Document:

Exhibit
10.1

MASTER
AGREEMENT

This
Agreement (“Agreement”) is made this 4th day of 
April, 2006 by and between Tower Group, Inc, a Delaware corporation (“TGI”),
Tower Insurance Company of New York (“TICNY”), a New York Corporation, and
Tower National Insurance Company (“TNIC”) a Massachusetts corporation,
(collectively “Tower”) and CastlePoint Holdings, Ltd. (“CPH”), a Bermuda
exempted corporation, and CastlePoint Management Corp., (“CPM”), a Delaware
corporation (collectively “CastlePoint”).

RECITALS

WHEREAS,
TGI owns Tower Insurance Company of New York (“TICNY”) and Tower National
Insurance Company (“TNIC”),  and has
historically underwritten Brokerage Business, Traditional Program Business, and
Specialty Program Business, as defined below, and would like to enter into a
strategic agreement with CPH, CPM and CastlePoint Reinsurance Company, Ltd.(“CPRe”)
and other subsidiaries that CPH plans to form or acquire as described below;
and

WHEREAS,
CPH plans to (i) form an intermediate Bermuda company (hereinafter CastlePoint
Bermuda Holdings, Ltd. or “CPBH”), (ii) raise $235 million in capital to (a)
capitalize a reinsurance company subsidiary domiciled in Bermuda
(hereinafter  “CastlePoint Re” or “CPRe”)
to be wholly owned by CPBH and (b) acquire and capitalize one or more property
and casualty insurance companies (hereinafter referred to as “CastlePoint
Insurance Companies” or “CPIC”); and

WHEREAS,
CPM will enter into a  Program Management
Agreement with Tower whereby CPM will manage the Specialty Program Business and
Insurance Risk Sharing Business on behalf of Tower performing certain services
until such time that pooling agreements, described below, become effective; and

WHEREAS,
CPH, after the Effective Time and the licensing and capitalization of CPRe,
plans to cause CPRe to reinsure the Brokerage Business and Traditional Program
Business managed and written by Tower and Specialty Program Business and
Insurance Risk Sharing Business managed by CPM as described below on behalf of
Tower pursuant to certain quota share reinsurance agreements to be entered into
between Tower and CPRe.  Tower shall
initially cede to CPRe  30% of its
Brokerage Business and Traditional Program Business (subject to adjustment as
described below) and initially cede 85% of its Specialty Program Business and
Insurance Risk Sharing Business. The Specialty Program Business and Insurance
Risk Sharing Business Quota Share Reinsurance Agreement will be terminated when
the Specialty Program Business Pooling Agreement, as described below, becomes
effective. Additionally,  Tower plans to
cede to CPRe a certain percentage participation in its excess of loss and
property catastrophe reinsurance agreements at terms and conditions to be
agreed upon in the future as described in further detail in this Agreement; and

WHEREAS,
CPH, after the Effective Time and acquisition and licensing of CPIC, plans to
cause CPIC to enter into  pooling
agreements with Tower whereby (1) Tower will act as  manager of the  Brokerage Business pool performing certain
insurance company services and both 

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Tower and CPIC
plan to share in the underwriting results of this business by Tower retaining
initially 75% and CPIC assuming initially 25% of this business, (2) Tower will
act as manager of the Traditional Program Business pool performing certain
insurance company services and both Tower
and CPIC intend to share in the underwriting results of this business by Tower
retaining initially 75% and CPIC assuming initially 25% of this business,
and  (3) CPIC will act as manager of the
Specialty Insurance Business pool performing certain insurance company services
and both Tower and CPIC plan to share in the underwriting results of this
business by CPIC retaining initially 85% and Tower assuming initially 15% of
this business; and

WHEREAS, Tower and
CastlePoint are desirous of entering into a Service and Expense Sharing
Agreement whereby Tower and CastlePoint provide services to each other at each
other’s request (other than services provided in their respective role as the
manager of the Brokerage Business and Traditional Program Business and
Specialty Program Business under the Program Management Agreement or pooling
agreements) and to provide a method for sharing those expenses as well as
sharing any profits and losses from rendering services to third parties;

NOW THEREFORE, in
consideration of the mutual agreements described in this Agreement, Tower and CastlePoint agree as follows:

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Article I

Purpose
and Overview

1.1           Overview               As a result of the
contemplated transactions set forth herein, whereby Tower is the sponsor of, an
investor in and an intended strategic business partner with CastlePoint,  it is intended that CastlePoint will be an
organization that  (a) on fair and
reasonable terms, can provide a stable source of reinsurance to Tower, can
provide insurance risk sharing capability to Tower through pooling, reduce
Tower’s costs by sharing certain expenses and generate fee income for Tower by
rendering services to CPH’s customers and be the manager of Tower’s Specialty
Program Business to permit Tower to concentrate on its Brokerage Business and
Traditional Program Business; (b) can provide Specialty Program Business
expertise to Tower and provide to third party insurance companies similar
insurance risk sharing opportunities and solutions and insurance related
services at a fair and reasonable price; (c) can utilize Tower’s infrastructure
as CastlePoint grows to reduce its initial expenses; and (d) on fair and
reasonable terms, can have a steady source of profitable reinsurance and pooling
business from Tower in its initial years as it establishes itself in the market
place.

1.2           Purpose
of Agreement.      The
purpose of this Agreement is to:

(a)           Ratify and reaffirm all
activities taken by Tower and CPH to date regarding the organization of CPH by
Tower, its sponsor.

(b)           Set forth duties and
covenants of Tower and CPH regarding the continued organization of CPH
subsequent to the date of this Agreement to achieve the foregoing business
purposes. These duties and covenants involve:

1.             Duties and covenants
of CPH to Tower subsequent to the date of this Agreement but prior to the
Effective Time.

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2.             Duties and covenants
of Tower to CPH subsequent to the date of this Agreement but prior to the
Effective Time.

3.             Duties and covenants
of Tower to CPH after the Effective Time.

4.             Duties and covenants
of CPH to Tower after the Effective Time.

5.             Duties and covenants
of Tower and CPH to each other regarding the establishment of appropriate
corporate governance principles to address conflicts of interest and potential
breaches of fiduciary duties by each in connection with intercompany
transactions.

1.3           Agreements
Contemplated.               This
Agreement contemplates that to effectuate the business goals set forth herein,
the following agreements will be created between each organization:

(a)           Program Management
Agreement between CPM, TICNY and TNIC, in substantially the form of agreement
attached hereto as Exhibit A, to be executed at the Effective Time;

(b)           Service and Expense
Sharing Agreement between CPM, TICNY and TNIC, in substantially the form of
agreement attached hereto as Exhibit B, to be executed at the Effective Time;

(c)           Quota Share Reinsurance
Agreements between CPRe and TICNY and TNIC: one for Brokerage Business, one for
the Traditional Program Business, and one for the Specialty Program Business
and Insurance Risk Sharing Business, in 

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substantially the forms
of agreement attached hereto as Exhibits C, D and E, to be executed at the
Effective Time;

(d)           Pooling Agreements
between CPIC and TICNY and TNIC: one for the Brokerage Business, one for the
Traditional Program Business and one for the Specialty Program Business in
substantially the forms of agreement attached hereto as Exhibits F, G and H;
and

(e)           Property and casualty
excess of loss reinsurance agreements between TICNY and TNIC and CPRe, to be
effective April 1, 2006 for existing reinsurance agreements of TICNY and TNIC,
if permitted by the current third party reinsurers, and renewals thereof.

It is expressly
understood by all parties that the parties will act with diligence to cause
these agreements to become effective as soon as practicable after the  Effective Time but that some or all of these
agreements may require submission to and approval by various insurance
regulators before they can become effective. Additionally, to accomplish the
business purposes of this Agreement, certain other agreements that will impact
both parties will be developed, such as Program Underwriting Agency Agreements
to appoint third party Program Underwriting Agents, and third party
administration agreements.

1.4           Good
Faith.            Each
party expressly represents and warrants to the other that it will negotiate and
act in good faith to carry out the intent of this Agreement, including
negotiating and entering into any other agreements that are reasonable and
necessary to carry out the intent of the parties.

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1.5           Term.     This Agreement shall be
effective upon the Effective Time and shall terminate on the third anniversary
of the Effective Time.

Article II.

DEFINITIONS

The following words or
terms shall have the following definitions for the purposes of this Agreement:

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

“Effective Time”
means the date on which all conditions precedent (such as CPH raising
sufficient capital as contemplated herein and receipt by CPRe of an A- rating
from A. M. Best’s) to make the transactions contemplated herein effective are
satisfied.

“Insurance Risk
Sharing Business” means various risk sharing arrangements such as (i) pooling
or sharing of premiums and losses between TICNY initially and CPIC subsequently
and other insurance companies based upon their respective percentage
allocations or (ii) appointing other third party insurance companies as Program
Underwriting Agents and then having those third party insurance companies
assume through reinsurance a portion of the business they produce as Program
Underwriting Agents.

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

“Program Business”
means narrowly defined classes of business that are underwritten on an individual
policy basis by a Program Underwriting Agent on behalf of insurance companies.

 “Specialty Program Business” means (i) Program
Business other than Traditional Program Business and (ii) Traditional Program
Business that Tower elects not to manage and that CPH elects to manage.

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

Article III

RATIFICATION
AND AFFIRMATION OF ACTIVITIES TO DATE.

3.1           Tower’s
Affirmations.        Tower
affirms that it is the sponsor of CPH. As of the date of this Agreement, TGI
has caused CPH to be incorporated in Bermuda and has purchased all of the
shares of CPH stock for $15.0 million. Tower’s sponsorship 

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has further included, but
has not been limited to, advancing organizational expenses of CPH.

3.2           CPH’s
Affirmations.   CPH
affirms that is has been organized as a holding company under the laws of
Bermuda and that its share capital plus share premium is currently $15.0 million.
CPH affirms that it has made no capital distributions as of the date of this
Agreement but may have paid certain necessary expenses, as set forth on
schedule 3.2 attached hereto. CPH affirms that it has received approval from
the Bermuda Monetary Authority of CPRe’s incorporation application as a class 3
reinsurer. CPH affirms that it intends to raise the sum of approximately $250
million, taking into account the existing contribution of Tower to CPH, to
effectuate the business goals described herein. CPH shall reimburse Tower for
organization expenses advanced by Tower as follows: CPH will reimburse Tower
for (1) all reasonable direct external expenses incurred on behalf of CPH by
Tower and (2) a portion of all Tower’s reasonable direct employee expenses
incurred on behalf of CPH by Tower after January 1, 2006; provided that CPH
will not reimburse Tower for direct expenses incurred for legal, accounting,
tax and other professional advice requested by the TGI board for its benefit.  Such reimbursement may occur either before or
immediately after the Effective Time. CPH further affirms that CPM has been
incorporated as a corporation under the laws of the State of Delaware.

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Article IV

TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT

4.1           Duties of
Tower after Date of this Agreement and Until Effective Time

(a)           Tower shall continue
such activities as are reasonably necessary to enable CPH to complete the
organization of its subsidiaries and raise an additional $235 million in
capital. These activities shall include, but not be limited to, providing
personnel to prepare for and complete organizational and marketing activities
required to be completed prior to the Effective Time, advancing reasonable and
necessary organizational expenses of CPH as requested by CPH, and providing
office space and office services in New York and Bermuda for necessary CPH
activities.

(b)           TICNY shall enter into a
Program Management Agreement (Exhibit A) with CPM at the Effective Date to
authorize CPM to manage the Specialty Program Business and Insurance Risk
Sharing Business until CPIC is operational, after which, CPIC will manage the
Specialty Program Business and CPM or CPIC will manage the Insurance Risk
Sharing Business. Tower shall continue to manage the Brokerage Business and Traditional
Program Business. Tower shall further authorize CPM to appoint small insurers
or their affiliates to act as a Program Underwriting Agent for it as long as
those insurers assume part of the risk on business that they write using Tower’s
policies.

(c)           Tower shall continue to
write and issue policies for the same type of business that it now writes,
which is Brokerage Business, Traditional Program Business, Specialty Program
Business and Insurance Risk Sharing Business, subject to 

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prudent business
discretion, provided that it may add authority for additional lines of business
and obtain authority to write in additional states.

(d)           Tower shall analyze
whether it will need to perform any other services for CPH than as set forth in
the Services and Expense Sharing Agreement 
in connection with the Specialty Program Business and Insurance Risk
Sharing Business after management of such business is transferred to CPM under
the Program Management Agreement and later to CPIC with respect to the
Specialty Program Business after the Specialty Program Business Pooling
Agreement becomes effective. Tower shall notify CPH of the results and cost
thereof.

(e)           Tower shall enter into
a Service and Expense Sharing Agreement with CPH whereby Tower will offer
insurance company services to CPH to allow CPM to market unbundled services to
CPH’s Program Underwriting Agents and insurance risk sharing customers. The
Agreement will provide that the parties shall share equally in the profits and
losses generated.

4.2           Duties of
CPH after Date of this Agreement and Until Effective Time.

(a)           CPH shall use its best
efforts and act in good faith to raise the capital contemplated herein by April
5, 2006 and receive an indicative rating from A.M. Best’s of at least “A-”.  Upon the Effective Time, CPH will issue to
Tower warrants of ten year duration exercisable for 1,127,000 common shares of
CPH.  In addition, CPH will reserve an
additional 1,735,021 of its shares to be issued under its Long-Term Equity
Compensation Plan with options to purchase 1,126,166 CPH common shares to be 

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granted immediately after
the Effective Time to CastlePoint management and non-employee directors.

(b)           CPM shall use its best
efforts to become qualified to do business in all states in which Tower does
business (including any necessary insurance producer and managing general
agency licenses) so that CPM is able to conduct business as soon as practicable
after the Effective Time.

(c)           CPM shall enter into a
Program Management Agreement with Tower for CPM to manage the Specialty Program
Business and Insurance Risk Sharing Business, the policies for which will be
issued by Tower until CPIC is operational.

(d)           CPM shall enter into a
Service and Expense Sharing Agreement with TICNY and TNIC whereby Tower will
offer, inter alia, insurance company services to CPH in order that CPH can
market unbundled services through CPM to its Program Underwriting Agents.

(e)           CPH shall perform all
actions necessary and desirable, specifically including contributing capital in
the amount of no less than $120,000 to CPRe in order for CPRe to be
incorporated and obtain its class 3 insurance license prior to the Effective
Time, subject to an undertaking not to write business until fully capitalized.

(f)            CPH shall not expend
any funds on any expenses inconsistent with its pre-Effective Time activities
as set forth herein. It shall not declare or pay any dividends or return any
capital to Tower prior to the Effective Time (but may reimburse it for
expenses). Notwithstanding the foregoing, if the Effective Time has not
occurred by April 5, 2006, and Tower remains the sole shareholder of CPH, then,
if so requested by 

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Tower, CPH shall, shall
subject to legal requirements and/or restrictions, return any remaining capital
to Tower (after paying all expenses incurred in connection with the Offering).

(g)           CPH shall, within two
weeks after the date of this Agreement, identify in writing and provide to
Tower a list of the current Tower employees that it wishes to employ.

4.3           Duties of
CPH after Effective Time

(a)           Immediately after the
Effective Time, CPH will contribute an additional amount of $156 million to
CPBH which will in turn contribute such amount to CPRe.

(b)           After the Effective
Time, CPH will contribute $73 million to CPBH which will in turn contribute
such amount to CPM in order to enable CPM, and CPM will use its best efforts,
to purchase, acquire or otherwise organize and capitalize one or more
property/casualty insurance companies domiciled in a United States jurisdiction
(“CPIC”) that have little or no pre-existing business or accrued liabilities
and that possess the authority to write the same lines of business that Tower
possesses.   To the extent that authority
to write additional lines of business is necessary, CPM will cause CPIC to apply
for authority for those lines as soon as practicable. CPH shall cause CPIC to
commence operations with a capital base of no less than $60 million.

(c)           CPM shall employ the
identified former employees of Tower, offer these employees employee benefit
plans, at the minimum, of like kind and quality to 

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those which they enjoyed
as Tower employees, and pay any necessary relocation expenses for such
employees.

(d)           CPM shall begin
marketing activities to appoint Program Underwriting Agents to underwrite Specialty
Program Business and Insurance Risk sharing Business for Tower initially and
subsequently for CPIC. CPM shall prepare the Program Underwriting Agency
Agreements used for such appointments, subject to good faith review by Tower.

(e)           CPH shall cause CPRe to
enter into “traditional” quota share reinsurance agreements with Tower whereby
CPRe shall initially assume (i) under both the Brokerage Business Quota Share
Reinsurance Agreement and Traditional Program Business Quota Share Reinsurance
Agreement, 30% of Tower’s net liabilities (subject to adjustment but in no
event to less than 25% of nor more than 45% of Tower’s net liabilities) less
recoveries on its Brokerage Business and Traditional Program Business and (ii)
under the Specialty Program Business and Insurance Risk Sharing Business Quota
Share Agreement, 85% of Tower’s Specialty Program Business and Insurance Risk
Sharing Business (subject to adjustment but no less than 75% or more than 85%
of Tower’s net liabilities less recoveries for such business). Each of the
quota share reinsurance agreements shall provide that there is a maximum dollar
amount that limits the participation of either Tower or CPH therein to that
dollar amount even if the application of the dollar amount would cause the
percentage share to be below the minimum. 
Under the Brokerage Business Quota Share Reinsurance Agreement, CPH
shall cause CPRe shall pay a ceding commission to Tower of 34% until April 1,
2007, 

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that is subject to
adjustment thereafter depending upon the net loss ratio of the business, as
more particularly set forth in section 4.5(a) on the Brokerage Business, and 30
% for both the Specialty Program Business and Insurance Risk Sharing Business
and Traditional Program Business that is subject to adjustment depending upon
the loss ratio of the business, as more particularly set forth in section
4.5(a).  CPH shall cause CPRe to post
collateral, if required, so as to enable Tower to reflect credit for any such
reinsurance on Tower’s statutory financial statements pursuant to the laws of
its various domiciliary states.

(f)            CPH shall cause CPRe
to participate as a reinsurer of Tower, if permitted by the third party
reinsurers, in the existing excess of loss reinsurance agreements with third
party reinsurers at an attachment level of $1,000,000, for the Brokerage
Business, Traditional Program Business and Specialty Program Business.

(g)           If CPM determines that
it will require services from Tower and Tower agrees to provide such services,
other than having Tower manage the Brokerage Business and Traditional Program
Business or other than as set forth in the Services and Expense Sharing
Agreement, then CPM will negotiate in good faith to provide fair and reasonable
compensation to Tower for those services.

(h)           As soon as CPIC is authorized
to write business, CPH shall cause CPIC to enter into (1) the Brokerage
Business Pooling Agreement with Tower whereby Tower will continue to manage the
Brokerage Business, (2) the Traditional Program Business Pooling Agreement
whereby Tower will continue to manage the Traditional Program Business, and (3)
the Specialty Program Business Pooling Agreement whereby 

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CPIC will manage the
Specialty Program Business Business pool. CPIC will participate initially (i)
in 25% of the Brokerage Business pool and Traditional Program Business pool but
in no event less than 25% of, and no more than 45% of, both the Brokerage
Business and the Traditional program Business and (ii) in 85% of the Specialty
Program Business pool but in no event less than 75% of, and no more than 85%
of, the Specialty Program Business pool. Each of the pooling agreements shall
provide that there is a maximum dollar amount that limits the participation of
either Tower or CPH therein to that dollar amount even if the application of the
dollar amount would cause the percentage share to be below the minimum. Tower
will receive a management fee of 34% for its management of  the Brokerage Business pool until April 1,
2007 after which it is subject to adjustment based on loss ratio as more particularly
set forth in section 4.5 (b) below, and Tower will receive a management fee of
30% for its management of the Traditional Program Business Pool and CPIC will
receive a  management fee of 30% for its
management of the Specialty Program Business pool, both of which are subject to
adjustment based on loss ratios of the business as more particularly set forth
in section 4.5(b). In order to effectuate these pooling agreements, CPM shall
(1) assign to CPIC management of the Specialty Program Business and may
transfer its employees to CPIC , along with the employee benefit plans; (2)
cause CPRe to terminate the Specialty Program Business and Insurance Risk
Sharing Business Quota Share Reinsurance Agreement; and (3) cause CPIC to
begin, as soon as is practicable, to underwrite Specialty Program Business for
the Specialty Program Business pool.  CPM
may assign to CPIC management of the Insurance Risk Sharing Business.

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(i)            CPH shall make and
shall cause all its subsidiaries to make available to Tower, during such time,
if any, that CPH is a member of Tower’s holding company system, all information
Tower reasonably believes is necessary for Tower to file required Holding Company
System Act reports, especially forms B and C, pursuant to the laws of the
domiciliary states of Tower and the states in which it does business.

(j)            CPM shall develop and
market insurance risk sharing business solutions and insurance services to unrelated
insurance companies and Program Underwriting Agents. CPM shall focus on
marketing to insurance companies with less than $100 million in surplus, and
Program Underwriting Agents, but CPM shall not be restricted from selling to
any size company. The Insurance Risk Sharing Business solutions that CPM will
offer, subject to market conditions, include, but are not limited to: (1)
traditional quota share reinsurance through CPRe for both personal and
commercial lines with low to moderate hazard risks; (2) property and casualty
excess of loss reinsurance to quota share reinsureds; (3) pooling agreements
with CPIC and Tower; (4) appointment of the third party insurers as  Program Underwriting Agents for CPIC and
Tower with such companies reinsuring a portion of the risk so written
through  quota share or excess of loss
reinsurance; (5) reinsurance of program business and captive insurers; and (6)
insurance services such as  claims services,
policy administration and insurance technology services. CPH shall cause its
appropriate subsidiary to offer these products and services. CPH may also
consider making strategic investments in small property/casualty insurance
companies and Program Underwriting Agents with which it may do business.

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(k)           CPH shall incorporate and
organize CPBH which shall ultimately own 100% of the issued and outstanding
shares of CPRe as well as CPM.

4.4           Duties of
Tower after Effective Time

(a)           Tower shall immediately
transfer sufficient employees of Tower to CPM, as directed by CPM, to enable
CPM to commence conducting the activities contemplated herein.

(b)           Tower shall continue to
issue policies for both the Brokerage Business and Traditional Program Business
and, subject to direction from and management by CPM, Specialty Program
Business and Insurance Risk Sharing Business until such time that CPIC can
lawfully issue policies for the Specialty Program Business and Insurance Risk
Sharing Business and CPIC indicates to Tower that it will do so. Thereafter,
Tower shall manage both the Brokerage Business and Traditional Program Business
pools and Tower shall enter into a pooling agreement with CPIC whereby CPIC
will manage the Specialty Program Business pool. The Insurance Risk Sharing
Business will not be pooled. With respect to the Traditional Program Business
pool and the Specialty Program Business pool, the participating companies,
including Tower, will authorize the applicable pool manager to appoint small
insurers or their affiliates to act as Program Underwriting Agents  using the policies issued by these
participating companies on the condition that such small insurers participate
as a reinsurer on the Program Business that they underwrite.

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(c)           Tower shall continue to
(i) write for the Brokerage Business and Traditional Program Business the lines
and classes of business it has historically written and (ii) write the
substantial portion of its business in the State of New York. The proportion of
Tower’s business written outside the State of New York shall not exceed 25% of
Tower’s gross written premium in any twelve month period ending on the
anniversary date of the applicable quota share reinsurance agreement or pooling
agreement. If Tower materially changes the Brokerage Business or Traditional
Program Business, without the consent of CPRe or CPIC, as applicable, from what
Tower has historically written, or exceeds the foregoing geographical
limitations, CPRe or CPIC may, in their discretion, elect to decline
reinsurance coverage of such business from coverage under the Brokerage
Business and Traditional Program Business Quota Share Reinsurance Agreements or
elect to treat such business as not Brokerage Business or Traditional Program
Business under the Brokerage Business Pooling Agreement or Traditional Program
Business Pooling Agreement for any current period and exclude it from coverage
under those quota share agreements and pooling agreements on a prospective
basis. In such situation, Tower may reinsure such business with any reinsurer
of its choice.

(d)           Once CPRe is authorized
as a reinsurer and Tower is permitted to reflect credit for reinsurance ceded
to it, Tower shall enter into the quota share reinsurance agreements with CPRe,
to be effective the later of April 1, 
2006 or the capitalization and licensing of CPRe, for CPRe to reinsure both
the Brokerage Business and Traditional Program Business and Specialty Program
Business and Insurance Risk 

 19
 

Sharing Business issued
by Tower. Both the Brokerage Business Quota Share Reinsurance Agreement and the
Traditional Program Business Quota Share Reinsurance Agreement shall provide
that Tower will (i) cede initially 30% of its net liabilities less recoveries
on its Brokerage Business and Traditional Program Business but that such
percentage may be adjusted every 6 months provided that it shall never cede
less than 25% of and no more than 45% of its net liabilities less recoveries on
the Brokerage Business or Traditional Program Business. The Specialty Program
Business and Insurance Risk Sharing Business Quota Share Agreement shall
provide that Tower shall cede initially 85% of the Specialty Program and
Insurance Risk Sharing Business to CPRe, (subject to adjustment but in no event
less than 75% and no more than 85% of Tower’s net liabilities). Each of the
quota share reinsurance agreements shall provide that there is a maximum dollar
amount that limits the participation of either Tower or CPH therein to that
dollar amount even if the application of the dollar amount would cause the
percentage share to be below the minimum. Tower shall receive an initial ceding
commission of  (i) 34% until April 1,
2007 with respect to the Brokerage Business and (ii) 30% with respect to both
the Specialty Program Business and Insurance Risk Sharing Business and
Traditional Program Business, provided that the ceding commission for the
Brokerage Business, the Specialty Program Business, Insurance Risk Sharing
Business and the Traditional Program Business is subject to adjustment
depending upon the loss ratio of the business, as more particularly set forth
in section 4.5 (a). The ceding commission may also be adjusted in good faith by
the parties subject to section 4.5(a) 

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hereof if the regulatory
authorities will not approve the agreement with that commission level.

(e)           Tower shall use its
best efforts to have the existing reinsurers consent to permit CPRe to
participate as a reinsurer of Tower in the existing property and casualty
excess of loss reinsurance agreements with third party reinsurers at an
attachment level of $1,000,000 for the Brokerage Business, Traditional Program
Business and Specialty Program Business. Tower shall offer to CPRe the right of
first refusal to participate in any property and casualty excess of loss
reinsurance programs sought by Tower.

(f)            Once CPIC may lawfully
write business in a jurisdiction where Tower writes policies, Tower shall enter
into three or more pooling agreements with CPIC. Tower shall enter into the (1)
Brokerage Business Pooling Agreement and (2) Traditional Program Business
Pooling Agreement, under both of which Tower will manage the Brokerage Business
and Traditional Program Business pools and (3) the Specialty Program Business
pool under which CPIC will manage the Specialty Program Business pool. Tower’s
participation in the Brokerage Business pool and in the Traditional Program
Business pool will initially be 75% each of the Brokerage Business pool and
Traditional Program Business pool, but Tower shall have discretion to adjust
that participation to no less than 55% and no more than 75% of the Brokerage
Business pool and Traditional Program Business pool. Tower’s participation
percentages in the Specialty Program Business pool will be initially 15% of the
Specialty Program Business, but CPIC shall have discretion to adjust that
participation to no less than 15% and no 

 21
 

more than 25% of the
Specialty Program Business pool. Each of the pooling agreements shall provide
that there is a maximum dollar amount that limits the participation of either
Tower or CPH therein to that dollar amount even if the application of the
dollar amount would cause the percentage share to be below the minimum. Tower,
as manager of the Brokerage Business pool, will receive a provisional
management fee of 34% until April 1, 2007, subject to adjustment thereafter
based on loss ratio of the business, and, as manager of the Traditional Program
Business pool, will receive a provisional management fee of 30% that may be
adjusted based upon the net loss ratio of that business, and CPIC, as manager
of the Specialty Program Business pool, will receive a provisional management
fee of 30% that may be adjusted based upon the net loss ratio of that
business.  Each pool participant will
deduct from the management fee paid to the pool manager the actual direct
expenses charged to their company by the pool manager, including actual
commissions paid to agents or brokers, the difference between actual premium
taxes; actual fees and assessments for boards, bureaus, associations and
industry and residual market facilities (BB&T) related to policy or
accident years as applicable and a provisional 3% for BB&T; and any other
underwriting expenses allocated to the pool participant by the pool manager, or
other expenses as may, from time to time, be agreed by the parties. The
management fee for all three pools shall be adjusted based on loss ratios of
the business, as more particularly set forth in section 4.5(b). The management
fee shall be adjusted in good faith by the parties subject to section 4.5(b)
hereof if the applicable regulatory authorities will not approve the treaty with
that commission level.

 22
 

(g)           Tower, after the three
pools are operational, shall continue to reinsure the Brokerage Business and
Traditional Program Business with CPRe through the Brokerage Business Quota
Share Reinsurance Agreement and Traditional Program Business Quota Share
Reinsurance Agreement subject to their terms. The Specialty Program and
Insurance Risk Sharing Business Quota Share Reinsurance Agreement shall be
terminated.

(h)           CPIC shall issue
policies for the  Specialty Program
Business that Tower has been issuing and Tower shall have CPRe be the reinsurer
under, all or part of, an assumed quota share reinsurance agreement whereby
Tower currently assumes business from Accident Insurance Company if the
reinsured so consents.

(i)            TICNY shall enter into
the Service and Expense Sharing Agreement with CPM to share costs and share fee
income that results from providing insurance services to third party insurers
and Program Underwriting Agents.

(j)            Tower shall not sell,
give, transfer, or alienate any of the shares it acquires in CPH for a period
of six months after the Effective Time, unless required to do so by a
regulatory authority having jurisdiction over it.

(k)           Tower, as lead company
in the holding company system, shall undertake to prepare and make all filings,
specifically including all Form Ds, that are necessary in order to obtain any
required regulatory approval of the intercompany transactions set forth herein;
provided, however, that if any agreement relating to a proposed intercompany transaction
is able to be filed prior to the Effective Time, it may be filed prior to the
Effective Time.

 23
 

(l)            Tower shall determine
whether it wants to underwrite a Traditional Program Business submission in the
Traditional Program Business pool after diligently reviewing the data submitted
to it. Tower, in consultation with CPM, shall establish reasonable guidelines
for how it will and evaluate and process such submissions.

4.5           Material
terms of the Agreements contemplated hereby

(a)           The quota share
reinsurance agreements between Tower and CPRe shall be “traditional” quota
share agreements whereby risk is transferred to CPRe and shall provide for
ceding commissions of 34% for the Brokerage Business and 30% for both the
Traditional Program Business and Specialty Program Business and Insurance Risk
Sharing Business.

The ceding
commission for the Brokerage Business may be adjusted on and after April 1,
2007. The ceding commission shall increase nine-tenths of a percentage point
for every point by which the net loss ratio is below 61% up to a maximum ceding
commission of 36%, and decrease nine-tenths of a percentage point by which the
net loss ratio is above 61%, subject to a minimum ceding commission of 31%, as
follows.

	
  Net Loss Ratio

  	
   

  	
  Ceding Commission

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  64.33% or higher

  	
   

  	
  31.0

  	
  %

  
	
  64

  	
   

  	
  31.3

  	
   

  
	
  63

  	
   

  	
  32.2

  	
   

  
	
  62

  	
   

  	
  33.1

  	
   

  
	
  61

  	
   

  	
  34.0

  	
   

  
	
  60

  	
   

  	
  34.9

  	
   

  
	
  59

  	
   

  	
  35.8

  	
   

  
	
  58.78 or lower

  	
   

  	
  36.0

  	
   

  

 

 24
 

The ceding
commissions for both the Traditional Program Business and the Specialty Program
Business and Insurance Risk Sharing Business shall be adjusted on each sixth
month anniversary of the effective date of the reinsurance agreement. The
ceding commission shall increase nine-tenths of a percentage point for every
point by which the net loss ratio is below 63% up to a maximum ceding
commission of 36%, as follows:

	
  Net Loss Ratio

  	
   

  	
  Ceding Commission

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  63% or higher

  	
   

  	
  30.0

  	
  %

  
	
  62

  	
   

  	
  30.9

  	
   

  
	
  61

  	
   

  	
  31.8

  	
   

  
	
  60

  	
   

  	
  32.7

  	
   

  
	
  59

  	
   

  	
  33.6

  	
   

  
	
  58

  	
   

  	
  34.5

  	
   

  
	
  57

  	
   

  	
  35.4

  	
   

  
	
  56.33 or lower

  	
   

  	
  36.0

  	
   

  

 

However,
in the event that regulatory authorities do not approve an intercompany
transaction containing these ceding commissions, the quota share reinsurance
agreements shall require Tower and CPRe to use their best good faith efforts to
structure the transaction for the ceding company to cede premiums to CPRe in
order that the Net Loss Ratio plus ceding commission equals 95% for the
Brokerage Business and 93% for each of the Traditional Program Business and
Specialty Program Business and Insurance Risk Sharing Business.

 25
 

(b)           The three pooling
agreements between Tower and CPIC for (i) the Brokerage Business (ii)
Traditional Program Business and (iii) the Specialty Program Business shall
provide for management fees to the manager of 34% for the Brokerage Business
and 30% for each of the Traditional Program Business and Specialty Program
Business.  The management fees will be
reduced by actual direct expenses charged to their company by the pool manager,
including actual commissions paid to agents or brokers, the difference between
actual premium taxes; actual fees and assessments for boards, bureaus,
associations and industry and residual market facilities (BB&T) related to
policy or accident years as applicable and a provisional 3% for BB&T; and
any other underwriting expenses allocated to the pool participant by the pool
manager, or other expenses as may, from time to time, be agreed by the parties.
The management fee for the Brokerage Business shall be adjusted based on net
loss ratio of the business covered. The management fee percentage for the
Brokerage Business shall be 34% (which shall be applied during each year as to
premium written during such year) which shall be adjusted on and after April 1,
2007. The management fee percentage shall increase nine-tenths of a point for
every point by which the net loss ratio is below 61% up to a maximum management
fee of 36% and decrease nine-tenths of a point for every point by which the net
loss ratio exceeds 61%, subject to a minimum of 31%, as follows:

	
  Net Loss Ratio

  	
   

  	
  Management Fee Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  64.33% or higher

  	
   

  	
  31.0

  	
  %

  
	
  64

  	
   

  	
  31.3

  	
   

  
	
  63

  	
   

  	
  32.2

  	
   

  
	
  62

  	
   

  	
  33.1

  	
   

  
	
  61

  	
   

  	
  34.0

  	
   

  
	
  60

  	
   

  	
  34.9

  	
   

  
	
  59

  	
   

  	
  35.8

  	
   

  
	
  58.78 or lower

  	
   

  	
  36.0

  	
   

  

 

 26
 

The management fee
percentage for the Traditional Program Business pool and Specialty Program
Business pool shall be increased by nine-tenths of a percentage point for each
percentage point that the net loss ratio is less than 63%, subject to a maximum
fee percentage of 36%, as follows:

	
  Net Loss ratio

  	
   

  	
  Management Fee Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  63% or higher

  	
   

  	
  30.0

  	
  %

  
	
  62

  	
   

  	
  30.9

  	
   

  
	
  61

  	
   

  	
  31.8

  	
   

  
	
  60

  	
   

  	
  32.7

  	
   

  
	
  59

  	
   

  	
  33.6

  	
   

  
	
  58

  	
   

  	
  34.5

  	
   

  
	
  57

  	
   

  	
  35.4

  	
   

  
	
  56.33 or lower

  	
   

  	
  36.0

  	
   

  

 

Within sixty (60) days
following the end of each year, the applicable pool manager shall calculate the
net loss ratio for each year that remains open and shall forward copies of such
calculations to the other pool participants. 
The participating companies will settle amounts due within ten (10) days
thereafter.  The net loss ratio for each
year shall be deemed to be finalized six (6) years following the close of such
year or at any time before six (6) years by mutual agreement of the
participating companies.

However, in
recognition that regulatory authorities may not approve an intercompany
transaction containing these management fees, this Agreement shall provide for
an alternate calculation. In the event that management fees set forth 

 27
 

above are modified
for any reasons, including at the request of any insurance departments in the
various states where Tower and CPIC are domiciled, the participating companies
shall use their best good faith effort to structure the transaction for the
participating companies in order that the sum of the net loss ratio plus
management fees equals 95% for the Brokerage Business pool and 93% for the
Specialty Program Business pool and Traditional Program Business pool.

The pooling agreements
shall further provide that the pool manager of each pool shall negotiate,
obtain and maintain such pool reinsurance as it deems appropriate, including
property and casualty excess of loss reinsurance and property catastrophe
excess of loss reinsurance from third party reinsurers, with respect to the
liabilities of each pool, which reinsurance shall inure to the benefit of the
participating companies according to their respective pooling percentages. The
property catastrophe excess of loss reinsurance purchased by the pool manager
may provide for up to approximately 10% of the combined surplus of Tower and
CPIC to be retained by the pool prior to reinsurance by third party reinsurers
(“Pooled Retention”). A participating company may also, in its discretion,
require the pool manager to increase the Pooled Retention by an additional
amount of up to 10% of the surplus of CPRe provided that the pool manager
purchases reinsurance for such additional Pooled Retention from CPRe. In
addition, for the first 12 months of the Brokerage Business Pooling Agreement,
Tower shall reimburse CPIC for the property catastrophe excess of loss
reinsurance premium paid by CPIC to protect CPIC’s net exposure to the Pooled
Retention that is in excess of 

 28
 

an amount equal to the
product of $10 million multiplied by CPIC’s percentage participation in the
Brokerage Business pool.

(c)           Any property and
casualty excess of loss reinsurance agreements between Tower and CPRe shall
contain a right of first refusal for CPRe to participate as a reinsurer of
Tower in any future property and casualty excess of loss reinsurance
agreements.

(d)           The Program Management
Agreement between Tower and CPM and the Specialty Program Business Pooling
Agreement between Tower and CPIC shall provide that CPM or CPIC, as applicable,
shall conduct marketing activities on behalf of Tower and is authorized by
Tower to appoint Program Underwriting Agents to write program business for it.
Under those agreements, initially CPM and then CPIC, with respect to the
Specialty Program Business, shall manage and control the Program Underwriting
Agent’s business issued by Tower and shall be responsible to Tower for any
losses resulting from gross malfeasance or gross misfeasance of a Program
Underwriting Agent.

(e)           The Service and Expense
Sharing Agreement shall provide a method for compensating Tower if it provides
services to CPM or CPIC other than services rendered in connection with its
management of the Brokerage Business and Traditional Program Business
pool.  It may include necessary office
space in Tower’s offices. Similarly, that agreement shall specify a method for
compensating CPM or CPIC for services rendered to Tower other than for services
related to its management of the Specialty Program Business pool and Insurance
Risk Sharing Business. That agreement 

 29
 

shall also provide for
the equal sharing of profits and losses from any services rendered to third
parties.

(f)            Tower and CPH further
recognize that other agreements between the two organizations may be reasonable
and necessary to effectuate the consummation of the transactions contemplated
hereby and the realization of the business goals. Tower and CPH shall negotiate
in good faith to create fair and reasonable agreements between the two
organizations.

4.6           Corporate
Governance Considerations

(a)           Both Tower and CPH are
committed to good corporate governance, compliance with Securities and Exchange
Commission  and stock exchange listing
requirements, adherence to the applicable governing corporate laws, and
satisfaction of state regulatory laws regarding insurance company structure and
related party transactions. Tower and CPH have 
each adopted Corporate Governance Guidelines. CPH has established an audit
committee, a compensation committee and a corporate governance and nominating
committee, each which must be comprised solely of independent directors as that
term is defined in the NASDAQ Stock Market, Inc., the stock exchange on which
Tower is currently listed. CPH has also established an executive committee
which need not be comprised of independent directors. Each committee has
adopted a charter. CPH may establish such other committees of the board that
the board deems appropriate. CPH has also adopted a Code of Business Conduct
and Ethics.

(b)           Both Tower and CPH
further recognize that because Tower is a sponsor of CPH, because after the
Effective Time Tower will own up to 15% of CPH’s 

 30
 

issued and outstanding
shares on a fully diluted basis and CPH will likely have to be reported in
Tower’s holding company system act filings, and because Tower and CPH will
share members of management and board of directors, activities of each that
impact the other will attract special scrutiny from interested parties and
demand special scrutiny from Tower’s and CPH’s management and boards of
directors. Accordingly, both CPH and Tower have adopted various rigorous
internal processes and procedures to prevent violations of the duty of loyalty
owed to each organization, to address conflicts of interest that may arise
between the two organizations and related parties (i.e., members of the board
of directors and management and large shareholders), and to ensure that
transactions between the two organizations and their related parties are fair
and reasonable to both. No independent director of CPH shall beneficially own
any securities of Tower Group, Inc. or any of its subsidiaries.

(c)           The charter of CPH’s
audit committee shall provide that any transaction to which Tower and CPH are
parties or involve related parties must be reviewed and approved by a majority
of the members of the audit committee prior to any agreement becoming
effective. Likewise, any transaction to which Tower and CPH are parties or
involve related parties must be reviewed and approved by a majority of the
independent directors of Tower. Each committee charter shall provide that the
committee may retain at company expense such experts as the committee believes
necessary, including attorneys, accountants, and actuaries, to help the
committee evaluate whether the proposed transaction is fair and reasonable.

 31

(d)           Each organization shall
further require that business opportunities that arise will be pursued by the
company whose expected activities as set forth in this Agreement are most
similar, unless the audit committee of each approves that the other organization
pursue that business for sound reasons such as financial resources, geography,
technical expertise and licensing. To the extent that a new business
opportunity is not similar, the audit committee of each shall agree in good
faith which organization shall pursue that opportunity, again based on the
aforementioned factors.

(e)           The transactions
accomplished to date between Tower and CPH as described herein have been
approved by both the audit committee of CPH and a committee comprised of solely
the independent directors of the Tower board and the transactions contemplated
herein between Tower and CPH to occur after the date of this Agreement will be
similarly approved.

Article V

INFORMATION

5.1           Disclosure            Tower
has or shall have, as soon as practicable, but in any event by the date of this
Agreement (unless another date otherwise be specified herein), delivered or
caused to be delivered to CPH true, correct and complete copies of the
documents listed on Schedule 5.1 (“Disclosure Schedule”) (all such documents
and the Disclosure Schedule, together with the information, data and other
materials being provided, obtained by or furnished to CPH or its
representatives pursuant to or in connection with this 

 32
 

Agreement, including those delivered or provided prior to
the date hereof, being herein collectively referred to as the “Disclosure
Documents”).

ARTICLE VI

REPRESENTATIONS
AND WARRANTIES OF TOWER

Notwithstanding any independent investigation or verification
undertaken by CPH or its representatives, Tower hereby represents and warrants
to CPH the following:

6.1           Organization and Corporate Power.

(a)           TICNY is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York having all corporate power and authority necessary to own its
property and operate its businesses as now conducted.  It has all corporate power, authority and
legal right necessary to execute and deliver this Agreement and, subject to
receipt of the regulatory actions, approvals and consents described in Section
6.8 hereof, to perform and carry out the transactions contemplated hereby
pursuant to the terms and conditions of this Agreement.

(b)           TNIC is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts having all corporate power and authority
necessary to own its property and operate its businesses as now conducted.  It has all corporate power, authority and
legal right necessary to execute and deliver this Agreement and, subject to
receipt of the regulatory actions, approvals and 

 33
 

consents described in
Section 6.8 hereof, to perform and carry out the transactions contemplated
hereby pursuant to the terms and conditions of this Agreement.

(c)           TGI is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware having all corporate power and authority necessary to own its
property and operate its businesses as now conducted.  It has all corporate power, authority and
legal right necessary to execute and deliver this Agreement, and, subject to
receipt of the regulatory actions, approvals and consents described in Section
6.8 hereof, to perform and carry out the transactions contemplated hereby
pursuant to the terms and conditions of this Agreement.

6.2           Authorization and Effect.  This
Agreement and the performance of the actions provided for herein have been duly
and validly authorized by all necessary corporate action on the part of TGI,
TICNY and TNIC, including approval by a majority of a committee consisting
entirely of independent directors. This Agreement has been executed and
delivered by duly authorized and acting officers of TGI, TNIC and TICNY, and
assuming the due authorization, execution and delivery of this Agreement by
CPH, constitutes a legal, valid and binding obligation of TGI, TICNY, and TNIC,
enforceable in accordance with its terms subject to (i) laws relating to
bankruptcy, fraudulent conveyances, reorganization, liquidation, moratorium and
other similar laws affecting creditor’s rights generally, (ii) general
principles of equity (regardless whether enforceability is considered in a
proceeding in equity or at law), (iii) standards of commercial reasonableness
and good faith, (iv) public policy and (v) concepts of comity. Other than for
the regulatory actions, approvals and consents referred to in Section 6.8
hereof, no authorization or approval from 

 34
 

any party, governmental agency, public or quasi-public body or
authority of the United States, any state thereof, is necessary for the due
execution and delivery by TGI, TICNY and TNIC of this Agreement, or for the
validity or enforceability of all the provisions of this Agreement against TGI,
TICNY and TNIC or for the transfer of the business contemplated by this
Agreement to CPH, or any other action on the part of the, TGI, TICNY and TNIC
or any affiliate of Tower, contemplated by this agreement.

6.3           Financial Statements. The Statutory Financial Statements and Interim
Statutory Financial Statements of Tower, and other financial information,
including those indicating that Tower has generated an average loss ratio of
60% for the three years ending December 31, 2005, delivered or to be delivered
to CPH by Tower are, and, in the case of those delivered subsequent to the date
hereof, will be true, correct and complete in all material respects, and fairly
present the financial, operational and other positions of Tower as of the dates
indicated.  The Statutory Financial
Statements and Interim Statutory Financial Statements, and such other statutory
financial information, have been prepared in conformity with accounting
practices prescribed or permitted by the insurance departments of New York and
Massachusetts, and fairly present all the information therein included in
accordance with such basis of accounting. 
The consolidated balance sheets of Tower and its subsidiaries  and the related consolidated statements of
income and net income, changes in stockholders’ equity and cash flow have been
prepared in conformity with accounting principles generally accepted in the
United States, and fairly present all the information included therein in
accordance with such basis of accounting. There has been no material adverse
change in the operation or condition, financial or otherwise, of Tower from
that set 

 35
 

forth
in the audited Statutory Financial Statements as of and for the three years
ended December 31, 2005,  or the audited
financial statements included in Tower’s public filings with the United States
Securities and Exchange Commission..  For
the purposes of this Section 6.3 “material adverse change” shall mean a net
adverse change of $150,000 or greater.

6.4           Litigation and Investigations.   (a)
There are no actions, suits, proceedings, 
claims, investigations or examinations, pending or threatened (or any
basis therefor known to Tower) against or affecting the contemplated
transactions; (b) there are no unsatisfied judgments, orders, writs, decrees,
injunctions or the like issued by any court, governmental authority or
administrative body, domestic or foreign, against or affecting the contemplated
transactions; and (c) to the best of Tower’s knowledge there are no existing
violations by Tower of any federal, state, foreign or local law, regulation or
order which has or could have a materially adverse effect upon the transactions
contemplated by this transaction.

6.5           Conduct of Business.  Between
September 30, 2005 and the date of this Agreement, Tower has conducted its
business only in the usual and ordinary course consistent with past practices,
and since that date there has not been any material, adverse change to its
business.

6.6           Brokerage.  Tower
and its respective officers, directors, employees, agents or representatives,
has not employed any broker, finder or agent, or entered into any agreement with
any person to pay a brokerage fee, allowance or commission on account of or in
respect to this agreement or the transactions contemplated hereby.

6.7           Full Disclosure. 
None of the Disclosure Documents, as defined in 

 36
 

Section 5.1, and as set forth in Schedule
5.1, nor any certificate, report, statement or memorandum made or to be made or
furnished or to be furnished to CPH in connection with the negotiation and
consummation of the transfer by Tower to CPH of the business contemplated by
this Agreement, including those documents, materials, disclosures and listings
set forth in Schedule 5.1, nor any representation or warranty of Tower contains
or will contain any untrue statement of a material fact or omits or will omit
to state a material fact necessary to make the statements contained therein or
herein not misleading.  To the knowledge
of each of the officers of Tower, Tower has disclosed to CPH all known or
reasonably foreseeable material risks and liabilities relating to its
operations which are relevant to the transactions contemplated by this
Agreement.  The Disclosure Documents are
and will be accurate and complete in all material respects. The information
provided to CPH and set forth on Schedule 5.1 on the (i) historical results of
Tower’s insurance segment for the three years ended December 31, 2005, (ii) the
average gross loss ratio for Tower’s Brokerage Business and Traditional Program
Business for the three years ended December 31, 2005, and (iii) Tower’s gross
written premiums and ceded gross premiums assumed by reinsurers in its
insurance segment for the three years ended December 31, 2005 is true, accurate
and complete.

6.8           Regulatory Approvals.  Except
for consents and approvals of various intercompany transactions which may be
required by the laws of the States of New York and Massachusetts, no consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement and the consummation of the
transactions 

 37
 

contemplated
by this Agreement.  Tower is not aware of
any reason why all consents, approvals and authorizations required to permit
the performance of the transactions as contemplated herein would not be
obtained.

ARTICLE VII

REPRESENTATIONS
AND WARRANTIES OF CPH

Notwithstanding
any independent investigation or verification undertaken by Tower or its
representatives, CPH hereby represents and warrants to Tower the following:

7.1           Organization and Corporate Power.  CPH is a
corporation duly organized, validly existing and in good standing under the
laws of  Bermuda having all corporate
power and authority necessary to own its property and operate its businesses as
now conducted.  It has all corporate
power, authority and legal right necessary to execute and deliver this
Agreement and, subject to receipt of the regulatory actions, approvals and
consents described in Section  7.6
hereof, to perform and carry out the transactions contemplated hereby pursuant
to the terms and conditions of this Agreement.

7.2           Authorization and Effect.  This
Agreement and the performance of the actions provided for herein have been duly
and validly authorized by all necessary corporate action on the part of CPH,
including approval by a majority of members of the Audit Committee which
consists entirely of independent directors. 
This Agreement has been executed and delivered by duly authorized and
acting officers of CPH, and assuming the due authorization, execution and
delivery of this Agreement by Tower, constitutes a legal, valid 

 38
 

and binding obligation of CPH 
enforceable in accordance with its terms, subject to (i) laws relating
to bankruptcy, fraudulent conveyances, reorganization, liquidation, moratorium
and other similar laws affecting creditor’s rights generally, (ii) general
principles of equity (regardless whether enforceability is considered in a
proceeding in equity or at law), (iii) standards of commercial reasonableness
and good faith, (iv) public policy and (v) concepts of comity.

7.3           Organization and Corporate Power.  CPM is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware having all corporate power and authority
necessary to own its property and operate its businesses as now conducted.  It has all corporate power, authority and
legal right necessary to execute and deliver this Agreement and, subject to
receipt of the regulatory actions, approvals and consents described in Section  7.6 hereof, to perform and carry out the
transactions contemplated hereby pursuant to the terms and conditions of this
Agreement.

7.4           Authorization and Effect.  This
Agreement and the performance of the actions provided for herein have been duly
and validly authorized by all necessary corporate action on the part of
CPM.  This Agreement has been executed
and delivered by duly authorized and acting officers of CPM, and assuming the
due authorization, execution and delivery of this Agreement by Tower, constitutes
a legal, valid and binding obligation of CPM enforceable in accordance with its
terms, subject to (i) laws relating to bankruptcy, fraudulent conveyances,
reorganization, liquidation, moratorium and other similar laws affecting
creditor’s rights generally, (ii) general principles of equity (regardless
whether 

 39
 

enforceability is considered in a proceeding in equity or at law),
(iii) standards of commercial reasonableness and good faith, (iv) public policy
and (v) concepts of comity.

7.5           Litigation and Investigations.   (a)
There are no actions, suits, proceedings, 
claims, investigations or examinations, pending or threatened (or any
basis therefor known to CPH) against or affecting the contemplated
transactions; (b) there are no unsatisfied judgments, orders, writs, decrees,
injunctions or the like issued by any court, governmental authority or
administrative body, domestic or foreign, against or affecting the contemplated
transactions; and (c) to the best of CPH’s knowledge there are no existing
violations by CPH of any federal, state, foreign or local law, regulation or
order which has or could have a materially adverse effect upon the transactions
contemplated by this Agreement.

7.6           Regulatory Approvals.  Except
for the consents and approval of (a) various intercompany transactions which may
be required by (i) the insurance regulators of the State of New York and
Commonwealth of Massachusetts or any other states, if any, in which TNIC and
TICNY are commercially domiciled, or (ii) the insurance regulators of any
states in which CPIC may be domiciled or does business or in connection with
the acquisition of CPIC, and (b) any registrations or licenses required for CPM
and CPRe, no consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required by CPH
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby

7.7           Brokerage. Except for its retention of FBR, neither CPH,
nor any of its officers, directors, employees, agents or representatives has
employed any broker, finder or agent, or entered into any agreement with any
person to pay a brokerage fee, commission or 

 40
 

allowance
on account of or in respect to this Agreement or the transactions contemplated
by this Agreement.

7.8           Material Misstatements and
Omissions.  No representation or warranty made by CPH
contained in this Agreement or the exhibits hereto, and certificates made or
furnished, or to be made or furnished hereafter, by CPH or any officer of CPH
pursuant to this Agreement or in connection with the transactions contemplated
hereby, contains any untrue statement of a material fact or, taken as a whole,
omits to state a material fact necessary to make the representations or
warranties contained herein not misleading.

ARTICLE VIII

ADDITIONAL
COVENANTS OF THE PARTIES

8.1           Current Information.

(a)           During the term of this
Agreement, Tower shall make available information on the transactions
contemplated by this Agreement, as well as to the status of the regulatory
filings, approvals and consents contemplated herein, and such relevant
information as CPH may reasonably request. 
Tower will promptly notify CPH of the occurrence of any event which
could materially and adversely affect a transaction or impact adversely the
ability of Tower to complete the transactions as contemplated herein.

(b)           During the term of this
Agreement, CPH shall make available information on the transactions
contemplated by this Agreement, as well as to the status of the regulatory
filings, approvals and consents contemplated herein, and such relevant 

 41
 

information as Tower may
reasonably request.  CPH will promptly
notify Tower of the occurrence of any event which could materially and
adversely affect a transaction or impact adversely the ability of CPH complete
the transactions as contemplated herein.

8.2           Regulatory Matters.  The
parties hereto will cooperate with each other in the preparation and submission
of those filings and documents necessary to obtain the permits, consents,
approvals and authorizations of governmental bodies necessary to consummate the
transactions contemplated by this Agreement. 
Tower and CPH will furnish the other all information concerning itself
and such other matters and things as may be necessary, prudent or advisable in
connection with any statement or application made by or on behalf of Tower or
CPH to any governmental body in connection with any of the transactions
contemplated herein.

8.3           Further Assurances.  Subject
to the terms and conditions hereof, each of the parties hereto agrees to use
all reasonable efforts to take, or cause to be taken, all actions and to do or
cause to be done all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as possible.  If at any time further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of the parties hereto shall take all such reasonably necessary
action.

8.4           Notices
to Insureds.  Tower shall
fully cooperate with CPH in drafting all notices to policyholders and insurance
agents of Tower required by the transactions contemplated by this Agreement,
which notices shall be drafted to the reasonable satisfaction of CPH.  Tower shall provide to CPH as soon as
possible after execution of 

 42
 

this Agreement, but no later than one-hundred-and-twenty (120) days
prior to renewal, with respect to all its policyholders for whom CPH shall have
an obligation to issue renewal policies: 
1) all individual policyholder data, and 2) information about every
insurance agency with in-force exposures with Tower during the term of this
Agreement including name, address, contracts and commission rates.

8.5           Tower’s
Actions Relating to Insurance Policies Transferred. Because
transfers of policies between carriers are often subject to regulatory review,
Tower shall during the term of this Agreement, subject to any modifications to
such obligations as may be consented to by Tower and CPH:  (1) deliver appropriate notices to all
boards, bureaus, and associations, as may be required or appropriate, that
Tower will no longer write certain insurance products; (2) forward to CPH
within ten (10) days of receipt any premium payment received by Tower relating
to a renewal policy issued by CPH; (3) 
notify CPH as soon as possible of any notice relating to a policy issued
by Tower, including without limitation notice of a claim or change in coverage
or conditions, that is received by Tower; (4) continue to provide all services
necessary or appropriate relating to all policies issued by Tower, including
without limitation policy processing, issuance of endorsements, billing, and
adjustment of claims; and (5) cooperate fully and in good faith with CPH in
order to achieve the timely and efficient implementation of the transactions
contemplated by this Agreement in compliance with applicable law.

8.6           CPH’s
Actions Relating to Insurance Policies Transferred. Because
transfers of policies between carriers are often subject to regulatory review,
CPH shall during the term of this Agreement, subject to any modifications to
such obligations as 

 43
 

may be consented to by CPH and Tower: (1) cause a joint letter from
Tower and CPH to be issued at least ninety (90) days prior to its expiration
(or such earlier time as may be required by the applicable regulatory
authority) to each holder of a policy transferred to CPH for the purpose of
explaining the impact of the transfer on such policyholder; (2) cause an
official non-renewal notice on behalf of Tower, to be issued, at least sixty
(60) days prior to policy expiration, to each holder of a policy transferred to
CPH ; (3) cause an offer of renewal coverage by 
CPIC to be issued to transferred policies at least sixty (60) days prior
to policy expiration; (4) notify Tower as soon as possible of any notice
relating to a policy issued by Tower, including without limitation notice of a
claim or change in coverage or conditions that is received by CPH; (5) provide
all services necessary or appropriate relating to all policies issued by CPH in
connection with the transfer, including without limitation policy processing,
issuance of endorsements, billing, and adjustment of claims; and (6) cooperate
fully and in good faith with Tower in order to achieve the timely and efficient
implementation of the transactions contemplated by this Agreement in compliance
with applicable law.

8.7           Access
to Records.  Each party to
this Agreement will promptly provide access to relevant books, records, or
documents in its possession or control as reasonably requested by another party
for the purpose of implementing the transactions contemplated herein, and
carrying out the provisions of this Agreement.

8.8           Conduct
of Business.  From the
date hereof to the date of the last renewal, except as otherwise expressly
provided herein, Tower:

 44
 

(a)           Except as specifically
contemplated by this Agreement, shall conduct its business only in the ordinary
and regular course of business consistent with past practices;

(b)           in conducting its
business, shall not take, or permit others to take, any actions which are
reasonably likely to result in any materially adverse change in the written
premiums of the business upon which the parties have based the transactions
contemplated herein, including, without limitation, Tower’s Specialty Program
Business and assumed reinsurance agreements that CastlePoint will manage; and

(c)           promptly inform CPH in
writing upon becoming aware of any material breach of or change in the
representations and warranties contained in or made pursuant to or in
connection with this Agreement;

ARTICLE IX

CONDITIONS
TO CONSUMMATION OF TRANSACTIONS

9.1           General Conditions.  The obligations of the parties to complete
the various transactions contemplated by this Agreement shall be subject to the
satisfaction of the following terms and conditions, except as otherwise
specifically provided herein:

(a)           receipt of all
necessary regulatory approvals, without material or substantial qualification or
condition, as are required to consummate a transaction contemplated hereby
(except where the failure to obtain any such approval would not render the
transaction contemplated hereby illegal or otherwise deprive either party of
the 

 45
 

material benefits of this
Agreement or be materially inconsistent with the conditions set forth above),
and such shall remain in full force and effect, and all statutory waiting
periods in respect thereof shall have expired;

(b)           neither Tower nor CPH
shall be subject to any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of any
transaction contemplated hereby, nor shall there be pending a suit or
proceeding by any governmental authority which seeks injunctive or other relief
in connection with any of the transactions contemplated hereby.

9.2           Conditions to the Obligations of
CPH.  The obligation of CPH under this Agreement to
execute each transaction contemplated hereby is subject to the satisfaction, or
waiver by CPH, of the following conditions:

(a)           the obligations of
Tower required to be performed pursuant to the terms of this Agreement shall
have been duly performed and complied with in all respects;

(b)           the representations and
warranties of Tower contained in this Agreement shall be true and correct in
all respects as of the effective date of each transaction contemplated hereby
as though made at and as of such date; and

(c)           the receipt by CPH, in
form and substance satisfactory to its counsel, of the following:

(i)            a certificate executed by a Vice President of
Tower to the effect that:

 46
 

A.        the representations and warranties made herein by
Tower are true and correct on and as of the effective date of the transaction
with the same effect as though made on and as of such date;

B.         Tower has performed and complied in all material
respects with the agreements, conditions, terms and undertakings required to be
performed and complied with by them prior to or on the effective date of the
transaction;

C.         none of the documents described in  Schedule 5.1 or any Disclosure Document,
except as authorized in writing by CPH, shall have been amended, repealed or
rescinded and all such documents remain in full force and effect on and as of
the effective date of the transaction;

D.        Tower has performed and complied with all
conditions precedent to CPH’s obligations;

(ii)     a certificate executed by a Vice President of
Tower that there shall not, on the effective date of the transaction exist any
pending or threatened litigation pertaining to this Agreement or the
transactions contemplated hereby; and

(iii)    a certificate
executed by a Vice President of Tower on the effective date of each transaction
contemplated hereby to the effect that there has not been a material adverse
change in Tower’s operation or condition (financial or otherwise) since the
date of this Agreement.

9.3           Conditions to the Obligations of
Tower.  The obligations of Tower under this Agreement
shall be subject to the satisfaction or waiver by Tower at the effective date
of each transaction contemplated hereby of the following conditions:

 47

(a)           That the obligations of
CPH required to be performed by it at or prior to the effective date of the
transaction pursuant to the terms of this Agreement shall have been duly
performed and complied with in all material respects;

(b)           The representations and
warranties of CPH contained in this Agreement are true and correct in all
respects as of the effective date of the transaction as though made at and as
of such date; and

(c)           The receipt by Tower,
in a form and substance satisfactory to its counsel, of the following:

(i)      A certificate executed by the President of CPH to
the effect that the representations and warranties made herein by CPH are true
and correct on and as of the effective date of the transaction with the same
effect as though made on and as of such date and that;

A.        CPH has performed and complied in all material
respects with the agreements, conditions, terms and undertakings required to be
performed and complied with by CPH prior to or on the effective date of the
transaction; and

B.         CPH has performed and complied with all
conditions precedent to Tower’s obligations;

(ii)     A certificate executed by the President or Senior
Vice President of CPH that there shall not, on the effective date of the
transaction exist any pending or threatened litigation pertaining to this
Agreement or the transactions contemplated hereby.

 48
 

ARTICLE X

TERMINATION,
AMENDMENT AND WAIVER

10.1         Termination.  This Agreement may be terminated at any time
prior to its expiration:

(a)           by the written consent
of Tower and CPH;

(b)           by CPH if there shall
have been any material misrepresentation in this Agreement by Tower or any
material breach of any covenant of Tower hereunder and such breach shall not
have been remedied after receipt by Tower of notice in writing from CPH specifying
the nature of the breach and requesting such be remedied;

(c)           by Tower if there shall
have been any material misrepresentation in this Agreement by CPH or any
material breach of a covenant of CPH hereunder and such breach shall not have
been remedied after receipt by CPH of notice in writing from Tower specifying
the nature of the breach and requesting such be remedied; and

(d)           by either Tower or CPH
if the capital as contemplated herein is not raised within six months from date
of this Agreement, and (i) the party seeking to terminate has performed all of
its obligations, and (ii) the other party has not performed its obligations.

10.2         Effect of Termination.  In the
event that this Agreement is terminated as provided in Section 10.1 above, this
Agreement shall forthwith become void (other than this Section 10.2, and
sections 11.1, 12.1 through 12.3, and 12.5 through 12.15, hereof which shall
remain in full force and effect) and there shall be no further liability on the
part of Tower or CPH.  Nothing contained
in this Section 10.2 shall relieve any party hereto from liability for its
breach of this Agreement.

 49
 

10.3         Amendment, Extension and Waiver.  At any time during the term of this
Agreement, the parties hereto may: (a) amend this Agreement, (b) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (c) waive any inaccuracies in the representations and
warranties herein or in any document delivered pursuant hereto, or (d) waive
compliance with any of the agreements or conditions herein except where waiver
of such condition would result in a violation of law.  This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.  Any agreement on the part of a party hereto
to any extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party, but such waiver or failure to insist on
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.

ARTICLE XI

INDEMNIFICATION

11.1         Indemnification. 
Each party to this Agreement shall indemnify any other party against,
and hold it harmless from, all losses, damages, and liabilities incurred by
such party arising from any material breach of any representation or warranty
made herein or of any material failure to fulfill its obligations as set forth
in this Agreement by the party against which such indemnification is sought.  All representations and warranties and
indemnification obligations made in this Agreement shall survive the
implementation of the transactions contemplated hereby.

 50
 

ARTICLE XII

MISCELLANEOUS

12.1         Expenses. 
All costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
costs and expenses.

12.2         Notices.  All notices or other communications required
to be given hereunder shall be in writing and delivered personally or mailed by
prepaid registered or certified mail (return receipt requested) or by telegram
or telefax to the following addresses:

(a)           If to CPH

Joel Weiner

Sr. Vice-President

CastlePoint Holdings,
Ltd

Clarendon House

2 Church Street

Hamilton, Bermuda

With a copy to:

Baker & Mckenzie
LLP

1114 Avenue of the
Americas

New York, New York
10016

Attention: Roslyn Tom

(b)                                  If to Tower:

Steven Fauth, Esq.

Sr VP, General Counsel & Secretary

Tower Group, Inc.

120 Broadway

New York, New York

 51
 

12.3         Parties in Interest. 
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.

12.4         Survival of Covenants, Representations and Warranties.  The representations and warranties contained
herein shall survive throughout the course of the transactions contemplated
hereby and may be enforced by the parties hereto.  The covenants shall survive according to
their individual terms.

12.5         Counterparts.  This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
each of which shall be deemed an original.

12.6         Headings. 
The article and section headings used in this agreement have been
inserted for convenience of reference only and shall not be construed to affect
the meaning or interpretation of any provision, term or condition hereof.

12.7         Jurisdiction. 
This Agreement shall be construed and enforced in accordance with the
laws and decisions of the State of New York without giving effect to the
principles of conflicts of laws thereof.

12.8         Entire Agreement; Modification.  This Agreement  represents the entire agreement between the
parties and supersedes all prior written or oral agreements relating to the
transactions contemplated hereby, provided, however, that this Section does not
prohibit Tower from completing and updating any Schedules during the term of
this Agreement.

 52
 

12.9         Severability of Invalid Provision.  If any one or more covenants or agreements
provided in this Agreement should be contrary to law, then such covenant or
covenants, agreement or agreements shall be null and void and shall in no way
affect the validity of the other provisions of this Agreement.

12.10       Assignment of Agreement.  This Agreement may not be assigned without
the written consent of all parties to it. 
This Agreement shall insure to the benefit of, and be binding upon, the
successors of each party.  This Agreement
shall be for the sole benefit of the parties to this Agreement and their
respective heirs, successors, assigns and legal representatives and is not
intended, nor shall be construed, to give any person, other than the parties
hereto and their respective heirs, successors, assigns and legal
representatives, any legal or equitable right, remedy or claim hereunder.

12.11       Waiver. 
No party to this Agreement shall be deemed to have waived any rights or
remedies under this Agreement unless such waiver is expressly made in writing
and signed by such party.  No delay or
omission by any party in exercising any such right or remedy shall operate as a
waiver of such right or remedy.

12.12       Arbitration and Venue.

(a)           Any dispute, contest or
claim arising among the parties out of or under this Agreement shall be finally
determined by arbitration conducted in the State of New York within 50 miles of
New York City, provided that each party shall retain its right to commence an
action to obtain specific performance or other equitable relief with 

 53
 

respect to a breach or
threatened breach of this Agreement or with respect to any matter arising out
of or under this Agreement.  The party
seeking arbitration shall give written notice thereof to the other party.  If CPH and Tower are unable to resolve the
dispute within ten (10) days of the giving of such notice of arbitration, they
shall then promptly mutually select an arbitrator who shall be experienced in
insurance and reinsurance to resolve the dispute, provided that if they failed
to do so within thirty (30) days after the giving of the notice of arbitration,
either party may apply to the nearest office of the American Arbitration
Association for the appointment of the arbitrator.  The arbitrator so designated shall resolve
the matter in dispute within sixty (60) days after such designation, or as soon
thereafter as possible, by means of a written decision.  Any such resolution shall be final and
binding upon the parties.  In making his
or her determination, the arbitrator shall not subtract from, add to, or otherwise
modify any of the provisions of this Agreement. 
Each party may, at its own expenses, be represented by counsel and
employ expert witnesses in any such arbitration. Each party shall share equally
the arbitrator’s fees and expenses.  The
arbitration shall be held in accordance with the rules of the American
Arbitration Association, except as otherwise specifically provided in this
Agreement.

(b)           All suits, actions and
other proceedings arising out of or under this Agreement  shall be brought exclusively in the state or
federal courts in the State of New York, and for this purpose, each party
hereby consents to the personal jurisdiction of such courts and waives any
defense or claim based upon improper venue or an inconvenient 

 54
 

forum.  Nothing in this subsection (b) shall expand
the right of any party to bring such a suit, action or other proceeding
pursuant to subsection (a) above.

12.15       Press Releases. In the event that any party desires
to issue a press release describing any or all of the transactions contemplated
hereby, the party desiring to issue such release shall consult in good faith
with the other party hereto with respect to the form and substance of such
release prior to the public dissemination thereof.

[Next pages are
signature pages]

 55
 

IN WITNESS WHEREOF, the parties to this Agreement have caused
it to be executed by their respective undersigned officers, each thereunto duly
authorized,

	
  

  	
  Tower Group, Inc.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Francis
  Colalucci

  	
   

  
	
   

  	
  Name: Francis Colalucci

  
	
   

  	
  Title: Senior Vice President, Chief Financial
  Officer and Treasurer

  

 

	
  

  	
  Tower Insurance
  Company of New York

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Francis
  Colalucci

  	
   

  
	
   

  	
  Name: Francis Colalucci

  
	
   

  	
  Title: Senior Vice President, Chief Financial
  Officer and Treasurer

  

 

	
  

  	
  Tower National
  Insurance Company

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Francis
  Colalucci

  	
   

  
	
   

  	
  Name: Francis Colalucci

  
	
   

  	
  Title: Senior Vice President, Chief Financial
  Officer and Treasurer

  

 

	
  

  	
  CastlePoint
  Holdings, Ltd

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Joel S.
  Weiner

  	
   

  
	
   

  	
  Name: Joel S. Weiner

  
	
   

  	
  Title: Senior Vice President and Chief Financial
  Officer

  

 

 

	
  

  	
  CastlePoint
  Management Corp.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ James
  Dulligan

  	
   

  
	
   

  	
  Name: James Dulligan

  
	
   

  	
  Title: Vice President and Controller

  

 

 

 56Exhibit
10.2

Addendum No. 1 to

MASTER AGREEMENT

(hereinafter “Agreement”)
dated the 4th day of April, 2006 by and between Tower Group, Inc., a Delaware corporation (“TGI”),
Tower Insurance Company of New York (“TICNY”), a New York Corporation, and
Tower National Insurance Company (“TNIC”) a Massachusetts corporation,
(collectively “Tower”) and CastlePoint Holdings, Ltd. (“CPH”), a Bermuda
exempted corporation, and CastlePoint Management Corp., (“CPM”), a Delaware
corporation (collectively “CastlePoint”). Together TGI and CPH are referred to
as the “Parties”.

RECITALS

Whereas, TGI and
CPH have concluded that it is in their best interests to prepare an addendum number
1 (“Addendum”) to the Agreement to provide:

A.                                           a
revision to each of the applicable existing and proposed intercompany
agreements to make TICNY the sole TGI owned company that is a participant to
the various pooling and reinsurance agreements, in view of Tower’s planned
acquisition of additional operating companies; and

B.                                             clarification
on the Parties’ intentions regarding mutual annual termination provisions
added, at the recommendation of the New York Insurance Department, to the three
quota share reinsurance agreements between TICNY, TNIC and CastlePoint
Reinsurance Company, Ltd. (“CPRe”) after the Agreement was executed April 4,
2006; and

C.                                             an
adjustment to the amount ceded under the Brokerage Business Quota Share
Reinsurance Agreement, and revised procedures surrounding how the amount
reinsured under this agreement is adjusted; and

D.                                            adjustments
to the Traditional Program Business Quota Share Reinsurance Agreement to
eliminate the provision for a sliding ceding commission based on loss ratio and
replace it with a sharing of expenses and losses, revise the amount of business
that may be ceded and the amount of business that will be ceded by Tower to
CPRe, and revise procedures surrounding how the amount reinsured under this
agreement is adjusted and allow for the termination of the Traditional Program
Business Quota Share Reinsurance Agreement when the Traditional Program
Business pool is operational; and

E.                                              an
acknowledgement that the three pooling agreements initially contemplated by the
Agreement will, at the recommendation of the New York Insurance Department, be
separated and reconstituted as (i) three pooling agreements and (ii) three pool
management agreements; and

F.                                              
(i) elimination from the Traditional Program Business Pool Management Agreement
and Specialty Program Business Pool Management Agreements the provision for a
sliding ceding commission based on loss ratio and its replacement with a
sharing of expenses and losses, (ii) making CastlePoint the manager of the
Traditional Program Business pool and adjusting Tower’s participation and range
of participation in the Traditional Program Business Pooling Agreement, adjusting
Tower’s participation in the Brokerage Business Pooling Agreement, and adjusting
Tower’s range of participation in the Specialty Program Business Pooling
Agreement, 

 2
 

and (iii) providing different treatment of catastrophe
costs beginning April 1, 2007 under the Brokerage Business Pooling Agreement;
and

G.                                             revised
procedures surrounding how the pooling shares under the pooling agreements are
adjusted; and

H.                                            clarification
on the Parties intentions regarding termination provisions added, at the
recommendation of the New York Insurance Department, to the three pooling
agreements between TICNY, TNIC and CastlePoint Insurance Company. (“CPIC”)
after the Agreement was executed April 4, 2006; and

I.                                                 acknowledgement
that the Program Management Agreements attached to the Agreement will, at the
request of the New York Insurance Department, be separated into (i) a Program
Management Agreement between CPM and TICNY, and (ii) a Program Management
Agreement between CPM and TNIC, and that CPM (or CPIC) will be the manager of
the Traditional Program Business as well as the Specialty Program Business and
Insurance Risk Sharing Business; and

J.                                                clarification
on the Parties intentions regarding termination provisions added, at the
recommendation of the New York Insurance Department, to the Program Management
Agreements between TICNY, TNIC and CPM after the Agreement was executed April
4, 2006; and

K.                                            Revision
of the Service and Expense Sharing Agreement to reflect the recommendations of
the New York Insurance Department; and

L.                                              Extension
of the terms of the Master Agreement and other intercompany agreements for an
extra year, making the terms four years in total, or action consistent
therewith; and

 3
 

M.                                         Creation
of an obligation of TGI to cause its soon-to-be or newlyacquired subsidiaries
to provide a right of first refusal to enter into a loss portfolio transfer
with CastlePoint Re, if TGI decides to effectuate a loss portfolio transfer for
the reserves of such subsidiaries, upon mutually acceptable market competitive terms.

Now therefore, in
consideration of the foregoing, of the mutual covenants and undertakings as set
forth below, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Parties hereby agree as follows:

1.                       That
TICNY shall be the only TGI company that is a party to the intercompany quota
share reinsurance and pooling agreements between Tower and CastlePoint, in view
of Tower’s planned acquisition of additional operating companies. However, it
is the intention of the parties that this modification should not effect the
financial results Tower and CastlePoint that were contemplated prior to this
change and, to that end, Tower shall create and enter into pooling agreement(s)
between all of the TGI insurance companies with TICNY as the assuming and
retroceeding insurer among the TGI companies of all property and casualty
insurance written by the TGI companies, and that TICNY becomes the sole TGI
company participating in the Brokerage Business, Specialty Program Business and
Insurance Risk Sharing Business, and Traditional Program Business quota share
reinsurance agreements and in the Brokerage Business, Traditional Program
Business, and Specialty Program Business pooling agreements between Tower and
CastlePoint, with the result that the same percentage of premium,

 4
 

expenses, and losses as previously contemplated by the Parties under
the pooling and quota share agreements will be ceded to CastlePoint. See
Exhibits 1, 2, 3, 4, 5, & 6 attached.

2.                                       
That notwithstanding the inclusion of the annual mutual termination provisions
in the Amended and Restated Brokerage Business Quota Share Reinsurance
Agreement, the Amended and Restated Specialty Program Business and Insurance
Risk Sharing Business Quota Share Reinsurance Agreement and the Amended and
Restated Traditional Program Business Quota Share Reinsurance Agreement (collectively
the “Amended and Restated Quota Share Agreements”) all of which were executed
August 30, 2006, neither TGI nor CPH will cause or permit TICNY or CPRe,
respectively, to exercise the annual right to terminate the agreement that each
now has under the Amended and Restated Quota Share Agreements.  The foregoing shall not be understood to prohibit
each of TICNY or CPRe, as parties to the Amended and Restated Quota Share Agreements,
from exercising any other termination right that it might possess under the
Amended and Restated Quota Share Agreements.

3.                                       That,
as of July 1, 2006, the amount ceded by the Company (as defined in the
agreement) under the Brokerage Business Quota Share Reinsurance Agreement is
40%, and that the amount ceded may be adjusted upon not less than thirty (30)
days prior written notice to the Reinsurer (as defined in the agreement),
unless such notice is waived by the Reinsurer, and provided, however, that the
Company and the Reinsurer may agree to change the Reinsurer’s quota share

 5
 

participation as of any calendar quarter, with all such changes being
affixed to the Agreement. See Exhibit 1 attached.

4.                                     That
(a) as of July 1, 2006, the sliding scale ceding commission in the Traditional
Program Business Quota Share Reinsurance Agreement will be deleted from that
agreement to be replaced by a sharing of expenses and losses based on the
amounts ceded and assumed by CPRe and Tower, with such expenses being deemed to
be 30% of premiums, (b) as of July 1, 2006, the Traditional Program Business
Quota Share Reinsurance Agreement will be amended to provide for Tower to be
able to cede between 50% and 75% to CPRe, (c) as of July 1, 2006, the amount
ceded by Tower under the Traditional Program Business Quota Share Reinsurance
Agreement will be 50%, (d) the amount ceded may be adjusted upon not less than
thirty (30) days prior written notice to the Reinsurer, unless such notice is
waived by the Reinsurer, and provided, however, that the Company and the
Reinsurer may agree to change the Reinsurer’s quota share participation as of
any calendar quarter, with all such changes being affixed to the Agreement, and
(e) it is the intention of the Parties that the Traditional Program Business
Quota Share Reinsurance Agreement be terminated when the Traditional Program
Business Pooling Agreement is operational. See Exhibit 3 attached.

5.                                     That
(a) the Brokerage Business Pooling Agreement as originally drafted and attached
to the Agreement will be separated and reconstituted into two separate
agreements entitled: (i) the Brokerage Business Pooling Agreement and (ii) the
Brokerage Business Pool Management Agreement; (b) the Specialty

 6
 

Program Business Pooling Agreement as originally
drafted and attached to the Agreement will be separated into two separate
agreements entitled (i) the Specialty Program Business Pooling Agreement and
(ii) the Specialty Program Business Pool Management Agreement; and (c) the
Traditional Program Business Pooling Agreement as originally drafted and
attached to the Agreement will be separated into two separate agreements
entitled (i) the Traditional Program Business Pooling Agreement and (ii) the Traditional
Program Business Pool Management Agreement; and that all agreements shall
contain modifications recommended by the New York Insurance Department. See
Exhibits 4, 5, 6, 7, 8 & 9 attached.

6.                                       That
the sliding scale management fee based on loss ratio found in the initial Specialty
Program Business Pooling Agreement and in the Traditional Program Business
Pooling Agreement will not be included in either of the Traditional Program
Business Pool Management Agreement or in the Specialty Program Business Pool Management
Agreement when those agreements are executed pursuant to paragraph 5 above, and
instead will be replaced by a sharing of expenses and losses based on the
amounts ceded and assumed by CPIC and Tower, with the expenses being deemed to
be 30%; and that Article IV of the Brokerage Business Pooling Agreement shall
read as follows:

ARTICLE IV                          Reinsurance

TICNY, as pool manager,
shall negotiate, obtain and maintain such Pool Reinsurance as it deems
appropriate with respect to the liabilities of the Brokerage Business Pool,
which reinsurance shall inure to the benefit of the Participating Companies
according to their respective Pooling Percentages. 

 7
 

TICNY shall purchase
property and casualty excess of loss reinsurance and property catastrophe
excess of loss reinsurance from third party reinsurers to protect the net
exposure of the Participating Companies. The property catastrophe excess of
loss reinsurance purchased by TICNY may provide for up to approximately 10% of
the combined surplus of Tower and CPIC to be retained by the pool prior to
reinsurance by third party reinsurance companies (“Pooled Retention”).
CastlePoint also shall have the right, in its discretion, to require TICNY to
increase the Pooled Retention by an additional amount of up to 10% of the
surplus of CastlePoint Reinsurance Company Ltd. (“CPRe”), with such additional
reinsurance to be purchased from CPRe.

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

 8
 

In addition, the Brokerage Business Quota
Share Reinsurance Agreement shall be amended to provide that for the period
beginning April 1, 2007, to the extent that the total amount ceded to CPRE and
pooled with CPIC exceeds 43.75% of TICNY’s Brokerage Business Premiums, the
amount of property catastrophe premiums ceded that will be paid by CPRe shall
be 30% or the total amount, whichever is lesser, of property catastrophe
premiums ceded by the brokerage pool less the amount paid by CPIC under the
Brokerage Business Pooling Agreement, and, for the period beginning April 1,
2007, to the extent that the total amount ceded to CPRE and pooled with CPIC
exceeds 43.75% of TICNY’s Brokerage Business premiums, the amount of property
catastrophe losses incurred that will be paid by CPRe shall be 30% or the total
amount, whichever is lesser, of property catastrophe losses actually incurred
within the property catastrophe deductible for the brokerage pool less the
amount paid by CPIC under the Brokerage Business Pooling Agreement.  See Exhibits 4, 8 & 9 attached.

7.                                       That:
(a) Tower has the right to unilaterally adjust its percentage participation in
the Brokerage Business Pooling Agreement between a minimum participation of 55%
and a maximum participation of 75%, provided, however, that Tower’s maximum
participation may be as high as 85% if all parties affirmatively assent to such
higher figure; (b) that Tower’s combined participation in the Specialty Program
Business Pooling Agreement is initially 15% with a minimum of 15% and a maximum
of 50%; and (c) that Tower’s combined participation in the Traditional Program
Business Pooling Agreement is initially 50% with a minimum participation of 15%
and a maximum participation of 50%; (d) that the pool participations in all
pools may be adjusted by the Pool Manager

 9
 

upon not less than thirty (30) days prior written
notice to the other Participating Companies, unless such notice is waived by
the other Participating Companies, and provided, however, that the Pool Manager
and the other Participating Companies may agree to change the pool
participations as of any calendar quarter, with all such changes being affixed
to the applicable Agreement; and (e) that the initial pooling percentage of
TICNY in the Brokerage Business Pooling Agreement commencing January 1, 2007 is
85%. See Exhibits 4, 5 & 6 attached.

8.                                     That,
notwithstanding the inclusion of the right of immediate mutual termination and
unilateral termination at the end of a quarter upon 60 days’ notice as provided
in the Amended and Restated Brokerage Business Pooling Agreement, the Amended
and Restated Traditional Program Business Pooling Agreement and the Amended and
Restated Specialty Program Business Pooling Agreement (collectively the “Amended
and Restated Pooling Agreements”), neither TGI nor CPH will cause or permit
TICNY or CPIC, respectively, to exercise the right of immediate mutual
termination of the agreements or the right that each has to unilaterally
terminate an agreement as of the end of the quarter upon 60 days notice that
each now has under the Amended and Restated Pooling Agreements. The foregoing
shall not be understood to prohibit each of TICNY or CPIC, as parties to the
Amended and Restated Pooling Agreements, from exercising any other termination
right that it might possess under the Amended and Restated Pooling Agreements.

9.                                     That
the Program Management Agreement as originally attached to the Agreement will,
at the request of the New York Insurance Department, be

 10
 

separated into an agreement between CPM and TICNY and
an agreement between CPM and TNIC, and that CPM will be the manager under both
agreements of the Traditional Program Business as well as the Specialty Program
Business and Insurance Risk Sharing Business, and that the agreements shall
contain further modifications as recommended by the New York Insurance
Department. See Exhibits10 & 11 attached.

10.                               That,
notwithstanding the inclusion of the right of unilateral termination upon 60
days notice in the Program Management Agreements, neither TGI nor CPH will
cause or permit TICNY and TNIC or CPM, respectively, to exercise the right that
each has to unilaterally terminate an agreement upon 60 days notice that each
has under the Amended and Restated Program Management Agreements. The foregoing
shall not be understood to prohibit TICNY, TNIC or CPM, as parties to the
Amended and Restated Program Management Agreements from exercising any other
termination right that each might possess under the Amended and Restated
Program Management Agreements.

11.                               That
the Service and Expense Agreement be reconstituted into as many separate
agreements are necessary to receive approval from the applicable regulatory
authorities. See Exhibits 12 & 13 attached.

12.                                 That
the Parties intend for the Master Agreement to be effective for an additional
year (making four years in total) and the Parties shall cause their
subsidiaries to recognize that it is the Parties intention to have the Master
Agreement be effective for an additional year and shall cause their
subsidiaries (i) to not exercise the rights of immediate termination, as set
forth above, and (ii) to 

 11
 

take all necessary and
reasonable action to give force and effect to the intent and purposes of the
Master Agreement for the additional year.

13.                                 That
if TGI is acquiring any new operating companies and desires to cause these
subsidiaries to effectuate a loss portfolio transfer of existing reserves, TGI
will provide to, and cause its new subsidiaries to offer to, CPRe, or such
other subsidiary of CastlePoint that may assume such loss transfer, a right of
first refusal to be the assuming company of such loss portfolio transfer on mutually
acceptable competitive market terms.

14.                               Miscellaneous.

A.                Except as otherwise specifically addressed
in this Addendum, all other provisions of the Agreement shall remain in full
force and effect without modification thereto, but interpreted consistently
with the provisions of this Addendum.

B.      This Addendum 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.

C.                  This Addendum and all actions arising out
of or in connection with this Addendum shall be governed by and construed
according to the laws of the State of New York, exclusive of the rules with
respect to conflict of laws.

[Signature Page Follows]

 12
 

IN WITNESS WHEREOF, TGI and CPH have caused this
Addendum to be executed by their respective undersigned officers, each
thereunto duly authorized.

	
  

  	
  Tower Group, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Francis M. Colalucci

  	
   

  
	
   

  	
   

  	
  Name: Francis M.
  Colalucci

  
	
   

  	
   

  	
  Title: Senior
  Vice President and 

  
	
   

  	
   

  	
           Chief
  Financial Officer

  
	
   

  	
   

  	
  Date: January
  11, 2007

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CastlePoint
  Holdings, Ltd

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Joel S. Weiner

  	
   

  
	
   

  	
   

  	
  Name: Joel S.
  Weiner

  
	
   

  	
   

  	
  Title: Senior
  Vice President and 

  
	
   

  	
   

  	
            Chief
  Financial Officer

  
	
   

  	
   

  	
  Date: January 11,
  2007

  
						

 

 13

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