Net Loss. Nothing in this Article
shall be construed to mean losses are not recoverable until the final Ultimate Net Loss to the
Reassured has been ascertained. Amounts recovered from salvage and/or subrogation will always be
used to reimburse any excess reinsurers (and the Reassured should it carry a portion of excess
coverage net) before being used in any way to reimburse the Reassured and the Reinsurer hereon, who
will share pro-rata in any remainder.

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

 

 

20.

ARTICLE 18

TAXES

A. Tax Liability. To the extent that any portion of the Reinsurance Premium 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 Reinsurer shall not be liable for the payment of the
Federal Excise Tax. The Reinsurer is not responsible for any and all other taxes relating to this
Contract, except for any income taxes payable by the Reinsurer hereunder.

B. Premium Deduction. In consideration of the terms under which this Contract is issued,
the Reassured undertakes not to claim any deduction of the Reinsurance 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 19

ACCESS TO AND RETENTION OF RECORDS

A. The Reassured 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 Reassured directly related to this Contract, including without
limitation, any reinsurance hereunder, 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 Reassured that are not currently the subject of a formal dispute, as defined by the NAIC
under the instructions for Schedule F of the Annual Statement, i.e. litigation, arbitration, or
notification, where notification means “a formal written communication from a Reinsurer denying
the validity of coverage,” which notification shall contain the reason(s) why the Reinsurer is
denying the validity of coverage. For the purposes of this Article, “non-privileged” refers to
books, records and papers that are not subject to Attorney-client privilege or the Attorney-work
product doctrine, as defined hereinbelow. If any of the books, records and papers of the Reassured
are considered by the Reassured to be privileged communications or Attorney work product not
subject to inspection by the Reinsurer without waiving these privileges in the applicable
jurisdiction governing a particular claim, the Reassured and the Reinsurer shall work together in
good faith to develop and implement a method or process to provide the Reinsurer with all
pertinent factual and other information needed to evaluate the claim and protect these privileges
and comply with the law, and the Reassured and the Reinsurer agree to abide by the agreed and
reasonable method or process.

 

 

21.

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 Reassured alleges is
subject to the Attorney-client privilege or the Attorney-work product privilege, upon the
Reinsurer providing to the Reassured 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 Reassured and the Reinsurer as against third parties pursuant to the
substantive Iaw(s) which govern the claim or loss, the Reassured 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 Reassured, or finally adjudicated, the Reinsurer shall be
entitled to review all reasonable and applicable claims records that support a Reassured 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 Reassured and the records do not
support the obligation of the Reinsurer to have paid the claim, the Reassured shall promptly
return any payment made in error.

ARTICLE 20

SERVICE OF SUIT,

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

B. Event of Any Dispute. In the event of any dispute, the Reinsurer, at the request of the
Reassured, 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.

 

 

22.

C. Service of Process. Service of process in any such suit against the Reinsurer may be
made upon Lord, Bissell & Brook LLP, 115 South LaSalle Street, Chicago, Illinois 60603-3901, or
the entity identified 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.

D. Authorization of Firm. 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 Reassured to give a
written undertaking to the Reassured that they shall enter a general appearance upon the
Reinsurer’s behalf in the event such a suit shall be instituted.

E. Lawful Attorney for Reassured. 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 Reassured 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

ARBITRATION

A. Disputes Submitted to Arbitration. Any and all disputes between the Reassured 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 arbitrators and an umpire (“Board”) meeting
at a site in the city in which the principal headquarters of the Reassured are located. The
arbitration shall be binding and shall be conducted under the Federal Arbitration Act and shall
proceed as set forth below.

B. Notice Requesting Arbitration. 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) calendar days from the date
that the notice requesting arbitration is mailed. Within thirty (30) calendar 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.

 

 

23.

C. Arbitration Board. Unless otherwise mutually agreed, the members of the Board shall be
impartial and disinterested and shall be current or former senior officers of property-casualty
insurance companies, reinsurance companies, or Lloyds Underwriters or active or inactive lawyers
with at least twenty (20) years of experience in insurance and reinsurance not currently
representing any party participating in the arbitration. The Reassured and the Reinsurer as
aforesaid shall each appoint an arbitrator and the two 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) calendar days after having received claimant’s written request for
arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two
arbitrators fail to agree upon the appointment of an umpire within thirty (30) calendar days after
notification of the appointment of the second arbitrator, within ten (10) calendar days thereof,
the two 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 the court named below 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. Initial and Reply Briefs. 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) calendar 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)
calendar 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) calendar 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. Contract is an Honorable Engagement. The Board shall consider this Contract as an
honorable engagement and 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 property and casualty insurance and reinsurance business.

F. Rules of Evidence Shall Not Strictly Apply. 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. At its own election or at the request of the Board, either party may
submit a post-hearing brief for consideration of the Board within twenty (20) calendar days of the
close of the hearing.

 

 

24.

G. Decision of Board. The Board shall render its decision and award in writing within
thirty (30) calendar 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.

H. Awarding of Interest, Attorney Fees, Punitive/Treble Damages. The Board may award (i)
interest at a rate of up to 400 basis points above the prime rate as published in the Wall Street
Journal (Eastern Edition), but not less than 12% per annum, on the date of the award calculated
from the date the Board determines that any amounts due the prevailing party should have been paid
to the prevailing party, (ii) attorney fees and punitive, exemplary, or treble damages if the
actions of either party in prosecuting, defending or causing the arbitration are made in bad faith
and constitute outrageous behavior in the opinion of the Board.

I. Application to Court of Competent Jurisdiction for Confirmation. 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.

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

K. Discovery. 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, those of its affiliates, and those of any
intermediary 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.

L. Pre-Hearing. 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. Board Shall be Final Judge. 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 and
production and of excessiveness and relevancy of any witnesses and documents upon the petition of
any participating party. To the

 

 

25.

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. Consolidated Hearing. If applicable, upon request of the Reassured made to the affected
Reinsurers and to the Board not later than ten (10) calendar days after the umpire’s appointment,
the Board may order a consolidated hearing between the Reassured 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.

1. 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.

2. 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.

3. 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) calendar
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, the Reinsurer with the largest participation in this Contract affected by
the dispute. In the event two 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 attorney’s fees (which
will be borne exclusively by the respective retaining party) but including the expense of
any stenographer by each party actively participating in the consolidated arbitration or as
the Board shall determine to be fair and appropriate under the circumstances.

 

 

26.

ARTICLE 22

INSOLVENCY

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

A. Event of Insolvency of Reassured. In the event of insolvency and the appointment of a
conservator, liquidator, or statutory successor of the Reassured, 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 Reassured by any court of competent
jurisdiction or by any conservator, liquidator, or statutory successor of the Reassured 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. Payments by the Reinsurer as above set forth shall be made
directly to the Reassured or to its conservator, liquidator, or statutory successor, except where
the contract of insurance or reinsurance 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 Reassured.

C. Pendency of Claim Against Insolvent Reassured on Reinsured Policies. In the event of the
insolvency of the Reassured, the liquidator, receiver, conservator or statutory successor of the
Reassured shall give written notice to the Reinsurer of the pendency of a claim against the
insolvent Reassured 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 Reassured 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 Reassured as part of
the expense of liquidation to the extent of a proportionate share of the benefit which may accrue
to the Reassured solely as a result of the defense undertaken by the Reinsurer.

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

E. No Riqhts of Original Insured Against the Reinsurer. Neither a claimant, original
insured nor the policyholder shall have any rights against the Reinsurer which are not specifically
set forth in this Contract, or in a specific agreement between the Reinsurer and the original
insured or policyholder.

 

 

27.

ARTICLE 23

INTERMEDIARY

A. Intermediary. Towers Perrin Forster & Crosby, Inc. (“Towers Perrin”) is hereby
recognized as the Reassured’s 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 Reassured or the Reinsurer through Towers Perrin, 1500 Market
Street, Centre Square East, Philadelphia, PA 19102. Payments by the Reassured to the Intermediary
shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary shall be deemed to constitute payment to the Reassured only to the extent that such
payments are actually received by the Reassured, subject to the Article entitled
INSOLVENCY hereunder.

B. Form of Notice. Whenever notice is required within this Contract, such notice may be
given by any of: certified mail, registered mail, electronic mail, fax, overnight express mail or
any other means by which the issuing party shall be able to give such notice and depend upon
reliable receipt. Notice shall be deemed to be given on the date any notice is sent by electronic
mail; in all other instances, the date received by the receiving party.

ARTICLE 24

CONFIDENTIALITY

A. Confidential Information. Except as otherwise provided in law, the written information,
data, and other materials provided by the Reassured 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 in
writing from time to time to the other party of the respective parties (such confidential and
proprietary information being referred to as “Confidential Information”). This Confidential
Information is intended for the sole use of the parties to this Contract (and their
retrocessionaires, affiliates, respective auditors, consultants, regulators, rating agencies,
legal counsel and any other persons or entities to whom such disclosure is required to effect,
administer, or enforce a reinsurance contract). Disclosing Confidential Information disclosed
under this Contract for any purpose beyond (i) the scope of this Contract, (ii) the reasonable
extent necessary to administer, report to and effect recoveries from retrocessional reinsurers, or
(iii) persons with a need to know the information is expressly forbidden without the prior written
consent of the party disclosing Confidential Information (the “Disclosing Party”). The party
receiving Confidential Information (the “Receiving Party”) shall

 

 

28.

inform any third party to whom disclosure of Confidential Information is made of the obligation to
maintain the confidentiality of the Confidential Information and shall be responsible for any
failure by any such third party to maintain the confidentiality of the Confidential Information.

B. Event of Receiving Party Receiving a Demand to Disclose Confidential
Information. Should a 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 (“Disclosing Party”), the Receiving Party shall, to the
extent permitted by law, make commercially reasonable efforts to notify the Disclosing Party
promptly upon receipt of the demand and prior to disclosure of the Confidential Information and
provide the Disclosing Party a reasonable opportunity to object to the disclosure. If such notice
is provided, the Receiving Party may after the passage of five (5) business days after providing
notice, proceed to disclose the Confidential Information as necessary to satisfy such a demand
without violating this Contract. If the Disclosing Party timely objects to the release of the
Confidential Information, the Receiving Party will comply with the reasonable requests of the
Disclosing Party in connection with the Disclosing Party’s efforts to resist release of the
Confidential Information. The Disclosing Party shall bear the cost of resisting the release of the
Confidential Information.

C. Term of Obligation of Confidentiality. Notwithstanding anything herein to the contrary,
except to the extent confidentiality is required to be maintained for a longer period of time by
the laws of the United States of America or the Commonwealth of Pennsylvania with respect to
personal health information, the obligations of confidentiality set forth in the preceding two
paragraphs shall expire (a) three (3) years from the date hereof in the event that there are no
claims made under this Contract or (b) in the event of any claim being made under this Contract,
three (3) years from the date of the last payment by the Reinsurer on the last claim covered by
this Contract. Furthermore, except for non-public personal information and protected health
information, which must be held confidential without time limitation as provided in the Article
entitled ACCESS TO AND RETENTION OF RECORDS, of this Contract, the Reassured will
provide notice of any Confidential Information that must remain confidential more than three (3)
years after the Termination Date of this Contract.

ARTICLE 25

ORIGINAL CONDITIONS

     The Reinsurer’s liability to the Reassured shall attach simultaneously with that of the
Reassured and 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 Reassured’s
Policies and the Reinsurer shall pay losses as may be paid thereon, the true intent of this
Contract

 

 

29.

being that in each and every case to which this Contract applies, the Reinsurer shall follow the
settlements and fortunes of the Reassured, subject always to the limits, terms and conditions of
this Contract.

ARTICLE 26

REGULATORY COMPLIANCE AND REPRESENTATIONS AND WARRANTIES OF REASSURED

A. In connection with this Contract, the Reassured represents the following:

1. It is a duly organized and validly existing insurer under the laws of the jurisdiction
of its organization.

2. The execution, delivery and performance of this Contract do not violate or conflict with
any law or order of government or agency applicable to it.

3. It has not received and is not relying upon any legal, tax, regulatory, accounting or
other advice (whether written, oral, implied or assumed) of the Reinsurer regarding this
transaction.

4. It has the capacity to evaluate (internally or through independent advice) this Contract
and has consulted its own tax, accounting and legal advisors in connection with this
Contract, including a financial analysis with respect to the transfer of insurance risk.

5. It (i) has disclosed or agrees to fully disclose in a timely fashion, the Contract to
its internal accountants and independent auditors and (ii) where appropriate in the
reasonable opinion of the Reassured, has made or shall make appropriate disclosure to, or
consult with, its legal counsel and any relevant regulatory and tax authorities.

6. It will account for this Contract in accordance with accounting principles prescribed or
permitted by the Commonwealth of Pennsylvania, and the Reassured is not entering into this
Contract for the purpose of altering its financial or statutory accounting statements in a
manner that would be misleading to users of such statements.

7. All data delivered to the Reinsurer was accurate and complete

B. In connection with this Contract, the Reassured warrants that all other reinsurance contracts of
the Reassured which inure to the benefit of this Contract shall be deemed in place until all
liability herein is finalized.

 

 

30.

ARTICLE 27

ERRORS AND OMISSIONS

     Inadvertent delays, errors or omissions made by the Reassured in connection with this Contract
(including the reporting of claims) shall not relieve the Reinsurer from any liability which would
have attached had such delay, error or omission not occurred, provided always that such delay,
error or omission shall be rectified as soon as possible after discovery by the Reassured’s Home
Office.

ARTICLE 28

CURRENCY

     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. Amounts paid or received by the Reassured 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 Reassured.

ARTICLE 29

OFFSET

     The Reassured 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 30

NOTICE

     As used in this Contract, notice shall mean any and all notices, requests, demands or other
communications required or permitted to be given hereunder, and all notices shall be given or
mailed by first class certified mail, return receipt requested, by an overnight delivery service or
by confirmed telecopy, addressed to the parties at the addresses set forth in the Contracts.

     The Reinsurer designates its address to which all notices, reports and remittances are to be
sent, as set forth in the attached signature page.

     The Reassured hereby designates the following as its address to which all notices, reports and
remittances are to be sent:

 

 

31.

Mr. Michael Banks

Executive Vice President & Chief Financial Officer 72 North

Franklin, PO Box P

Wilkes Barre, PA 18773

ARTICLE 31

SPECIAL TERMINATION

A. The Reassured may terminate or commute this Contract upon the happening of any one of the
following circumstances at any time by the giving of fifteen (15) days prior written notice to the
Reinsurer:

1. The Reinsurer 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 Reassured
either (i) without the Reassured’s unrestrained consent or (ii) prior to the Reassured
having the ability to determine, with exact certainty, the actual amount of the obligations
still outstanding and ultimately due to the Reassured. Or

3. The Reinsurer 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 (d) the Reinsurer’s
AM Best’s insurer financial strength rating becomes less than “A-” or the Reinsurer’s
Standard and Poor’s Insurance Rating becomes less than “BBB”.

B. In the event that notice of termination is given by reason of an Event described in A(4) above
(the “Termination Notice”) and prior to the effective date of the termination (the “Termination
Date”), the chief financial officer of the Reinsurer represents and certifies in writing to the
Reassured that (i) the deterioration of the Reinsurer’s financial condition is the direct and sole
result of a recent major property catastrophe(s) or the result of an Act(s) of Terrorism (either
the “Event”) and (ii) that it is actively seeking and has a high probability of successfully
obtaining additional capital to substantially replace the capital loss because of the Event (the
“Extension Notice”), the Termination Date shall be extended an additional thirty (30) days from
the Termination Date (the “Extended Termination Date”). If prior to the Extended Termination Date,
the chief financial officer of the Reinsurer represents and certifies in writing to the Reassured
that (a) it has raised sufficient

 

 

32.

capital so as to return its PHS or C&S to within 5% of the Reinsurer’s PHS or C&S last filed with
its domiciliary regulatory authorities prior to the Event, (b) obtained reinstatement of its rating
agency grade(s) to the level as existed immediately prior to the Event, and (c) as respects
Reinsurers domiciled in the United States of America, raised its adjusted capital to at least 250%
of its authorized control level risk-based capital, the Termination Notice shall be null and void.
Otherwise, this Contract shall terminate on the Extended Termination Date in the manner described
in the Termination Notice.

C. In the event the Reassured elects to terminate, the Reassured shall, with the notice of
termination, specify that termination will be on a run-off or cut-off basis. In the event such
termination is on a run-off basis, the Reassured shall relieve the Reinsurer for losses occurring
subsequent to the specified Termination Date, and that Reinsurer shall not receive deposit premium
installments beyond the date at which termination of the Reinsurer is effected. The Reinsurer shall
within fifteen (15) days of the Termination Date return a pro-rata portion of any ceded deposit
premium paid hereunder, calculated as of the Termination Date, and cash in that amount (less
applicable ceding commission, if any, allowed thereon) and the minimum premium provisions, if any,
shall be waived. (The fraction of the deposit premium to be returned to the Reassured shall equal
the number of days from the Termination Date until the original expiration date of the Contract
period divided by the number of days in the original Contract period). Upon final determination of
the adjusted premium for the Contract period, the Reinsurer shall be credited with a portion of
premium for this Contract, in the amount equal to the fraction of the number of days the terminated
Reinsurer participated in the Contract period divided by the number of days in the Contract period
multiplied by the reinsurance premium for the Contract period.

D. In the event the Reassured elects to terminate this Contract on a cut-off basis, the parties
shall commute all liabilities relating to this Contract and the Reinsurer shall return the sum
total of the net present value (“capitalized”) of the ceded (1) Net Loss Reserves for losses
occurring prior to the Termination Date, (2) Loss Adjustment Expense Reserves for losses occurring
prior to the Termination Date, (3) incurred but not reported reserves for losses occurring prior to
the Termination Date, and (4) unearned premium reserve (after deduction for any ceding commission
allowed thereon). In the event the parties are unable to agree on the capitalized value of the
reserves to be returned to the Reassured, the Reassured and the Reinsurer shall jointly appoint an
independent actuary experienced in such matters and the mutually agreed actuary shall render a
decision. In the event that the Reassured 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 Reassured and the
Reinsurer shall share

 

 

33.

equally the fees and expenses of the actuary. Upon payment of the amount so agreed or determined by
the actuary to the Reassured, the Reinsurer and the Reassured shall each be completely released
from all liability to each other under this Contract.

E. If the Reinsurer is not otherwise obligated under the Article entitled RESERVES of this
Contract, to provide the Reassured security in order for the Reassured to obtain credit for the
reinsurance provided by this Contract and the Reinsurer has not cured the conditions described
above, other than as expressed in conditions 5 and 6 above, the Reassured shall also have the
option, if it does not elect the commutation option described above, to require the Reinsurer to
provide the Reassured with collateral funding as if the Reinsurer were otherwise obligated to
provide security for the Reinsurer’s obligations under this Contract in an amount and manner and as
provided for under the Article entitled RESERVES of this Contract. The Reassured shall have
the option to require the Reinsurer to provide collateral funding but, provided it is reasonably
acceptable to the Reassured and any insurance regulatory authorities involved, the Reinsurer shall
have the sole option of determining the method of funding referred to above. In recognition of
security a participating Reinsurer or Lloyd’s Syndicate may place under the terms of a master trust
agreement, such as the US Lloyd’s Credit for Reinsurance Trust, the provisions of this Paragraph
shall not apply to that participating Reinsurer or Lloyd’s Syndicate that has fully funded 100% of
the Obligations to the Reassured, as the term Obligations is defined in the Article entitled
RESERVES, pursuant to the terms of that trust agreement and the applicable funding
requirements and procedures.

ARTICLE 32

VARIOUS OTHER TERMS

A. This Contract shall be binding upon and inure to the benefit of the Reassured 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 Reassured of reinsurance recoverables to another party for collection.

B. The territorial limits of this Contract shall be identical with those of the Reassured’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.

 

 

34.

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 state of the location of the Reassured’s
principal headquarters’ offices, 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 Reassured and the Reinsurer, and in no instance shall any
insured, claimant or other third party have any rights under this Contract, including without
limitation, any company hereafter acquired, merged, or controlled by the Reassured (without the
written consent of the Reinsurer) or any company which owns or controls the Reassured that is not a
named Reassured hereunder.

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 Reassured 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 ten (10) days from the date such performance would have been due but for such
circumstance or event.

J. This Contract should be construed as a separate Contract between each ceding company, part of
the Reassured, and each participating Reinsurer, provided that if coverage is afforded without
reference to the number of Policies involved in a single occurrence loss, the retention and limit
of the Contract shall be calculated as if all involved ceding companies were one and recovery due
hereunder shall be due each ceding company in direct proportion to its portion of the total loss.

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

 

 

35.

L. 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.

M. Whenever the word “Reassured” 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 such 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 of not
to exceed forty-five (45) days after notice but either party that is does not wish to cover the
business of the newly affiliated company at the existing terms.

N. 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 subscriptions of any
co-subscribing (re)insurer who for any reason does not satisfy all or part of its obligations.

O. Whenever the word “Company” is used in this Contract, such term shall mean “Reinsured”,
“Reassured” or whatever other term is used in the document to designate the reinsured company or
companies.

P. 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
against the party causing this Contract to be drafted.

Q. As required by SSAP 62 (8)(d), the Reassured shall furnish the Reinsurers a periodic statement
showing a report of the premium, the unearned premium, the total loss and loss expense ceded under
this Contract, and such other information as may be required by regulatory authorities for
completion of financial statements.

 

 

1.

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

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

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

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

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

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

4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this
reinsurance does not cover any loss or liability by radioactive contamination accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive
contamination is a named hazard specifically insured against.

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

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

 

 

2.

7. Reassured to be sole judge of what constitutes:

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

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

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

 

 

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 Reassured 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 Reassured (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*

	 	 	 	It is agreed that the policy does not apply under any liability coverage, to (In/ary, ,ICknea., tll, .. tle.m ar tl.awouon
(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.
	 
	 	II.	 	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 Reassured 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 Reassured (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 rape (first aid to expenses incurred with respect to (bodily Injury, sickness, d,cease or death
(buddy injury resulting from the hazardous properties of nuclear material and
arising out of the operation of a nuclear facility by any person or organization.

 

 

2.

	 	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 o/property at such nuclear facility
(property damage to such nuclear facility and any property thereat.

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

(a) any nuclear reactor,

(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing spent fuel,
or (3) handling, processing or packaging waste,

(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total amount of
such material in the custody of the insured at the premises where such
equipment or device is located consists of or contains more than 25 grams
of plutonium or uranium 233 or any combination thereof, or more than 250
grams of uranium 235,

(d) any structure, basin, excavation, premises or place prepared or used
for the storage or disposal of waste,

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

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

 

 

INSOLVENCY FUND EXCLUSION CLAUSE

This Contract shall not afford coverage for liability of the Reassured arising, by contract,
operation of law, or otherwise, from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. For the purpose of this exclusion, an 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 Reassured 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.

 

 

NUCLEAR, CHEMICAL AND BIOLOGICAL TERRORISM EXCLUSION CLAUSE

A            This Contract shall not apply to Acts of Terrorism that:

involves the use, release, or escape of nuclear materials, or directly or indirectly results
in nuclear reaction or radiation or radioactive contamination; or
is carried out by means of the dispersal or application or pathogenic or poisonous,
biological or chemical materials; or
releases pathogenic or poisonous, biological or chemical materials, and it appears that one
purpose of the Act of Terrorism was to release such materials.

 

 

SCHEDULE A

INURING REINSURANCE

PENN MILLERS INSURANCE COMPANY

2008 Property Catastrophe Program

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	ROL	 
	 	 	Placement	 	 	Limit	 	 	Attachment	 	 	Rate	 	 	Rate Change	 	 	Deposit Premium	 	 	ROL	 	 	Change	 
	First Excess
	 	 	95	%	 	$	1,000,000	 	 	$	2,000,000	 	 	 	0.8318	%	 	 	-23.97	%	 	$	275,111	 	 	 	28.96	%	 	 	-15.38	%
	Second Excess
	 	 	95	%	 	$	2,000,000	 	 	$	3,000,000	 	 	 	0.8912	%	 	 	-23.34	%	 	$	294,758	 	 	 	15.51	%	 	 	-14.67	%
	Third Excess
	 	 	95	%	 	$	5,000,000	 	 	$	5,000,000	 	 	 	1.0247	%	 	 	-25.07	%	 	$	338,912	 	 	 	7.13	%	 	 	-16.61	%
	Fourth Excess
	 	 	95	%	 	$	15,000,000	 	 	$	10,000,000	 	 	 	1.4855	%	 	 	-28.53	%	 	$	491,318	 	 	 	3.45	%	 	 	-20.46	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Totals
	 	 	95	%	 	$	23,000,000	 	 	$	2,000,000	 	 	 	4.2332	%	 	 	-25.77	%	 	$	1,400,099	 	 	 	6.41	%	 	 	-17.36	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

All Layers – 1 Reinstatement@100%

	 	 	 	 	 
	Subject Premiums	 	2008 Estimate
	 
	 	$	33,074,228	 

2008 Per Risk Program

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Deposit	 	 	 	 	 	 	 	 	 	 
	 	 	Placement	 	 	Limit	 	 	Attachment	 	 	Rate	 	 	Premium	 	 	Reinstatements	 	 	Additional Terms	 	 	Terrorism	 
	Multi Line
	 	 	25	%	 	$	500,000	 	 	$	500,000	 	 	 	6.0000	%	 	 	1,377,458	 	 	Unlimited	 	 	 	 	 	 	1,500,000	 	 	One Limit
	Property per Risk – First
	 	 	75	%	 	$	4,000,000	 	 	$	1,000,000	 	 	 	7.0000	%	 	 	2,318,125	 	 	2 Free, 1@100	% 	 	Property occurrence 	 	5,000,000	 	 	One Limit
	Property per Risk – Second
	 	 	100	%	 	$	5,000,000	 	 	$	5,000,000	 	 	 	1.5000	%	 	 	662,321	 	 	1@50%, 1@100	%	 	limit:	 	 	 	10,000,000	 	 	One Limit
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Property per Risk – Third
	 	 	100	%	 	 	10,000,000	 	 	$	10,000,000	 	 	 	1.2457	%	 	 	500,036	 	 	1@100% 2 Full Reins: 2@$35% for first $1M,	 	 	 	 	 	 	10,000,000	 	 	One Limit
	Casualty – First
	 	 	75	%	 	$	4,000,000	 	 	$	1,000,000	 	 	 	2.3900	%	 	 	854,500	 	 	2@65% for next $3M	 	 	MAOL	 	 	7,500,000	 	 	One Limit
	Casualty — Second
	 	 	100	%	 	$	5,000,000	 	 	$	5,000,000	 	 	 	0.7866	%	 	 	375,018	 	 	1@100%		 	MAOL	 	 	7,500,000	 	 	Excluded
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Grant Total Results
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	6,137,647	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 
	Subject Premiums	 	2008 Estimate
	Property
	 	$	44,154,62	 
	Casualty
	 	$	47,675,783	 
	Multi Line
	 	$	91,830,554	 

2008 Umbrella Program

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Coding
	 	 	Placement	 	Limit	 	Total Limit	 	Commission
	Umbrella Quota Share
	 	 	75	%	 	$	1,000,000	 	 	$	4,750,000	 	 	 	32	%
	 
	 	 	100	%	 	$	4,000,000	 	 	 	 	 	 	 	 	 

 

 

SCHEDULE B

SAMPLE CALCULATION OF RETENTION

Penn Millers

Insurance Company

Business Mix Factor

	 	 	 	 	 
	SNEP Yr 1
	 	$	80,000,000	 
	SNEP Yr 2
	 	$	80,000,000	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Subject Net	 	Ultimate Incurred	 	 	 	 
	LOB	 	2008% Mix	 	Earned Premium	 	Net Subject Loss Ratio	 	Ultimate Incurred Losses	 	WTD Ave LR
	Commercial Auto Liability
	 	 	15.96	%	 	 	12,766,549	 	 	 	37.32	%	 	 	4,764,179	 	 	 	 	 
	Workers Compensation
	 	 	14.35	%	 	 	11,482,181	 	 	 	74.86	%	 	 	8,595,998	 	 	 	 	 
	Other Liability including Umbrella
	 	 	14.72	%	 	 	11,773,995	 	 	 	51.28	%	 	 	6,037,844	 	 	 	 	 
	Homeowners
	 	 	0.20	%	 	 	158,450	 	 	 	48.01	%	 	 	76,066	 	 	 	 	 
	Commercial Multi — Peril
	 	 	15.94	%	 	 	12,754,246	 	 	 	61.68	%	 	 	7,866,439	 	 	 	 	 
	Fire & Allied
	 	 	25.73	%	 	 	20,584,575	 	 	 	48.77	%	 	 	10,039,097	 	 	 	 	 
	Inland Marine
	 	 	2.91	%	 	 	2,328,537	 	 	 	35.81	%	 	 	833,793	 	 	 	 	 
	Auto Physical Damage
	 	 	5.23	%	 	 	4,187,886	 	 	 	59.01	%	 	 	2,471,447	 	 	 	 	 
	Product Liability
	 	 	4.69	%	 	 	3,755,267	 	 	 	25.44	%	 	 	955,426	 	 	 	 	 
	All Other
	 	 	0.26	%	 	 	208,313	 	 	 	2.32	%	 	 	4,841	 	 	 	 	 
	 	 	 	 	 	 	 
	Total
	 	 	100.00	%	 	$	80,000,000	 	 	 	 	 	 	 	41,645,131	 	 	 	52.06	%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

2009 SNEP Budget

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Subject Net	 	Ultimate Incurred	 	 	 	 
	LOB	 	2009 % Mix	 	Earned Premium	 	Net Subject Loss Ratio	 	Ultimate incurred Losses	 	WTD AVG LR
	Commercial Auto Liability
	 	 	10.00	%	 	 	8,000,000	 	 	 	37.32	%	 	 	2,985,414	 	 	 	 	 
	Workers Compensation
	 	 	20.00	%	 	 	16,000.000	 	 	 	74.86	%	 	 	11,978,210	 	 	 	 	 
	Other Liability Including Umbrella
	 	 	13.00	%	 	 	10,400,000	 	 	 	51.28	%	 	 	5,333,243	 	 	 	 	 
	Homeowners
	 	 	0.00	%	 	 	—	 	 	 	48.01 	%	 	 	—	 	 	 	 	 
	Commercial Multi — Peril
	 	 	20.00	%	 	 	16,000,000	 	 	 	61.68	%	 	 	9,868,323	 	 	 	 	 
	Fire & Allied
	 	 	22.00	%	 	 	17,600,000	 	 	 	48.77	%	 	 	8,583,520	 	 	 	 	 
	Inland Marine
	 	 	2.00	%	 	 	1,600,000	 	 	 	35.81	%	 	 	572,922	 	 	 	 	 
	Auto Physical Damage
	 	 	11.00	%	 	 	8,800,000	 	 	 	59.01	%	 	 	5,193,249	 	 	 	 	 
	Product Liability
	 	 	2.00	%	 	 	1,600,000	 	 	 	25.44	%	 	 	407,077	 	 	 	 	 
	All Other
	 	 	0.00	%	 	 	—	 	 	 	2.32	%	 	 	—	 	 	 	 	 
	 	 	   	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	100.00	% S	 	 	80,000,000	 	 	 	 	 	 	 	44,921,957	 	 	 	56.15	%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Mix Factor	 	LR 1
	 	 	52.06	%	 	 	 	 
	 	 	 	 	LR 2
	 	 	56.15	%	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	Change
	 	 	4.10	%	 	 	 	 
	 	 	 	 	 
	 	 	 	 	Allowance from
calculated change
	 	 	-200	%	 	 	 	 
	 	 	 	 	 
	 	 	 	 	Mix Factor
	 	 	2.10	%	 	 	 	 
	 	 	 	 	 

 

 

Signature page attached and incorporated into

WHOLE ACCOUNT, ACCIDENT YEAR AGGREGATE

EXCESS OF LOSS CONTRACT

EFFECTIVE 12:01 A.M., EASTERN STANDARD TIME, JANUARY 1, 2008

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES BARRE, PENNSYLVANIA

(hereinafter called the “Reassured”)

and

HANNOVER REINSURANCE (IRELAND) LTD.

DUBLIN, IRELAND

(hereinafter called the “Subscribing Reinsurer”) Under the terms

of this Contract the above Reinsurer agrees to assume severally and

not jointly with other participants

a 40.00% share

of the liability described in the attached Contract and, as
consideration, the Reinsurer shall receive a 40.00% share of the
premium named therein.

Signed in Dublin, Ireland, this           
day of      , 2008,

	 	 	 	 	 	 	 
	 	 	HANNOVER REINSURANCE (IRELAND) LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 	 	 

 

 

Signature page attached and incorporated into

WHOLE ACCOUNT, ACCIDENT YEAR AGGREGATE

EXCESS OF LOSS CONTRACT

EFFECTIVE 12:01 A.M., EASTERN STANDARD TIME, JANUARY 1, 2008

between

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

WILKES BARRE, PENNSYLVANIA

(hereinafter called the “Reassured”)

and

XL RE LTD

HAMILTON, BERMUDA

(hereinafter called the “Subscribing Reinsurer”) Under the terms

of this Contract the above Reinsurer agrees to assume severally and

not jointly with other participants

a 60.00% share

of the liability described in the attached Contract and, as
consideration, the Reinsurer shall receive a 60.00% share of the
premium named therein.

Signed in Hamilton, Bermuda, this           day of      , 2008,

	 	 	 	 	 	 	 
	 	 	HANNOVER REINSURANCE (IRELAND) LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	BY	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	TITLE	 	 	 	 
	 

	 	 	 	 	 	 

 

 

IN WITNESS WHEREOF signed by its duly authorized representative.

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

Signed in Wilkes Barre, Pennsylvania

	 	 	 	 	 
	BY:

	 	 	 	 
	 

	 	 	 	 
	TITLE:
	 	 	 	 
	 

	 	 	 	 
	DATE:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00157-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00157-of-00352.parquet"}]]