Document:

Exhibit
10.28

 

5 June 2006

 

Facultative/Obligatory

Surplus

Reinsurance
Contract

Effective:
5 June 2006

 

between

 

Flagstone Reinsurance
Limited

Hamilton, Bermuda

 

and

 

Mont Fort Re Ltd in respect
of its segregated account, designated as ILW Cell

Hamilton, Bermuda

 

 

Table of
Contents

 

	
  Article

  	
   

  	
  Page

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article I - Classes of Business Reinsured

  	
   

  	
  1

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article II - Commencement and Termination

  	
   

  	
  1

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article III - Territory (BRMA 51A)

  	
   

  	
  2

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article IV - Exclusions

  	
   

  	
  2

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article V - Retention and Limit

  	
   

  	
  2

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article VI - Security

  	
   

  	
  2

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article VII - Definitions

  	
   

  	
  2

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article VIII - Loss in Excess of Policy
  Limits/Extra Contractual Obligations

  	
   

  	
  3

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article IX - Other Reinsurance

  	
   

  	
  3

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article X - Losses and Loss Adjustment
  Expense

  	
   

  	
  3

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XI - Salvage and Subrogation

  	
   

  	
  4

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XII - Original Conditions (BRMA
  37B)

  	
   

  	
  4

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XIII - Commission

  	
   

  	
  4

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XIV - Reports and Remittances

  	
   

  	
  5

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XV - Offset

  	
   

  	
  5

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XVI - Access to Records

  	
   

  	
  5

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XVII - Errors and Omissions

  	
   

  	
  6

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XVIII - Currency (BRMA 12A)

  	
   

  	
  6

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XIX - Insolvency (BRMA 19C)

  	
   

  	
  6

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XX - Arbitration

  	
   

  	
  6

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XXI - Governing Law

  	
   

  	
  7

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article XXII- Service of Suit

  	
   

  	
  7

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule A

  	
   

  	
  A-1

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule B

  	
   

  	
  B-1

  	
   

  

 

 

Facultative/Obligatory

Surplus

Reinsurance
Contract (“Contract”)

Effective:
5 June 2006

 

between

 

Flagstone Reinsurance
Limited

Hamilton, Bermuda

(hereinafter referred to as the “Company”)

 

and

 

Mont Fort Re Ltd in respect
of its segregated account designated as ILW Cell

Hamilton, Bermuda

(hereinafter referred to as  the
“Reinsurer”)

 

Article I - Classes of Business Reinsured

 

A.                               By this contract the Company may cede to the
Reinsurer and the Reinsurer obligates itself to accept reinsurance of the
Company’s Industry Loss Warranty Liability, “ILW liability” or surplus
liability (as hereinafter defined) under policies, contracts and binders of
reinsurance (hereinafter called “policies”) in force at the effective date
hereof or issued or renewed on or after that date.

 

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

 

Article II - Commencement and Termination

 

A.                               This Contract shall become effective on 5
June 2006, with respect to losses occurring on or after that date, and shall
continue in force thereafter until terminated.

 

B.                                 Either party may terminate this Contract at
the end of any contract year by giving the other party not less than 365 days’
prior notice by certified mail.

 

C.                                 Unless the Company elects to reassume the
ceded unearned premium in force on the effective date of termination, and so
notifies the Reinsurer prior to or as promptly as possible after the effective
date of termination, reinsurance hereunder on business in force on the
effective date of termination shall remain in full force and effect until
expiration, cancellation or the next premium anniversary of such business,
whichever first occurs, but in no event beyond 18 months following the
effective date of termination.

 

D.                                “Contract year” as used herein shall mean the
period from 5 June 2006 to 31 May 2007, both days inclusive, and each
respective 12-month period thereafter that this Contract

 

1

 

continues in force. However,
if this Contract is terminated, the final contract year shall be from the beginning
of the then current contract year through the date of termination if this
Contract is terminated on a “cutoff” basis, or the end of the runoff period if
this Contract is terminated on a “runoff” basis.

 

Article III - Territory (BRMA 51A)

 

The
territorial limits of this Contract shall be worldwide in its geographical
scope.

 

Article IV - Exclusions

 

This
Contract does not apply to and specifically excludes any cession hereunder
which is not within the scope of Schedule A.

 

Article V - Retention and Limit

 

A.                               For each policy subject to this Contract, the
Company shall retain and be liable for an amount of its gross liability that
meets the requirements set forth in Schedule A attached to and forming part of
this Contract. With respect to any one program that meets the requirements set
forth in Schedule A, the Company shall then cede, and the Reinsurer agrees to
accept, an amount of the Company’s surplus liability, subject to a maximum
cession to the Reinsurer.

 

B.                                 Any policy ceded hereunder shall be disclosed
by the Company to the Reinsurer within 15 days of the end of the month in which
the cession of liability by the Company occurs.

 

C.                                 Notwithstanding the foregoing, any
reinsurance falling outside the scope of Schedule A hereof that is specially
accepted from the Company in writing by the Underwriting Committee of the Board
of Directors of the Reinsurer shall be covered under this Contract and be
subject to the terms hereof, except as such terms shall be modified by the
special acceptance.

 

Article VI - Security

 

The
Reinsurer shall provide security for its obligations hereunder in accordance
with the requirements set forth in Schedule B attached hereto.

 

Article VII - Definitions

 

A.                               “Surplus liability” as used herein is defined
as that portion of the Company’s gross liability on any policy which exceeds
the amount of its net retention.

 

B.                                 The Company shall be the sole judge of what
constitutes “one program.”

 

2

 

C.                                 References to “the Reinsurer” as used herein
shall mean the Reinsurer acting by its Board of Directors, any duly appointed
committee thereof, its duly authorized officers and employees, its duly
authorized representatives or agents, or such other person as it may lawfully
appoint.

 

Article VIII - Loss in Excess of Policy Limits/Extra
Contractual Obligations

 

A.                               In the event the Company pays or is held
liable to pay an amount of loss in excess of its policy limit, but otherwise
within the terms of its policy (hereinafter “loss in excess of policy limits”),
or any punitive, exemplary, compensatory or consequential damages other than
loss in excess of policy limits (hereinafter “extra contractual obligations”)
such loss in excess of policy limits and/or extra contractual obligations shall
be added to the Company’s loss, if any, under the policy involved, and the sum
thereof shall be subject to the provisions of Article V.

 

B.                                 An extra contractual obligation shall be
deemed to have occurred on the same date as the loss covered or alleged to be
covered under the policy.

 

C.                                 Notwithstanding anything stated herein, this
Contract shall not apply to any loss in excess of policy limits or any extra
contractual obligation incurred by the Company as a result of any fraudulent
and/or criminal act by any officer or director of the Company acting
individually or collectively or in collusion with any individual or corporation
or any other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.

 

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

 

E.                                  It is understood that loss in excess of
policy limits and extra contractual obligations paid by the Company under the
original contracts subject hereto shall be covered as contractual losses
hereunder.

 

Article IX - Other Reinsurance

 

A.                               The Company shall be entitled, but not
obligated, to purchase reinsurance protection inuring to the benefit of this
Contract.

 

B.                                 The Company shall be permitted to carry whole
account excess reinsurance or reinsurance that covers broad classes of risk,
recoveries under which shall inure solely to the benefit of the Company and be
entirely disregarded in applying all of the provisions of this Contract.

 

Article X - Losses and Loss Adjustment Expense

 

A.                               Whenever losses sustained by the Company
appear likely to result in a claim hereunder, the Company shall notify the
Reinsurer promptly.

 

3

 

B.                                 Notifications shall comprise the Company’s
best estimate of the expected amount of losses, inclusive of loss adjustment
expense, case reserves and, if at that time established by the Company, a
provision for losses incurred but not reported (“IBNR”).

 

C.                                 All loss settlements made by the Company,
whether under strict policy conditions or by way of compromise, shall be
binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the
case may be, its proportion of each such settlement in accordance with Article
XIV.

 

D.                                In the event of a claim under a policy
subject hereto, the Reinsurer shall be liable for its proportionate share of
loss adjustment expense incurred by the Company in connection therewith
(including, but not limited to, litigation expenses, interest on judgments,
expenses of outside adjusters and declaratory judgment expenses or other legal
expenses and costs incurred in connection with coverage questions and legal
actions connected thereto), but not including office expenses or salaries of
the Company’s regular employees, and shall be credited with its proportionate
share of any recoveries of such expense.

 

E.                                  In the event that the Company establishes a
provision for loss, including IBNR, the Reinsurer shall be liable for its
proportionate share of such provision, and may be required to provide security
for any such obligation.

 

Article XI - Salvage and Subrogation

 

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

 

Article XII - Original Conditions (BRMA 37B)

 

A.                               All reinsurance under this Contract shall be
subject to the same rates, terms, conditions, waivers and interpretations and
to the same modifications and alterations as the respective policies of the
Company. However, in no event shall this be construed in any way to provide
coverage outside the terms and conditions set forth in this Contract. The
Reinsurer shall be credited with its exact proportion of the original premiums
received by the Company.

 

B.                                 Nothing herein shall in any manner create any
obligations or establish any rights against the Reinsurer in favor of any third
party or any persons not parties to this Contract.

 

Article XIII - Commission

 

The
Reinsurer shall pay its proportional share of all original deductions and
acquisition expense including taxes on policies ceded by the Company to the
Reinsurer hereunder and shall allow the Company a ceding commission of 5% on
all written premiums gross of such original

 

4

 

deductions
and acquisition expense including taxes. The Company shall allow the Reinsurer
return commission on return premiums at the same rate.

 

Article XIV - Reports and Remittances

 

A.                               Within 14 days after the end of each month,
the Company shall report to the Reinsurer:

 

1.                             Ceded gross premiums written and collected
during the month;

 

2.                             Commissions, deductions and ceding commission
thereon;

 

3.                             Ceded losses and loss adjustment expense
incurred and paid during the month;

 

4.                             The change in amount of ceded reserves for
outstanding losses and loss adjustment expense as of the end of the month;

 

5.                             The change in amount of ceded IBNR as of the
end of the month; and

 

6.                             The balance of (1) less (2) less (3).

 

B.                                 The positive balance shown in A (6) above
shall be due the Reinsurer and shall be remitted by the Company with its
report. The Company may, at its election, withhold from payment an amount equal
to A (4) plus A (5), above, provided the Company credits the Reinsurer with
interest equal to the one-month LIBOR rate as quoted in The Wall Street Journal on the first business day of the month for
which the calculation is made applied to such cumulative amount held by the
Company. Any balance shown to be due the Company or otherwise due pursuant to
the requirements set forth in Schedule B attached hereto shall be remitted by
the Reinsurer as promptly as possible after receipt and verification of the
Company’s report.

 

C.                                 Annually, or at such other times as may be
reasonably requested, the Company shall furnish the Reinsurer with such
information as the Reinsurer may require in order to fulfill its financial and
regulatory reporting requirements.

 

Article XV - Offset

 

The
Company and the Reinsurer shall have the right to offset any balance or amounts
due from one party to the other under the terms of this Contract. The party
asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.

 

Article XVI - Access to Records

 

The
Reinsurer or its designated representatives shall have access at any reasonable
time to all records of the Company which pertain in any way to this
reinsurance.

 

5

 

Article XVII - Errors and Omissions

 

Inadvertent
delays, errors or omissions made in connection with this Contract or any
transaction hereunder shall not relieve either party from any liability which
would have attached had such delay, error or omission not occurred, provided,
however, that such error or omission is rectified as soon as possible after
discovery.

 

Article XVIII - Currency (BRMA12A)

 

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

 

Article XIX - Insolvency (BRMA 19C)

 

A.                               In the event of the insolvency of the
Company, this reinsurance shall be payable directly to the Company, or to its
liquidator, receiver, conservator or statutory successor on the basis of the
liability of the Company without diminution because of the insolvency of the
Company or because the liquidator, receiver, conservator or statutory successor
of the Company has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor of the
Company shall give written notice to the Reinsurer of the pendency of a claim
against the Company indicating the policy insured which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time after
such claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or statutory
successor. The expense thus incurred by the Reinsurer shall be chargeable,
subject to the approval of the court, against the Company as part of the
expense of conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.

 

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

 

Article XX - Arbitration

 

A.                               As a condition precedent to any right of
action hereunder, in the event of any dispute or difference of opinion
hereafter arising with respect to this Contract, it is hereby mutually agreed
that such dispute or difference of opinion shall be submitted to arbitration.
One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an
Umpire shall be chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive officers of
insurance or reinsurance companies or Lloyd’s London Underwriters. In the event
that either party should fail to choose an Arbiter within

 

6

 

30 days following a written
request by the other party to do so, the requesting party may choose two
Arbiters who shall in turn choose an Umpire before entering upon arbitration.
If the two Arbiters fail to agree upon the selection of an Umpire within 30
days following their appointment, either party may request a justice of a court
of general jurisdiction of Hamilton, Bermuda, to appoint the Umpire.

 

B.                                 Each party shall present its case to the
Arbiters within 30 days following the date of appointment of the Umpire. The
Arbiters shall consider this Contract as an honorable engagement rather than merely
as a legal obligation and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The decision of the Arbiters
shall be final and binding on both parties; but failing to agree, they shall
call in the Umpire and the decision of the majority shall be final and binding
upon both parties. Judgment on the award may be entered in any court having
jurisdiction.

 

C.                                 Each party shall bear the expense of its own
Arbiter, and shall jointly and equally bear with the other the expense of the
Umpire and of the arbitration. In the event that the two Arbiters are chosen by
one party, as above provided, the expense of the Arbiters, the Umpire and the
arbitration shall be equally divided between the two parties.

 

D.                                Any arbitration proceedings shall take place
in Hamilton, Bermuda; all proceedings pursuant hereto shall be governed by the
law of Bermuda.

 

Article XXI - Governing Law

 

This
Contract shall be governed by and construed in accordance with the laws of
Bermuda.

 

For
the avoidance of doubt, with respect to any obligations of the Reinsurer to the
Company under the terms of this Contract, the Company shall, in accordance with
the Segregated Accounts Companies Act 2000 (as amended), have recourse only to
the assets of ILW Cell, and not the assets of any other segregated account or
the general account of Mont Fort Re Ltd.

 

Article XXII - Service of Suit

 

It
is agreed that in the event the Reinsurer fails to pay any amount claimed to be
due hereunder, the Reinsurer, at the request of the Company, will submit to the
jurisdiction of a court of competent jurisdiction within Bermuda. Nothing in
this Article constitutes or should be understood to constitute a waiver of the
Reinsurer’s rights to commence an action in any court of competent jurisdiction
in Bermuda, to remove an action to a Bermuda Court, or to seek a transfer of a
case to another court as permitted by the laws of Bermuda.

 

7

 

In Witness Whereof, the parties by their respective duly
authorized representatives have executed this Contract as of the dates
undermentioned at:

 

 

Hamilton,
Bermuda, this 6 day of June in the year 2006.

 

	
   

  	
   

  	
  /s/
  Mark Byrne

  	
   

  	
   

  
	
   

  	
   

  	
  Flagstone
  Reinsurance Limited

  	
   

  	
   

  
	
   

  	
   

  	
  By:
  Mark Byrne, Director

  	
   

  	
   

  

 

 

Hamilton, Bermuda, this 6th day of June in the year 2006.

 

	
   

  	
   

  	
  /s/
  David Brown

  	
   

  	
   

  
	
   

  	
   

  	
  Mont
  Fort Re Ltd ILW Cell

  	
   

  	
   

  
	
   

  	
   

  	
  By:
  David Brown, Director

  	
   

  	
   

  

 

8

 

Schedule A

 

Facultative/Obligatory

Surplus

Reinsurance
Contract

Effective:
5 June 2006

 

issued to

 

Flagstone Reinsurance
Limited

Hamilton, Bermuda

 

Reinsurance
Guidelines

1)                                 Policies

 

Policies ceded by the
Company to the Reinsurer shall comprise of industry loss warranties (ILW’s) and
certain non-ILW excess of loss reinsurance policies classified by the Company
as Property Catastrophe, Property Specialty and Other Specialty, subject to the
terms, conditions and limitations herein set forth.

 

2)                                 Cession and Limit

 

The Company shall cede
policies up to a maximum aggregate limit of exposure in each of one or more
risk zones. The risk zones may comprise distinct classes of business, or as
respects property catastrophe business, one or more geographical areas of the
world that the Company considers to have low or no correlation with respect to
losses from the insured perils.

 

The Company and the
Reinsurer shall agree the number and nature of the risk zones and the limit of
exposure for each risk zone from time to time.

 

3)                                 Modification

 

The parties to this Contract
authorize the Reinsurer to modify, change, add or delete any requirements under
this Schedule A, paragraphs (2) and (3), in its sole discretion, upon 14 days’
prior written notice to the Company.

 

A-1

 

Schedule B

 

Facultative/Obligatory

Surplus

Reinsurance
Contract

Effective:
5 June 2006

 

issued to

 

Flagstone Reinsurance
Limited

Hamilton, Bermuda

1)                                 Security

 

The Reinsurer shall provide
security for its obligations to the Company under this Contract in the manner
set forth in this Schedule B.

 

2)                                 Definitions

 

Limit shall mean the maximum aggregate amount of insurance and reinsurance
loss exposures written by the Reinsurer in any Risk Zone.

 

Minimum Net Worth Requirement (MNWR) shall mean a minimum net worth plus any
written but unearned premium paid or payable to the Reinsurer under policies
ceded hereunder equal to the higher of:

 

a)                                two times the Limit of the Risk Zone having
the highest in-force Limit,; or,

 

b)                               the minimum solvency requirement imposed by
the laws and regulations of the Bermuda Monetary Authority in respect of the
Reinsurer.

 

Reinsurer’s Proportionate Reserves shall mean the Reinsurer’s proportion of the
loss reserves in respect of losses that have been reported to the Company and
allocated loss expenses relating thereto, and unearned premium reserves, and
any amounts relating to reserves in respect of losses or loss expenses Incurred
But Not Reported, as shown in the statement prepared by the Company.

 

Required Security shall mean a clean, irrevocable and unconditional
Letter of Credit issued by a bank chosen by the Reinsurer and acceptable to the
Company, or such other security as may be reasonably acceptable to the Company.

 

Risk Zone shall mean one or more geographical areas of the world, or distinct
classes or lines of business other than property catastrophe, in which the
Company underwrites policies.

 

RITC shall mean a reinsurance policy or policies purchased by the Reinsurer
whereby the Company, and/or a third party or third parties reasonably acceptable
to the Company, commutes or assumes liability for the run-off to extinction of
the policies ceded to the Company pursuant to this Contract or by a third
party.

 

B-1

 

3)                                 Notice of Loss

 

The Company agrees that when
it shall set up on its books reserves for losses covered hereunder, or unearned
premium reserves on Policies subject to this Contract, it will forward to the
Reinsurer a statement showing the Reinsurer’s Proportionate Reserves.

 

4)                                 Obligation to Provide
Required Security

 

The Reinsurer hereby agrees
that upon receiving Notice of Loss it will provide the Required Security, in an
amount equal to the Reinsurer’s Proportionate Reserves.

 

The Reinsurer and the
Company agree that the obligation to provide Required Security shall survive
any expiry or non-renewal of this Contract and any run-off of the Reinsurer and
the insolvency of any of the Company or the Reinsurer. Upon the occurrence of
any of these events, the Reinsurer shall be obligated to maintain the Required
Security at an amount equal to the Limit in each Risk Zone in respect of which
the Reinsurer may have incurred a Loss (as determined in the reasonable
judgment of the Company) until such time as the Company reasonably determines
that the remaining risk of adverse development is immaterial, achieved, as
necessary, by way of the purchase of RITC; plus,

 

5)                                 Periodic Adjustments to
Required Security

 

At quarterly intervals, or
at such other times as may be agreed by the parties, the Company shall prepare
a specific statement of the Reinsurer’s Proportionate Reserves on policies
subject to this Contract for the sole purpose of amending the amount of
Required Security. Within thirty (30) days after the receipt of such statement,
the amount of the actual security provided shall be adjusted to reflect the
revised amount of Required Security, through either an amendment to the
respective Letter of Credit or such other adjustment as is necessary and
appropriate to the form of security provided.

 

6)                                 Drawdown on Required
Security

 

The Reinsurer and the
Company agree that, notwithstanding anything to the contrary which may be
contained in this Contract, the Required Security may be drawn upon by the
Company or its successors at any time, without diminution because of the
insolvency of the Company or the Reinsurer, for one or more of the following
purposes:

 

a)                                To reimburse itself for the Reinsurer’s share
of unearned premiums on account of cancellations, unless paid in cash by the
Reinsurer;

 

b)                               To reimburse itself for Losses, unless paid
in cash by the Reinsurer;

 

c)                                To reimburse itself for the Reinsurer’s share
of any other amounts claimed to be due under this Contract, unless paid in cash
by the Reinsurer;

 

B-2

 

d)                               To refund to the Reinsurer any sum in excess
of the actual amount required to fund the Reinsurer’s obligations under this
Schedule B, if so requested by the Reinsurer.

 

The Company shall promptly
return to the Reinsurer any amount so drawn on the Required Security which is
in excess of the actual amounts required for a) or b) or, in the case of c),
the actual amount determined to be due. All settlements of account under this
Contract relating to the Required Security between the Company and the Reinsurer
shall be made in cash or its equivalent.

 

7)                                 RITC

 

The Reinsurer shall purchase
RITC after consultation with the Company (which shall advise in good faith), as
follows:

 

a)                                to the extent necessary to cure any breach by
the Reinsurer of this Schedule B;

 

b)                               to the extent necessary to permit
Redemptions, as provided for in the Articles of Association and therein
defined, of up to 50.0% of the aggregate net worth of the Reinsurer and
Holdings after taking into account the requirements of this Schedule B;

 

c)                                if Redemption Notices, as provided for in the
Articles of Association and therein defined, are received by Holdings in
respect of Redemptions which, in the aggregate, exceed the aggregate amount of
Subscriptions, as provided for In the Articles of Association and therein
defined;

 

d)                               to the extent directed by the Company; if at
any time the Company exercises the Collateral Preservation Right; or

 

e)                                to the extent so resolved by the Board of
Directors of the Reinsurer, any directors appointed by the Company not
exercising their right to vote.

 

The Reinsurer and the
Company agree that RITC shall inure either to the benefit of the Reinsurer or
to the benefit of Company as directed by the Company. In the event that RITC
inures to the benefit of the Company this Contract shall be endorsed
accordingly and, subject to the assignment by the Reinsurer to the Company of
any and all rights relating thereto, the Reinsurer shall be relieved by the
Company of any or all liabilities the subject of RITC.

 

The Reinsurer and the
Company agree that, unless the Company otherwise agrees, the S&P rating of
any entity from whom RITC is purchased shall be not less than “A” (or AM Best
rating not less that “A-”) in the absence of a breach by the Reinsurer of the
MNWR or “AA-” (or AM Best rating of “A”) if at the time of purchase the
Reinsurer is in breach of the MNWR.

 

8)                                 Preservation of Assets

 

The Reinsurer covenants with
the Company that it shall not declare or pay dividends or redeem outstanding
shares if immediately after such payment or redemption, the Reinsurer would be
in breach of the MNWR.

 

B-3Exhibit 10.29

 

LEHMAN BROTHERS

 

Transaction

 

	
  Date:

  	
  22 September, 2006

  	
   

  	
   

  
	
  To:

  	
  FLAGSTONE REINSURANCE
  HOLDINGS LTD

  	
   

  	
   

  
	
   

  	
  Attention:

  	
  Documentation Unit

  	
   

  
	
  From:

  	
  Lehman Brothers Special
  Financing Inc.

  	
   

  	
   

  
	
   

  	
  Transaction Management
  Group

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  (+1) 646-885-9551
  (United States of America)

  	
   

  
	
   

  	
  Telephone:

  	
  212-526-9570 (Louis P.
  Bardos)

  	
   

  
	
  Ref. Numbers:

  	
  Risk ID: 1295747L I Effort ID:
  N1047112/Global Deal ID: 2648398

  	
   

  
						

Dear
Sir or Madam:

The purpose of this
communication (this “Confirmation”) is to confirm the terms and conditions of
the transaction (the “Transaction”) entered into between Lehman Brothers
Special Financing Inc. (“Party A”) and FLAGSTONE REINSURANCE HOLDINGS LTD (“Party
B”) on the Trade Date specified below. This Confirmation constitutes a “Confirmation”
as referred to in the Agreement specified below.

This Confirmation
evidences a complete and binding agreement between Party A and Party B as to
the terms of the Transaction to which this Confirmation relates. In addition,
you and we agree to use all reasonable efforts promptly to negotiate, execute
and deliver an agreement in the form of the ISDA Master Agreement
(Multicurrency-Cross Border) (the “ISDA Form”), with such modifications as you and we will in good faith agree. Upon the execution by
you and us of such an agreement, this Confirmation shall supplement, form a
part of, and be subject to that agreement (the “Agreement”). All provisions
contained or incorporated by reference in the Agreement, upon its execution,
will govern this Confirmation except as expressly modified below. Until we
execute and deliver the Agreement, this Confirmation, together with all other
documents confirming transactions entered into between us and referring to the
ISDA Form, shall supplement, form a part of, and be subject to an agreement in
the form of the ISDA Form as if we had executed an agreement in such form (but
without any Schedule) on the Trade Date of this Transaction. In the event of
any inconsistency between the provisions of that agreement, or the Agreement, when
executed, and this Confirmation, this Confirmation will prevail for the purpose
of this Transaction.

The
definitions and provisions contained in the 2000 ISDA Definitions as published
by the International Swaps and Derivatives Association, Inc. (the “Definitions”)
are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and
the terms of this Confirmation, this Confirmation will govern. For the purpose
of the Definitions, references herein to a “Transaction” shall be deemed to be
references to a “Swap Transaction”.

Party
A and Party B each represents that entering into the Transaction is within its
capacity, is duly authorized and does not violate any laws of its
jurisdiction of organization or residence or the terms of any agreement to
which it is a party. Party A and Party B each represents that (a) it is not relying on the other party in connection with its decision to enter into this Transaction, and neither party is acting
as an advisor to or fiduciary of the other party in connection with this Transaction regardless of whether the other party
provides it with market information or its views; (b) it understands the risks
of the Transaction and any legal, regulatory, tax, accounting and economic
consequences resulting therefrom; and (c) it has determined based upon its own
judgment and upon any advice received from its own professional advisors as it
has deemed necessary to consult that entering into the Transaction is
appropriate for such party in light of its financial capabilities and
objectives. Party A and Party B each represents that upon due execution and
delivery of this Confirmation, it will constitute a legally valid and binding
obligation,

LEHMAN BROTHERS SPECIAL
FINANCING INC.

LEHMAN BROTHERS INC.

745 SEVENTH AVENUE, NEW YORK NY 10019

 

 

enforceable against it in accordance with its terms,
subject to applicable principles of bankruptcy and creditors’ rights generally
and to equitable principles of general application.

The terms of the particular Transaction to which this
Confirmation relates are as follows:

	
  General Terms:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Trade Date:

  	
   

  	
  01 September, 2006

  
	
   

  	
   

  	
   

  
	
  Effective Date:

  	
   

  	
  05 September, 2006

  
	
   

  	
   

  	
   

  
	
  Termination Date:

  	
   

  	
  15 September, 2011,
  subject to adjustment in accordance with the Modified Following Business Day
  Convention.

  
	
   

  	
   

  	
   

  
	
  Floating Amounts I:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Floating
  Amount I Payer:

  	
   

  	
  Party A

  
	
   

  	
   

  	
   

  
	
  Floating Amount
  Payer I Currency Amount:

  	
   

  	
  EUR 13,000,000.00 

  
	
   

  	
   

  	
   

  
	
  Floating
  Amount I Payer Payment Dates:

  	
   

  	
  The 15th calendar day
  of each March, June, September, and December, from and including 15 December,
  2006 to and including the Termination Date, subject to adjustment in
  accordance with the Modified Following Business Day Convention.

  
	
   

  	
   

  	
   

  
	
  Floating
  Rate Option:

  	
   

  	
  EUR-EURIBOR-Telerate

  
	
   

  	
   

  	
   

  
	
  Designated
  Maturity:

  	
   

  	
  3 months

  
	
   

  	
   

  	
   

  
	
  Spread:

  	
   

  	
  Plus 3.54%

  
	
   

  	
   

  	
   

  
	
  Floating
  Rate Day Count Fraction:

  	
   

  	
  Actual/360

  
	
   

  	
   

  	
   

  
	
  Reset Dates:

  	
   

  	
  The first day of each Calculation Period

  
	
   

  	
   

  	
   

  
	
  Floating Amounts II:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Floating
  Amount II Payer:

  	
   

  	
  Party B

  
	
   

  	
   

  	
   

  
	
  Floating Amount
  Payer II Currency Amount:

  	
   

  	
  USD16,688,100.00

  
	
   

  	
   

  	
   

  
	
  Floating
  Amount II Payer Payment Dates:

  	
   

  	
  The 15th calendar day
  of each March, June, September, and December, from and including 15 December,
  2006 to and including the Termination Date, subject to adjustment in
  accordance with the Modified Following Business Day Convention.

  
	
   

  	
   

  	
   

  
	
  Floating
  Rate Option:

  	
   

  	
  USD-LIBOR-BBA

  
	
   

  	
   

  	
   

  
	
  Designated Maturity:

  	
   

  	
  3 months

  
	
   

  	
   

  	
   

  
	
  Spread:

  	
   

  	
  Plus 3.71%

  
	
   

  	
   

  	
   

  
	
  Floating Rate Day Count Fraction:

  	
   

  	
  Actual/360

  
	
   

  	
   

  	
   

  
	
  Reset Dates:

  	
   

  	
  The first day of each
  Calculation Period

  

 

Risk ID: 1295747L / Effort ID: 1047112 / Global Deal ID: 2648398

 

Page 2 of 6

 

 

 

	
  Initial Exchange:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Initial Exchange Date:

  	
   

  	
  The Effective Date

  
	
   

  	
   

  	
   

  
	
  Floating Amount Payer I Initial Exchange Amount:

  	
   

  	
  USD16,688,100.00

  
	
   

  	
   

  	
   

  
	
  Floating Amount Payer II Initial Exchange Amount:

  	
   

  	
  EUR13,000,000.00

  
	
   

  	
   

  	
   

  
	
  Final Exchange:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Final Exchange Date:

  	
   

  	
  The
  Termination Date

  
	
   

  	
   

  	
   

  
	
  Floating Amount Payer I Final Exchange Amount:

  	
   

  	
  EUR13,000,000.00

  
	
   

  	
   

  	
   

  
	
  Floating Amount Payer II Final Exchange Date:

  	
   

  	
  USD16,688,100.00

  
	
   

  	
   

  	
   

  
	
  Business Days:

  	
   

  	
  London; New York; TARGET Settlement Day

  
	
   

  	
   

  	
   

  
	
  Miscellaneous:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Calculalion Agent:

  	
   

  	
  Party A

  
	
   

  	
   

  	
   

  
	
  Office:

  	
   

  	
  For the purposes of this Transaction, Party A is not
  a Multibranch Party, and the Office of Party B is its Head Office.

  
	
   

  	
   

  	
   

  
	
  Transfer:

  	
   

  	
  Notwithstanding
  Section 7 of the Agreement, Party A may assign its rights and obligations
  under this Transaction, in whole and not in part, to any Affiliate of Lehman
  Brothers Holdings Inc. (“Holdings”) effective upon delivery to Party B of the
  guarantee by Holdings, in favor of Party B, of the obligations of such
  Affiliate; provided, however, any provision to the contrary in the Agreement,
  when executed, shall take precedence over this election.

  
	
   

  	
   

  	
   

  
	
  Governing Law:

  	
   

  	
  English
  law; provided, however, any provision to the contrary in the Agreement, when
  executed, shall take precedence over this election.

  
	
   

  	
   

  	
   

  
	
  Termination Currency:

  	
   

  	
  USD;
  provided, however, any provision to the contrary in the Agreement, when
  executed, shall take precedence over this election.

  

 

Risk ID: 1295747L /
Effort ID: 1047112 / Global Deal ID: 2648398

 

Page 3 of 6

 

	
  Collateral:

  	
   

  	
  Party A and Party B
  agree that this provision will apply with respect to this Transaction and all
  other Transactions entered into between them until such time as they execute
  an ISDA Credit Support Annex to the Agreement.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Paragraphs one through
  ten of the standard form ISDA Credit Support Annex (English law) (the “CSA”)
  are incorporated by reference herein subject to the elections and
  modifications set out below. Terms defined in the CSA have this same meaning
  herein.

  
	
   

  	
   

  	
   

  
	
  Elections and
  variables for the purposes of Paragraph 13 of the CSA:

  	
   

  	
  “Eligible Collateral”
  shall include, for Party B, (A) USD cash at a Valuation Percentage of 100% and/or (B) negotiable debt
  obligations issued by the U.S. Treasury Department having a maturity at
  issuance of not more than one year (“Treasury Bills”) at a Valuation
  Percentage of 99% and/or (C) negotiable debt obligations issued by the U.S.
  Treasury Department having a maturity at issuance of more than one year but
  not more than ten years (“Treasury Notes”) at a Valuation Percentage of 98%
  and/or (D) negotiable debt obligations issued by the U.S. Treasury Department
  having a maturity at issuance of more than ten years (“Treasury Bonds”) at a
  Valuation Percentage of 97%.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notwithstanding
  anything contained herein, the term “Transferee” means only Party A and the
  term “Transferor” means only Party B.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Threshold” means zero
  (0) with respect to Party B.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Minimum Transfer
  Amount” means with respect to a party USD250,000.00; provided that if an Event of Default,
  Credit Event Upon Merger or Additional Termination Event has occurred and is continuing with respect to a party, the Minimum Transfer
  Amount with respect to such party shall be zero.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Valuation Agent”
  means Party A. Notwithstanding Paragraph 3(b), calculations will only be provided
  upon a demand made by Party B.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Valuation Date” means
  any Local Business Day.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Valuation Time” means
  the close of business in the location where the relevant product is traded
  provided that the
  calculations of Value and Exposure
  will be made as of
  approximately the same time on the same date.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Notification
  Time” means 3.00 p.m., New York time, on a Local Business Day.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

Risk ID: 1295747L / Effort ID: 1047112 / Global Deal
ID: 2648398

 

Page 4 of 6

 

 

	
   

  	
   

  	
  “Value” For the purpose
  of Paragraph 4(a)(4)(i)(C) and 4(a)(4)(ii) of the CSA, the Value of the
  outstanding Credit Support Balance or of Eligible Credit Support or
  Equivalent Credit Support other than cash will be calculated as follows:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With respect to any
  Treasury Bills, Treasury Notes, or Treasury Bonds (referred to herein as
  “Government Obligations”) the sum of (I) (x) the bid price quoted on such
  date by a mutually acceptable principal market maker for such Government Obligations,
  or (y) if no such quotation is available from a principal market maker for
  such date, such bid price as of the day, next preceding such date,
  on which such quotation was available, in either case multiplied by the
  applicable Valuation Percentage, plus (II) the accrued interest on such
  Government Obligations (except to the extent Transferred to a party pursuant
  to any applicable section of this Agreement or included in the applicable
  price referred to in (I) of this definition) as of such date.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Interest Rate” means
  the rate per annum equal to the overnight Federal Funds Rate for each day
  Cash is held by the Secured Party as reported in Federal Reserve Publication
  H.15-519.

  

 

(I)                                    Additional
Termination Events (provided, however, any provision to the contrary in the
Agreement, when executed, shall take precedence over these Additional
Termination Events):

(a) Maintenance of Shareholders’ Equity. On any day during the
term hereof, Party A in its sole discretion determines that Party B has failed
to maintain a minimum Shareholders’ Equity in an amount equal to USD
500,000,000. For the purpose of the foregoing Termination Event, Party B shall
be the Affected Party.

For the purposes
hereof, “Stockholders’ Equity” means with
respect to an entity, at any time, the sum at such time of (i) its capital
stock (including preferred stock) outstanding, taken at par value, (ii) its
capital surplus and (iii) its retained earnings, minus (iv) treasury stock,
each to be determined in accordance with generally accepted accounting
principles consistently applied.

(b) Intervention. Any insurance regulatory authority takes
action to intervene into the management or business affairs of Party B,
including without limitation, the commencement of a supervisory, rehabilitation
or delinquency proceeding or the application to a court to commence the same.
For purpose of the foregoing Termination Event, Party B shall be the Affected
Party.

 

Risk ID: 1295747L 1 Effort ID: 1047112 / Global Deal ID: 2648398

 

Page 5 of 6

 

(c) Material Adverse Change. Party B has experienced or is experiencing
a material adverse change, determined by Party A in Party A’s sole discretion,
in its business, assets, operations or financial condition. For the purpose of
the foregoing Termination Event, Party B shall be the Affected Party.

(II)                                Other Provisions: (provided, however, any provision to the
contrary in the Agreement, when executed, shall take precedence over these
provisions):

(a) Representations: Section 3 of the ISDA Form is hereby
amended by adding the following additional subsection:

Eligible Contract Participant. It is an “eligible contract participant” as defined
in the Commodity Futures Modernization Act of 2000; provided, however, any provision
to the contrary in the Agreement, when executed, shall take precedence over
this election.

(b) Waiver of Trial By Jury. Insofar as is permitted
by law, each party irrevocably waives any and all rights to trial by jury in
any legal proceeding in connection with this Transaction, and acknowledges that
this waiver is a material inducement to the other party’s entering into this
Transaction hereunder; provided, however, any provision to the contrary in the
Agreement, when executed, shall take precedence over this election.

Please confirm
your agreement with the foregoing by executing this Confirmation and returning
such Confirmation, in its entirety, to us at facsimile number (+1) 646-885-9551
(United States of America), Attention: Confirmations Group.

 

	
  Yours sincerely,

  	
  Accepted and agreed to:

  
	
   

  	
   

  
	
  Lehman Brothers Special
  Financing Inc.

  	
  FLAGSTONE REINSURANCE HOLDINGS
  LTD

  
	
  By:

  	
   

  
	
  Name: Anatoly Kozlov

  	
   

  
	
  Title:   Authorized Signatory

  	
   

  
	
   

  	
  By:

  
	
   

  	
  Name: Patrick Boisvert

  
	
   

  	
  Title: CAO

  
	
   

  	
   

  
	
   

  	
  

  

 

Risk ID:
1295747L / Effort ID: 1047112 / Global Deal ID: 2648398

Page 6 of 6

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