Document:

Employment Memorandum

 
Exhibit 10.69

 
 
 
October 30, 2000 
 
 
SCPIE Holdings Inc. 
1888 Century Park East, Suite 800 
Los
Angeles, California 90067-1712 
 

	 Attn:
	 	      Mr. Donald J. Zuk

	 	 	      President and Chief Executive Officer

 
 
 Re:    Employment Terms 
 
Gentlemen: 
 
The attached memorandum dated October 5, 2000 from the undersigned, Donald P. Newell, to Donald Zuk contains the terms of employment of
the undersigned by SCPIE Holdings Inc., or one of its affiliate companies (“SCPIE”). 
 
The undersigned hereby agrees to the foregoing terms. If you are in agreement, please sign in the space below, and this letter agreement shall constitute our mutual binding agreement. 
 
 

	 Very truly yours,

	
	 /S/    DONALD P. NEWELL

	         Donald P. Newell

 
 
 
The foregoing is agreed: 
 
 

	 SCPIE HOLDINGS INC.

	
	 By:
	 	 /S/    DONALD J.
ZUK

	 	 	 Donald J. Zuk
 President and Chief Executive Officer

 
 

 
October 5, 2000 
 
 

	 To:
	  	     Don Zuk

	 From:
	  	     Pat Newell

	 File no:
	  	 
	 Copies to:
	  	 
	 Subject:
	  	     Employment Arrangement

 
 
The following is a summary of our discussions concerning my employment by SCPIE Holdings Inc. (“SCPIE”). I have referred to me
as “Executive.” 
 

	 	1.	 	Position and Duties. 

 
Executive will serve in such business and legal capacity as the Board of Directors of SCPIE shall determine from time to time. We
contemplate that the initial position will be Senior Vice President and General Counsel and that the Board may change this position in its discretion. Executive will supervise legal matters on behalf of SCPIE and will perform such other services as
may be designated from time to time by the chief Executive Officer (“CEO”) or the Board. 
 

	 	2.	 	Term. 

 
Employment will commence on January 1, 2001 and the term will be for one year. At least 60 days before the end of the term, Executive and
the CEO will discuss an extension of the term for an additional year or years. 
 

	 	3.	 	Performance of Services. 

 
Executive will perform services under this arrangement at and from the Company’s headquarters in Century City. Executive will work
three days each week (Tuesday, Wednesday and Thursday) and will devote his full time to the business of SCPIE on those days, including attendance at evening meetings of SCPIE committees and other groups, if requested by the CEO. (If necessary for
the business of SCPIE, Executive and the CEO may agree to rearrange this schedule from time to time.) 
 

	 	4.	 	Base Compensation. 

 
Executive will be paid a base annual salary of $150,000 ($12,500 per month), payable in accordance with SCPIE’s normal payroll
practices. 

 

	 	5.	 	Deferred Compensation. 

 
Executive will receive deferred compensation for the 12-month term at a monthly rate of $16,667. Such monthly deferred amount will bear
interest at a rate of 9% per annum, compounded quarterly, until paid. The deferred compensation, together with accrued interest, shall be held by SCPIE in a “phantom” deferred compensation account and maintained as an unfunded general
liability. Commencing 2008, the balance in the deferred compensation account shall be paid to Executive (together with interest at a continuing rate of 9% per annum, compounded quarterly) in equal monthly installments over a ten-year term. The
first monthly installment will commence January 1, 2008. In the event of Executive’s death prior to the end of the payment term, the balance (including interest) in the deferred compensation account shall be paid in a lump sum to
Executive’s designated beneficiary. 
 
In the
event SCPIE is acquired by another company, then the payment of the full amount of the deferred compensation, plus interest, shall be accelerated and paid at the consummation of such acquisition, unless Executive makes an election prior to
completion of the acquisition to continue the deferred arrangement without acceleration. 
 

	 	6.	 	Bonus Plan. 

 
Executive shall not be entitled to participate in the SCPIE bonus plan for executives. 
 

	 	7.	 	Stock Options. 

 
Executive may be granted stock options on such terms and in such amounts as determined by the Stock Option Committee of the Board.

 

	 	8.	 	Benefit Plans. 

 
Executive shall be included in SCPIE’s medical plan and similar employee benefit plans, except that Executive shall not be entitled
to participate in any SCPIE pension plan or supplemental retirement plan for senior executives. Executive may participate in the Employee Stock Purchase Plan and the 401(k) plan in accordance with the eligibility provisions of those plans.

 

	 	9.	 	Vacation and sick Leave. 

 
Executive shall be entitled to four weeks vacation annually and to SCPIE’s standard sick leave. 
 

2 

 

	 	10.	 	Miscellaneous Benefits and Expense Reimbursements. 

 
Executive shall be reimbursed for ordinary and necessary business expenses and shall receive such other perquisites and benefits granted
to senior officers of SCPIE (as determined by the CEO in his discretion). 
 

	 	11.	 	Board Membership. 

 
Executive shall remain a member of the Board and be paid the same Board fees and other compensation payable to non-employee directors.
Executive shall not receive any stock options in his capacity as a director of SCPIE. 
 
 
 

3<PAGE>

                                                                   Exhibit 10.70

                        QUOTA SHARE RETROCESSION CONTRACT

                                    issued to

                             SCPIE INDEMNITY COMPANY
                 (an insurance company registered in California
               whose address is 1888 Century Park East, Suite 800,
                      Los Angeles, California, 90067-1712)

                      AMERICAN HEALTHCARE INDEMNITY COMPANY
          (an insurance company registered in Delaware whose address is
                       1888 Century Park East, Suite 800,
                      Los Angeles, California, 90067-1712)

                                       and

                 AMERICAN HEALTHCARE SPECIALTY INSURANCE COMPANY
          (an insurance company registered in Arkansas whose address is
                       1888 Century Park East, Suite 800,
                      Los Angeles, California, 90067-1712)

                          (collectively, the "Company")

                                       by

                           GOSHAWK REINSURANCE LIMITED
                    31 Church Street, Hamilton, Bermuda HM12
                                (the "Reinsurer")

                                    ARTICLE 1

DEFINITIONS AND INTERPRETATION

A.   In this agreement the following words and expression shall have the
     following meanings unless the context requires otherwise:

     "Business Day" means a day (excluding Saturdays and Sundays) on which
     commercial banks generally are open in Los Angeles, California for the
     transaction of normal banking business;

     "Claim" means a claim made by or on behalf of the Insured against the
     Company pursuant to a Contract;

     "Contracts" means the contracts of reinsurance details of which are set out
     at schedule 1 excluding those contracts cancelled by the operation of
     paragraph D of Article 10 (Warranties, Exclusions of Contracts and
     Undertakings) and "Contract" means any or all of them as the context
     requires excluding, for the avoidance of doubt, any rewrites or additions
     beyond the current expiration dates of the Contracts;

     "Contract Attachment Date" means, with respect to each Contract, the date
     identified in the column entitled "Contract Attachment Date" on schedule 1;

     "Effective Date" means June 30, 2002;

                                      -1-

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     "Estimated Percentage" means with respect to a Contract the percentage
     identified on schedule 1 under the column "Estimated Goshawk Percentage
     Share of Losses";

     "Execution Date" means the date of this agreement;

     "Guarantee" means the guarantee in the agreed terms to be given on the
     Execution Date by SCPIE Holdings Inc. in favour of the Reinsurer;

     "Insured" means the party (or parties) insured by the Company pursuant to a
     Contract;

     "Loss" means the total amount required to be paid by the Company pursuant
     to a Contract as a result of an individual Claim;

     "Loss Date" means in respect of a Loss the date on which that Loss was
     suffered by the Insured;

     "Opinion of Counsel" means an opinion of counsel addressed to the Reinsurer
     in the agreed terms, in relation to each entity comprising the Company and
     in relation to SCPIE Holdings Inc. opining on the good standing of each
     such entity as at the Execution Date;

     "Representative" means the person appointed pursuant to Article 18 (Company
     Representative);

     "Security Fund Agreement" means the agreement in the agreed terms referred
     to in Article 7.D to be entered into on the Execution Date by the Parties
     and a qualified custodian as defined by section 1104.9 of the California
     Insurance Code;

     "Transitional Services Agreement" means the agreement in the agreed terms
     relating to certain transitional services to be provided to the Reinsurer,
     to be entered into on the Execution Date by the Reinsurer and SCPIE
     Holdings Inc;

     "Trust Account" means the account with HSBC (being a qualified United
     States financial institution as defined by section 922.7 of the Californian
     Insurance Code) set up pursuant to the Trust Agreement;

     "Trust Agreement" means the agreement (governed by and subject to the
     insurance laws of the State of California) in the agreed terms to be
     entered into by the Parties and HSBC on the Execution Date; and

     "Warranties" means the warranties set out in schedule 3.

B.   In this agreement unless specified, reference to:

(a)  "Company" means SCPIE Indemnity Company, American Healthcare Indemnity
     Company and American Healthcare Specialty Insurance Company all of them and
     each of them as the context admits;

(b)  a document in the "agreed terms" is a reference to that document in the
     form approved and for the purposes of identification signed by or on behalf
     of each of the Reinsurer and the Company;

(c)  "Party" means a Party to this agreement and includes its permitted
     assignees and/or the successors in title to substantially the whole of its
     undertaking;

                                      -2-

<PAGE>

(d)  Articles, paragraphs or schedules are to Articles, paragraphs of Articles
     and schedules to this agreement. The schedules form part of the operative
     provisions of this agreement and references to this agreement shall, unless
     the context otherwise requires, include references to the recitals and the
     schedules;

(e)  the time of day is reference to time in Los Angeles, California;

(f)  "month" means a calendar month;

(g)  words denoting the singular shall, except where the context otherwise
     requires, include the plural and vice versa;

(h)  the headings in this agreement are for information only and shall be
     ignored in construing the same; and

(i)  "including" means including without limitation.

                                    ARTICLE 2

BUSINESS COVERED

A.   Subject to the limitations and terms and conditions set out herein, the
     Company agrees to cede and the Reinsurer agrees to accept a 100% quota
     share of the Contracts on the basis that the Reinsurer shall indemnify the
     Company, pursuant to the terms and conditions of this agreement (including
     the adjustment provisions of Articles 10.B and 10.C), in respect of Losses
     except that:

     1.  the Reinsurer shall not be liable for a Loss in relation to which the
         Loss Date, as reported to the Company by the Insured or otherwise
         determined pursuant to this Article 2, occurred on or before the
         relevant Contract Attachment Date except to the extent provided at
         paragraph A.2 of this Article;

     2.  if no Loss Date has been reported to the Company by the Insured or
         otherwise determined pursuant to this Article 2, the Reinsurer shall be
         liable for its proportionate share of that Loss, such proportion being
         the Estimated Percentage in relation to the relevant Contract subject
         to adjustment pursuant to paragraph E of this Article.

B.   If:

     1.  no Loss Date has been reported to the Company by the Insured(s) in
         respect of:

         (a) a Loss exceeding US$250,000; and/or

         (b) Losses arising under one or more Contracts attributable to the same
             event which in aggregate exceed US$250,000; and/or

     2.  either the Company or the Reinsurer becomes aware (whether through the
         media or otherwise) of accident(s), casualty(ies), disaster(s) or loss
         occurrence(s) (major industry or otherwise) that have the potential to
         affect a Contract or Contracts and give rise to Losses hereunder in
         excess of US$250,000;

                                      -3-

<PAGE>

     then the Company and the Reinsurer (who shall notify each other in respect
     of their awareness of potential for Losses described under paragraph B.2 of
     this Article) shall use their respective commercially reasonable best
     efforts to ascertain if the relevant Loss Date(s) for such Loss(es)
     occurred on or before the relevant Contract Attachment Date or after the
     relevant Contract Attachment Date.

C.   If a Party considers at any time that a Loss Date (reported by an Insured
     or determined under paragraph B or otherwise) is incorrect then:

     1.  it may notify the other Party in writing and shall set out at the same
         time its reasons in full for such disagreement specifying the date (so
         far as it is aware) which it considers is the Loss Date;

     2.  after the giving of notice under paragraph C.1, the Parties shall use
         all reasonable endeavours to establish and agree the correct Loss Date;

     3.  if the Parties do not reach agreement under paragraph C.2 within 15
         days of the giving of notice under paragraph C.1, either Party may
         elect for the correct Loss Date to be determined by KPMG or if KPMG is
         unwilling to act, such independent firm of internationally recognised
         chartered accountants as KPMG nominates, that is willing to act. Any
         such firm (including KPMG) shall act as an expert in making any such
         determination which shall be final and binding on the Parties (in the
         absence of manifest error). The cost of the firm shall be borne by the
         Parties equally.

D.   If the Loss Date is subsequently determined to be different to a Loss Date
     applied pursuant to paragraph A.1 in respect of a Loss or if the Parties
     believed that a Loss Date could not be determined and the Loss Date is
     subsequently reported by an Insured or otherwise determined, the Parties
     shall calculate the amount payable (if any) under paragraph A.1 using the
     revised Loss Date (in place, if relevant, of the original Loss Date)
     setting out such determination in the next report provided pursuant to
     paragraph A of Article 7 and account to each other in accordance with
     Article 7 on the basis of the revised Loss Date.

E.   When, in respect of a Contract under which Loss(es) arose for which no Loss
     Date has been determined (without prejudice to paragraphs C and D of this
     Article), the ultimate Subject Reinsurance Premium (as defined in Article
     6) in respect of that Contract ("USRP") and the ultimate total premium
     ("UTP") received by the Company for that Contract can be finally determined
     the Estimated Percentage in respect of that Contract shall be substituted
     by the result of USRP divided by UTP ("Actual Percentage") and the Parties'
     proportionate share of the Loss(es) recalculated and the result set out in
     the report provided pursuant to paragraph A of Article 7 and the Parties
     shall account to each other in accordance with Article 7 on the basis of
     the recalculated proportionate share of the Loss(es) provided that:

     1.  the first such recalculation shall be stated in the report for the
         month ended December 31, 2003 and if, in respect of a Contract, the
         USRP and/or UTP cannot be finally determined by December 31, 2003 the
         Parties shall calculate as at that date the best estimate for the USRP
         and UTP and apply the above calculation using such best estimate USRP
         and UTP as at December 31, 2003 as the USRP and UTP (subject to
         recalculation at December 31, 2007 pursuant to paragraph E.2) for that
         Contract; and

     2.  the second and final such recalculation shall be stated in the report
         for the month ended December 31, 2007 and if, in respect of a Contract,
         the USRP and UTP cannot be finally determined by December 31, 2007 the
         Parties shall calculate as at that date the best

                                      -4-

<PAGE>

         estimate for the USRP and UTP and apply the above calculation using
         such best estimate USRP and UTP as at December 31, 2007 as the final
         USRP and UTP for that Contract.

     For the purposes of this Article, the USRP for a Contract shall be
     calculated as (a) written premium from the relevant Contract Attachment
     Date plus (b) the best estimate, as at the relevant date (being December
     31, 2003 under paragraph E.1 and December 31, 2007 under paragraph E.2), of
     any premium for that Contract that has yet to be recognised as written. The
     UTP for a Contract shall be calculated as (a) its USRP plus (b) the written
     premium on that Contract prior to and on the relevant Contract Attachment
     Date.

F.   It is agreed that any adjustment pursuant to the paragraph D and E of this
     Article shall not bear interest except to the extent such adjustment has
     not been paid by the relevant Party pursuant to Article 7 on the due date
     and then interest shall be payable in accordance with Article 7.

                                    ARTICLE 3

TERM

Subject to the terms and conditions of this agreement (including Article 10
(Warranties, Exclusion of Contracts and Undertakings)) the liability of the
Reinsurer hereunder shall commence with effect on the Execution Date and cease
in respect of each Contract, upon the cessation of the liability of the Company
in respect of that Contract.

                                    ARTICLE 4

EXCLUSIONS

The Reinsurer shall not be liable in respect of any Claim to the extent such
Claim relates to:

     1.  for the avoidance of doubt (without prejudice to the specific
         identification of Contracts the subject of this agreement), business
         classified by the Company as the Highlands Cut-Through, Kover Limited,
         K2 and K2+ programs and more specifically described as follows (a) the
         Cut-Through Endorsements issued pursuant to that Cut-Through/Guarantee
         Endorsement Agreement dated January 1, 2000, between Highlands
         Insurance Group, Inc. and American Healthcare Indemnity Company; (b)
         the Rights and Obligations of SCPIE Indemnity Company under Notes
         issued by Kover Limited pursuant to the terms of a Note Purchase
         Agreement between Hannover Ruckversicherungs Aktiengesellschaft and
         Citibank dated February 11, 1994 (and as amended by supplemental
         agreements dated December 31, 1997 and March 31, 2000); and (c) the
         Rights and Obligations of SCPIE Indemnity Company under letters of
         credit issued pursuant to a Master Swap Agreement dated as of November
         22, 1996 between SCPIE Indemnity Company and Citibank, N.A. and an
         Amendment No. 1 to such Master Swap Agreement dated as of July 1, 1998
         (K-2), and an Amendment date July 2001 (K-2+); and

     2.  the World Trade Center and associated events of September 11, 2001.

                                      -5-

<PAGE>

                                    ARTICLE 5

NOTIFICATION, CO-OPERATION, EXPENSES AND RECOVERIES

A.   Notwithstanding anything contained in this agreement to the contrary, it is
     a condition precedent to any liability of the Reinsurer under this
     agreement that:

     1.  the Company shall inform the Reinsurer in writing of any fact, matter,
         event or circumstance which comes to its notice whereby it appears to
         the Company that payment is or may be required to be made in relation
         to a Contract, such information to be given promptly and in any event
         with five (5) Business Days of it coming to the attention of the
         Company;

     2.  the Company shall co-operate with the Reinsurer (and its appointed
         representatives) in the investigation and assessment of any Loss and/or
         circumstances giving rise to a Claim and keep the Reinsurer fully
         informed of all material developments in relation thereto; and

     3.  the Company shall do and procure the following to the extent requested
         by the Reinsurer:

     (a) consult with the Reinsurer in respect of all developments, actions, and
         decisions of the Company in respect of any Claim, suit or proceeding
         involving this reinsurance; and/or

     (b) afford the Reinsurer the opportunity to be associated with the Company,
         at the sole expense of the Reinsurer, in the defence or control of any
         Claim, suit or proceeding involving this reinsurance, and the Company
         and the Reinsurer shall co-operate in every respect in the defence of
         such Claim, suit or proceeding; and/or

     (c) consult with the Reinsurer as concerns the defence or control of any
         Claim, suit or proceeding involving this reinsurance so that the
         Company shall promptly and diligently take all such action as the
         Reinsurer may reasonably request including the institution of
         proceedings and the instructing of professional advisers approved by
         the Reinsurer to act on behalf of the Company to avoid, dispute,
         resist, compromise, defend or appeal against any Claim, suit or
         proceeding involving this reinsurance.

B.   The Reinsurer will pay any extraordinary external claims expenses incurred
     by the Company in connection with the investigation and settlement of
     Claims (except to the extent such Claims are excluded pursuant to this
     agreement) and to pursuing and obtaining recoveries referred to at
     paragraph C of this Article, provided and to the extent the Reinsurer has
     consented in writing prior to such expenses being incurred.

C.   It is hereby agreed that:

     1.  the Reinsurer will receive and benefit from all recoveries relating to
         the Contracts, whether or not through subrogation, in respect of all
         Losses attaching thereto which the Reinsurer is required to pay
         pursuant to this agreement;

     2.  the Company shall:

         (a) inform the Reinsurer in writing of any fact, matter, event or
             circumstance which comes to its notice whereby it appears to the
             Company that recovery may be made in relation to which the
             Reinsurer is or may be entitled to benefit under paragraph C1 of
             this Article;

                                      -6-

<PAGE>

         (b) thereafter keep the Reinsurer fully informed of all material
             developments in relation thereto to use all reasonable endeavours
             to obtain such recovery;

         (c) not settle or compromise such recovery without the prior written
             consent of the Reinsurer; and

         (d) promptly and diligently take all such action as the Reinsurer may
             reasonably request in relation thereto including the institution of
             proceedings and instruction of professional advisers (subject to
             paragraph B of this Article).

D.   This agreement shall protect the Company against liability for any Extra
     Contractual Obligations. "Extra Contractual Obligations" are defined as
     those liabilities of the Company to an Insured with respect to a Contract
     with that Insured arising as a result of an order by a court or a binding
     arbitrator that are not covered under any other provision of this agreement
     and which arise from the handling of any Claim (to the extent such Claim is
     not excluded under this agreement), such liabilities being as a result of,
     but not limited to, the following: failure by the Company to settle within
     the policy limit, or by reason of alleged or actual negligence, fraud
     (subject expressly to the proviso below) or bad faith in rejecting an offer
     of settlement or in the preparation of the defence or in the trial of any
     action against the Insured or in the preparation or prosecution of an
     appeal consequent upon such action. The date on which an Extra Contractual
     Obligation is incurred by the Company shall be deemed, in all
     circumstances, to be the date of the original accident, casualty, disaster
     or loss occurrence and shall be regarded as a Loss for the purposes of this
     agreement. However, this clause shall not apply where the loss has been
     incurred due to the fraud of a member of the board of directors or a
     corporate officer of the Company acting individually or collectively on in
     collusion with any individual or corporation or any other organisation or
     party involved in the presentation, defence or settlement of any Claim
     covered hereunder.

                                    ARTICLE 6

PREMIUM AND OVERRIDE COMMISSION

A.   In consideration for the assumption of its liabilities hereunder, the
     Company shall pay to the Reinsurer (the first such payment and subsequent
     payments being determined in accordance with Article 7 (Remittances)) an
     aggregate premium calculated as follows:

     1.  all of the unearned premium as of the relevant Contract Attachment Date
         for each Contract collected by the Company pursuant to the Contracts
         and all of the written premium collected by the Company pursuant to the
         Contracts following the relevant Contract Attachment Date for each
         Contract less return premiums ("Subject Reinsurance Premium"); plus

     2.  an amount equal to 14.343% of the Subject Reinsurance Premium
         ("Additional Premium");

     in aggregate the "Reinsurer's Premium Income" but subject to deduction and
     retention under paragraph B of this Article.

B.   The payment under paragraph A.1 shall be subject to retention by the
     Company out of such Reinsurer's Premium Income of:

                                      -7-

<PAGE>

     1.  the Company's third party acquisition costs relating to the Contracts
         comprising its broker commissions and Lloyd's costs; and

     2.  an override commission equal to 1.5% of the Reinsurer's Premium Income
         less amounts deducted under paragraph B.1 of this Article until the
         earlier to occur of (a) 30 June 2003 and (b) both James Phair and
         Timothy Rivers ceasing to be employed by SCPIE Management Company; on
         which date the foregoing percentage of 1.5% shall reduce to 0.75%.

C.   In addition as further consideration for the assumption of the Reinsurer's
     liabilities hereunder, any recoveries made by the Company with respect to
     the industry loss warranty policy relating to the Company's 2002
     underwriting year with respect to a Contract on or after the relevant
     Contract Attachment Date shall inure to the benefit of the Reinsurer on a
     one hundred per cent basis (100%) and, at the Reinsurer's option, the
     Reinsurer may require and the Company shall use its commercially reasonable
     best efforts to procure, the novation (for consideration payable by the
     Reinsurer of not more than US$1) to the Reinsurer of the rights,
     obligations and benefits of the Company under such industry loss warranty
     policy provided that the Reinsurer shall ensure that to the extent any
     recoveries pursuant to such novated industry loss warranty policy relate to
     contracts or claims for which the Reinsurer is not liable pursuant to this
     agreement, such recoveries shall inure to the benefit of the Company.

                                    ARTICLE 7

REMITTANCES

A.   By no later than 23 December 2002 and thereafter within 15 days following
     the end of each month, the Company shall provide to the Reinsurer a report
     summarising in respect of that ended month (and, for the first report, in
     respect of the longer period from the Effective Date to November 30, 2002):

     1.  the Subject Reinsurance Premium collected ("Collected Subject
         Reinsurance Premium") which shall include any Subject Reinsurance
         Premium that is due to be paid to the Company but withheld as a result
         of security arrangements, to the extent such withheld premium is not
         treated as an asset of the Company which reduces the Reinsurer's
         Obligations (defined below at paragraph E) and therefore the value of
         the Trust Account required to be funded by the Reinsurer pursuant to
         paragraph E of this Article);

     2.  the Subject Reinsurance Premium due but not collected other than by
         reason of being withheld as a result of security arrangements (which
         shall be subject to paragraph F of this Article);

     3.  the amounts provided for in Article 6.B;

     4.  Losses paid (to the extent the Reinsurer is liable for such Losses
         hereunder);

     5.  subrogation, salvage, or other recoveries to the extent due to the
         Reinsurer hereunder; and

     6.  adjustments due pursuant to paragraphs D and E of Article 2; and

     7.  the balances due to either Party pursuant to this agreement, payable in
         accordance with paragraph B of this Article ("Net Balance").

                                      -8-

<PAGE>

     Provided that, in respect of the first report (provided by no later than 23
     December 2002), the Collected Subject Reinsurance Premium shall comprise
     the collected Subject Reinsurance Premium as reflected on the Company's
     books as at September 30, 2002 plus the Company's best estimate of the
     collected Subject Reinsurance Premium for the period from and including
     October 1, 2002 to and including November 30, 2002. The reports following
     that first report shall state (as such information becomes available on the
     basis of the Company's usual and proper accounting and reporting practices)
     the actual Collected Subject Reinsurance Premium for that period and take
     into account the necessary adjustment (if any) in the balances due to
     either Party with, for the avoidance of doubt, the intention that the
     Company shall use its best efforts to ensure that its books and records and
     thus the reports provided pursuant to this Paragraph A reflect the correct
     position as soon as practicable.

B.   Payment of the Net Balance shall be made in a currency determined in
     accordance with Article 14 (Currency) in accordance with the following
     provisions:

     1.  payment in respect of the period following the Effective Date to
         November 30, 2002 shall be made by the Company on or before December
         31, 2002;

     2.  thereafter, payment shall be made monthly within 5 Business Days after
         the presentation to the Reinsurer of the report pursuant to paragraph A
         of this Article 7 (but, in any event, to the extent the Net Balance is
         payable to the Reinsurer or to the Trust Account, payment by the
         Company shall be due no later than 15 days plus 5 Business Days after
         the end of each month);

     3.  if the Net Balance is owed to the Reinsurer, payment shall be made by
         the Company by deposit into the Trust Account on and subject to the
         terms of the Trust Agreement;

     4.  if the Net Balance is owed to the Company, payment shall be made by the
         Company withdrawing such Net Balance due to it from the Trust Account
         (such withdrawal being made within the time limit at paragraph B.2 of
         this Article).

C.   The Company shall pay the Additional Premium due on the Collected Subject
     Reinsurance Premium specified under paragraph A.1 of this Article to the
     Reinsurer directly on a monthly basis within 5 Business Days after the
     presentation to the Reinsurer of the report pursuant to paragraph A of this
     Article (but in any event no later than 15 days plus 5 Business Days after
     the end of each month).

D.   The Company shall at all times maintain, at its option, either a letter of
     credit (rated AA or better) or cash collateral pursuant to the Security
     Fund Agreement to secure the payment of the Additional Premium payable
     during the term of this agreement to the extent such amount remains unpaid.

E.   Within 15 days following the end of each calendar quarter, the Company
     shall furnish the Reinsurer with a report of the Reinsurer's Obligations
     (defined below). To the extent that the assets in the Trust Account (as
     shown by the report) are more than one hundred and two per cent. (102%) of
     the Reinsurer's Obligations, the Company shall pay to the Reinsurer from
     assets in the Trust Account within 5 Business Days following the
     presentation of the report to the Reinsurer an amount that results in the
     total remaining assets in the Trust Account being equal to one hundred and
     two per cent. (102%) of the Reinsurer's Obligations. To the extent that the
     assets in the Trust Account (as shown by the report) are less than one
     hundred and two per cent. (102%) of the Reinsurer's Obligations, the
     Reinsurer shall deposit assets into the Trust Account within 5 Business
     Days following the presentation of the report in an amount that results in
     the total assets

                                      -9-

<PAGE>

     in the Trust Account being equal to one hundred and two per cent. (102%) of
     the Reinsurer's Obligations.

     For the purposes of this paragraph E and paragraph H.3 only, and no other
     purpose, the "Reinsurer's Obligations" shall be deemed to be its
     "Obligations" in accordance with such term as defined in section 8(d)(7)(D)
     of the California Insurance Department bulletin 97 - 5 as it applies to
     this agreement being:

     1.  reserves for known outstanding Losses for which the Reinsurer is liable
         hereunder that have been reported to the Reinsurer including amounts
         relating thereto for which it is liable pursuant to Article 5;

     2.  Losses and amounts under Article 5 for which the Reinsurer is liable
         hereunder, paid by the Company but not recovered from the Reinsurer;

     3.  reserves for Losses incurred but not reported and loss adjustment
         expense relating thereto to the extent to which the Reinsurer would be
         liable hereunder; and

     4.  reserves for unearned Subject Reinsurance Premiums.

     provided, however, such amount shall be reduced by the amount of any
     admitted, non-investable assets that are carried on the books of the
     Company with respect to the Subject Reinsurance Premium, which reduction,
     for the avoidance of doubt, shall include uncollected Subject Reinsurance
     Premium, and provided that the undertaking of the Company at Article 10.F
     shall apply.

F.   If an Insured under a Contract defaults in paying the Subject Reinsurance
     Premium to the Company, the Company shall not be liable to pay that Subject
     Reinsurance Premium to the Reinsurer unless and to the extent it receives
     such Subject Reinsurance Premium provided that the Company shall, and
     hereby undertakes to, use its commercially reasonable best efforts to
     obtain payment of such Subject Reinsurance Premium and consult with the
     Reinsurer in the same manner as specified at Article 5.A (which for the
     avoidance of doubt shall apply on the same basis as applies to a "Claim"
     under that Article 5.A).

G.   The Reinsurer and the Company agree that the Trust Agreement shall include
     the following provisions:

     1.  all of the assets deposited in the Trust Account shall be valued
         according to their current fair market value and shall consist solely
         of cash in United States dollars, certificates of deposit issued by a
         United States bank and payable in United States dollars, and
         investments permitted by section 922.5(a)(2) of the California
         Insurance Code or any combination of the above;

     2.  investments in or issued by an entity controlling, controlled by or
         under common control with either the Company or the Reinsurer shall not
         exceed five per cent (5%) of total investments deposited in the Trust
         Account;

     3.  while such assets are held in the Trust Account, the Reinsurer shall be
         credited with the investment income earned with respect to such assets.

     The Reinsurer and the Company further agree that the Company shall not
     terminate any asset management agreement from time to time applicable to
     the Trust Agreement or to the whole

                                      -10-

<PAGE>

         or any part of the Trust Account save after the Company shall have
         given the Reinsurer prior notice of the Company's intention to
         terminate the same and a reasonable opportunity to consult with and
         make representations to the Company.

H.       The Reinsurer and the Company hereby agree that the assets in the Trust
         Account may be drawn upon at any time, notwithstanding any other
         provision of this agreement, and be used by the Company or any
         successor by operation of law of the Company (including, without
         limitation, any liquidator, rehabilitator, receiver or conservator of
         the Company) for the following purposes, unless otherwise provided by
         the Trust Agreement:

         1.     to pay or reimburse the Company for payment due from the
                Reinsurer pursuant to this agreement which has not been
                otherwise paid or for unearned Subject Reinsurance Premiums
                received into the Trust Account that are due to be repaid by the
                Company as return premium which have not otherwise been repaid
                by the Reinsurer; and

         2.     to refund to the Reinsurer any sum pursuant to paragraphs E and
                I of this Article; and

         3.     where the Company has received notification of termination of
                the Trust Account and where any of the Reinsurer's Obligations
                under this agreement remain unliquidated and undischarged ten
                (10) days prior to the termination date, to withdraw amounts
                equal to such Reinsurer's Obligations, to the extent that such
                Reinsurer's Obligations have not yet been funded by the
                Reinsurer, and deposit those amounts in a separate account, in
                the name of the Company in any qualified United States financial
                institution as defined by California Insurance Code 922.7
                specified by the Reinsurer (or, in the absence of specification
                by the Reinsurer, an institution of similar financial and
                reputational standing as HSBC chosen by the Company) apart from
                its general assets, in trust on identical terms (save as varied
                by agreement between the Parties) to the Trust Agreement and the
                Trust Account for such uses and purposes specified in paragraphs
                H.1 and H.2 of this Article as may remain executory after
                withdrawal and for any period after the termination date;

         provided that the Company hereby agrees and undertakes that if the
         amount withdrawn by the Company is in excess of the actual amount
         permitted to be drawn by the Company pursuant to paragraph G.1 of the
         Article, without limiting any other rights and remedies of the
         Reinsurer, the Company shall immediately inform the Reinsurer in
         writing of such excess withdrawal and immediately return to the Trust
         Account the excess amount so withdrawn together with interest accrued
         at a rate of four per cent. (4%) above dollar LIBOR accruing daily from
         and including the date of the withdrawal to and excluding the actual
         date of repayment.

         All of the foregoing shall be applied without diminution in value
         because of the insolvency on the part of the Company or the Reinsurer.

I.       Notwithstanding the foregoing on or after January 1, 2005 with respect
         to any liabilities for which the Company is able to obtain reinsurance
         credit in connection with its statutory financial statements in
         California and each other jurisdiction in which the Company is admitted
         to transact business without the security provided by the
         above-referenced Trust Account, the assets held in the Trust Account in
         reference to such liabilities and any related investment income thereon
         shall be immediately released to the Reinsurer subject to applicable
         law and thereafter for the avoidance of doubt payment pursuant to
         paragraph B.3 in respect of Subject Reinsurance Premium related to such
         liabilities shall be made directly by the Company to the Reinsurer and
         payment pursuant to paragraph B.4 in respect of Losses related to such
         liabilities shall be made directly by the Reinsurer to the Company.

                                      -11-

<PAGE>

J.       If a Party fails to pay to the other Party any amount under this
         Article on the due date, without prejudice to any other rights and
         remedies of such Party, it is hereby agreed such overdue amount shall
         bear interest at a rate of four per cent. (4%) above dollar LIBOR
         accruing daily from and including the due date for payment to and
         excluding the actual date of payment.

K.       Each party (at its own cost) shall provide the other with such other
         information as may be reasonably required by such part for completion
         of its annual statements and any other financial or regulatory filings.

                                    ARTICLE 8

COMPANY'S COMMISSION

A. In this Article:

         1.     "Net Ultimate Combined Ratio" means (i) the aggregate ultimate
                incurred Loss plus aggregate amounts retained by the Company
                under paragraph B of Article 6 divided by (ii) the Aggregate
                Subject Reinsurance Premium.

         2.     "Aggregate Subject Reinsurance Premium" means the ultimate
                aggregate Subject Reinsurance Premium received by the Company
                less, for the avoidance of doubt, return premiums.

B.       If the Net Ultimate Combined Ratio is equal to or less than 1.00 the
         Reinsurer shall pay to the Company an amount equal to:

         0.5 x Aggregate Subject Reinsurance Premium x (1.00 - Net Ultimate
         Combined Ratio)

         the result being the "Commission".

C.       Until the Commission can be finally determined, the Company shall be
         entitled to receive payment on account in respect of its Commission
         (subject to adjustment) as follows:

         1.     Within one month following June 30, 2007, the Company shall
                provide to the Reinsurer a report calculating the estimated
                Commission and for this purpose the Net Ultimate Combined Ratio
                shall be calculated on the basis of the aggregate paid or
                payable Losses, case reserves and IBNR reserves (calculated on a
                basis consistent with the then current accounting and actuarial
                policies of the Company) to and including June 30, 2007.

         2.     The Reinsurer shall pay to the Company within 30 days of receipt
                by the Reinsurer of the report an on account amount (if any)
                equal to the estimated Commission calculated under paragraph 1
                above.

         3.     Within 30 days of each anniversary of 30 June, 2007 thereafter
                the Company shall provide to the Reinsurer a report prepared in
                accordance with the provisions at paragraph 1 above up to and
                including the date of the relevant anniversary date adjusting as
                necessary the estimated Commission.

         4.     Within 30 days of the date of receipt by the Reinsurer of the
                report the Reinsurer shall pay to the Company or, as applicable,
                the Company shall repay to the Reinsurer such amount as is
                required to ensure that the Company has received on account
                estimated Commission calculated pursuant to the most recent
                report.

                                      -12-

<PAGE>

         5.     When the Net Ultimate Combined Ratio and Aggregate Subject
                Reinsurance Premium can be finally determined, the Company shall
                as soon as practicable thereafter prepare a final report setting
                out the amount of the Commission and the Reinsurer shall pay to
                the Company or, as applicable, the Company shall repay to the
                Reinsurer such amount as is required to ensure that the Company
                has received pursuant to this Article 8 an amount equal to the
                Commission as finally determined.

         6.     The Reinsurer may notify the Company, no later than 20 days
                following receipt of a report pursuant to paragraph C of this
                Article, if it disagrees with that report and shall at the same
                time set out in writing its reasons in full for such
                disagreement and specify the adjustments which, in its opinion,
                should be made to the Commission figure specified in the report
                in order to comply with the requirements of this agreement.
                Thereafter the Company and the Reinsurer shall use all
                reasonable endeavours to meet and discuss the objections of the
                Reinsurer and to reach agreement upon the adjustments (if any)
                required to be made to the Commission figure specified in the
                report. If the Company and the Reinsurer do not reach agreement
                within a further 20 days of the notice from the Reinsurer, the
                Reinsurer may elect for the report to be audited (and the
                Commission figure adjusted to reflect the audited figures in the
                report) by KPMG or, if KPMG is unwilling to act, such
                independent firm of internationally recognised chartered
                accountants as KPMG nominates, that is willing to act. Any such
                firm (including KPMG) shall act as an expert in making any such
                determination which shall be final and binding on the parties
                (in the absence of manifest error). The costs of the firm shall
                be borne by the Reinsurer as a result of the audit except that
                the Company shall bear those costs if the Commission amount is
                adjusted by 15% or more from the amount originally specified by
                the Company in the report.

         7.     For the avoidance of doubt, to the extent the Company shall be
                required pursuant to paragraphs C.4 and/or C.5 of this Article
                to repay to the Reinsurer amounts received on account of its
                Commission, such repayment shall not exceed the aggregate amount
                of Commission received by the Company pursuant to this Article.

                                    ARTICLE 9

REPORTS

The Company shall provide to the Reinsurer within 15 days of the end of each
month, a report in the format, and containing such information specified, as set
out at schedule 2. The parties agree and acknowledge that the content of the
report may be amended from time to time by mutual consent, which consent shall
not be unreasonably withheld.

                                   ARTICLE 10

WARRANTIES, EXCLUSION OF CONTRACTS AND UNDERTAKINGS

A.       The Company hereby represents and warrants to the Reinsurer in the
         terms of the Warranties. The Company's representations and warranty in
         respect of each of the Warranties at paragraphs 1 and 3 to 7 of
         schedule 3 shall be deemed to be repeated continually throughout the
         term of this agreement. The Company undertakes to the Reinsurer that it
         will disclose forthwith in writing to the Reinsurer any matter which
         becomes known to it which is inconsistent with any of the Warranties.
         Without restricting the rights of the Reinsurer or the ability of the
         Reinsurer to claim damages on any basis available to it, if the Company
         is in breach of any of the Warranties or any

                                      -13-

<PAGE>

         other term of this agreement the Company shall pay to the Reinsurer on
         demand as damages the amount necessary on a full indemnity basis to put
         the Reinsurer into the position which would have existed if the said
         Warranties or other term of this agreement had not been breached,
         together with all costs and expenses incurred by the Reinsurer as a
         result of such breach.

B.       If the aggregate of the premium amounts under the column at schedule 1
         headed "Estimate of Premium Before Loading" being US$ 192,068,178, is
         incorrect such that the actual aggregate premium received or receivable
         by the Reinsurer hereunder in respect of the Contracts pursuant to
         Article 6A.1 ("Actual Premium Before Loading") is 10% or more greater
         than US$ 192,068,178 then the Reinsurer may at any time elect by notice
         to the Company to cede back to the Company (or not accept) amounts
         equal to the Excess Percentage (as defined below) of the premium in
         respect of a Relevant Contract (as defined below) together with a
         proportion of the Losses for which the Reinsurer is liable hereunder in
         respect of that Relevant Contract equal to the Excess Percentage, such
         notice(s) to be given at the Reinsurer's discretion in respect of any
         or all of the Relevant Contracts.

         For the purpose of this Article 10.B the following shall apply:

         "the Excess Percentage" shall be the amount by which the Actual Premium
         Before Loading exceeds the "Estimate of Premium Before Loading" stated
         for each Contract at schedule 1, expressed as a percentage of that
         "Estimate of Premium Before Loading", minus:

         (a)   15%, in respect of Contracts for which the Estimate of Premium
               Before Loading is less than US$ 5,000,000;

         (b)   10%, in respect of Contracts for which the Estimate of Premium
               Before Loading is US$ 5,000,000 or more but less than US$
               10,000,000;

         (c)   5%, in respect of Contracts for which the Estimate of Premium
               Before Loading is US$ 10,000,000 or more;

         and each Contract for which the Excess Percentage is greater than zero
         shall be a "Relevant Contract".

C.       If the premium weighted actual expense ratio for all the Contracts
         (including the override commission pursuant to Article 6B.2) is 30% or
         more then the Reinsurer may at any time elect by notice to the Company
         to cap the expense ratio for which it is liable hereunder in respect of
         a Contract in the amount of the Capped Expense Ratio (defined below)
         such notice(s) to be given at the Reinsurer's discretion in respect of
         any or all of the Contracts.

         For the purpose of this Article 10.C the following shall apply:

         the "Capped Expense Ratio" for each Contract shall be:

         (a)    1.15 multiplied by the relevant estimated expense ratio under
                the column at schedule 1 headed "Estimated Expense Ratio
                excluding 1.5%" ("Estimated Expense Ratio"), in respect of
                Contracts for which the Estimate of Premium Before Loading is
                less than US5,000,000;

         (b)    1.1 multiplied by the relevant Estimated Expense Ratio in
                respect of Contracts for which the Estimate for Premium Before
                Loading is US$5,000,000 or more but less than US$10,000,000;

                                      -14-

<PAGE>

         (c)    1.05 multiplied by the relevant Estimated Expense Ratio in
                respect of Contracts for which the Estimate of Premium Before
                Loading is US$10,000,000 or more.

D.       Without prejudice to any other remedies available to the Reinsurer, if
         the Company (or its conservator, liquidator or statutory successor)
         fails to pay any amount due to the Reinsurer pursuant to Article 7
         (whether due directly or to the Trust Account) and fails to remedy such
         failure within twenty (20) Business Days of the Reinsurer giving notice
         to the Company (or its conservator, liquidator or statutory successor
         if relevant) of its intention to exercise its rights under this
         Article:

         1.     on expiry of such notice each Contract in relation to which the
                Company has failed to pay an amount due pursuant to Article 7
                and not rectified such failure within the notice period shall be
                deemed cancelled as a Contract reinsured by the Reinsurer
                pursuant to this agreement with effect from the date of the
                failure by the Company so to pay in respect of that Contract;
                and

         2.     the Company shall promptly account to the Reinsurer in respect
                of any Losses paid by the Reinsurer in respect of the period on
                and following such date of failure (and the Reinsurer shall
                account to the Company in respect of any amount of Reinsurer's
                Premium Income received by the Reinsurer (directly or to the
                Trust Account) to the extent earned or unearned for the period
                on and following the date of failure).

E.       The Company and the Reinsurer hereby undertake for the duration of this
         agreement:

         1.     at all times to comply with all laws, rules and regulations
                applicable to each of them; and

         2.     to notify the other immediately in writing of any material
                adverse change in any of their respective businesses, assets or
                condition (financial or otherwise).

F.       The Company hereunder undertakes to the Reinsurer that for the purposes
         of preparing the statements on Reinsurer's Obligations pursuant to
         Article 7.D such statements shall be prepared on the same bases and
         adopting the same reserving practices and using the same reserving
         principles as such bases, practices and principles have been used by
         the Company, and reflected in the financial statements of the Company,
         for the preceding 3 financial years provided that, such bases,
         practices and principles may be modified to the extent necessary to
         conform to statutory accounting principles acceptable to the
         Commissioner of Insurance in the State of California at the time of
         preparation.

                                   ARTICLE 11

OFFSET

The Reinsurer and the Company may offset any balance or amount due from the
other Party under this agreement. This provision shall not be affected by the
insolvency of any Party (including each entity constituting the Company) to this
agreement.

                                   ARTICLE 12

ORIGINAL CONDITIONS

All reinsurance under this agreement shall be subject to the same rates, terms,
conditions, waivers and interpretations, and to the same modifications and
alterations as the respective Contracts excluding

                                      -15-

<PAGE>

modifications and alterations to any Contract after the Execution Date made
without the prior consent of the Reinsurer.

                                   ARTICLE 13

NO THIRD PARTY RIGHTS

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

                                   ARTICLE 14

CURRENCY

A.       Where the word "Dollars" and/or the sign "$" appear in this agreement,
         they shall mean United States Dollars.

B.       All accounts under this agreement shall be kept in United States
         Dollars. For purposes of this agreement and the Contracts, all receipts
         of Subject Reinsurance Premium and all payments of Losses by the
         Company in currencies other than United States Dollars shall be
         converted to United States Dollars at the prevailing rate of exchange
         on the date of such receipt or payment, as appropriate.

                                   ARTICLE 15

FEDERAL EXCISE TAX

A.       This Article applies if the Reinsurer is not exempt from the Federal
         Excise Tax.

B.       The Reinsurer has agreed to allow for the purpose of paying the Federal
         Excise Tax the percentage specified by United States law of the premium
         payable hereon to the extent such premium is subject to Federal Excise
         Tax.

C.       In the event of any return of premium becoming due hereunder, the
         Reinsurer shall deduct the percentage specified by United States law
         from the amount of the return and the Company or its agent should take
         steps to recover the Tax from the United States Government.

                                   ARTICLE 16

ACCESS TO RECORDS

A.       The Company shall place at the disposal of the Reinsurer at all
         reasonable times, and the Reinsurer shall have the right to inspect,
         through its authorised representatives, (including arranging for an
         audit) all books, records and papers of the Company in connection with
         this reinsurance hereunder or the subject matter thereof.

B.       The Reinsurer shall be afforded the opportunity at any time during the
         term of this agreement, at its own expense to appoint an agent of its
         own choice to assess the Company's claims procedures who shall report
         to the Reinsurer the results of such.

                                      -16-

<PAGE>

                                   ARTICLE 17

CONFIDENTIALITY

A.       This agreement and the pre-agreement documentation may contain
         confidential or proprietary information of either party to this
         agreement. All Parties shall maintain the confidentiality of this
         information and shall not disclose these to any third party without the
         other Party's approval.

B.       Notwithstanding the above, any party may disclose such information
         without further approval from the other Party in answer to
         interrogations, subpoenas or other legal/arbitration process as well as
         to the Company's reinsurance intermediary hereon, the Reinsurer's
         retrocessionaires or in response to requests by governmental and
         regulatory agencies. In addition the Parties may disclose such
         information to their accountants and outside legal counsel as may be
         necessary, as well to the extent required by law or the regulations of
         the London Stock Exchange plc or the Listing Rules of the UK Listing
         Authority or by the rules and requirements of the U.S. Securities and
         Exchange Commission or any other regulatory body.

                                   ARTICLE 18

COMPANY REPRESENTATIVE

A.       For the purpose of this agreement the Company has appointed the
         President of SCPIE Indemnity Company as its representative
         ("Representative") and the Reinsurer shall be entitled to deal with the
         Representative and assume its decisions and actions are binding on each
         of the entities constituting the Company and shall not be required to
         make further enquiries. Receipt by SCPIE Indemnity Company of any
         monies payable by the Reinsurer to the Company shall be a good
         discharge of the obligation of the Reinsurer to pay such monies and the
         Reinsurer shall not be required to see the application of monies to the
         relevant entities comprising the Company.

B.       If the Company (or in the event of its insolvency, its conservator,
         liquidator or statutory successor) wishes to replace the
         Representative, the Company shall notify the Reinsurer in accordance
         with Article 19 (Notice) stating the person who, subject to the consent
         of the Reinsurer, is to act as Representative for the purposes of this
         agreement and such person shall be deemed to be the Representative with
         effect from the date the consent of the Reinsurer is notified to the
         Company (by notice to that replacement Representative).

                                   ARTICLE 19

NOTICE

A.       Any notice, demand or other communication given or made under or in
         connection with the matters contemplated by this agreement shall be in
         writing and shall be delivered personally or sent by facsimile or
         prepaid airmail post or courier:

         In the case of the Company to the Representative at:
         SCPIE Indemnity Company
         1888 Century Park East, Suite 800
         Los Angeles, California 90067
         Fax: (310) 551-5924
         Attention: President

                                      -17-

<PAGE>

         In the case of the Reinsurer to:
         GoshawK Reinsurance Limited at its office given above
         Fax: 00 1 441 295 4750
         Attention: Chief Executive Officer

         With a copy to:

         GoshawK Insurance Holdings plc
         38 St Mary Axe
         London EC3A 8EX
         Fax: (00 44) (0)207 929 7299
         Attention: Andrew Gammell

         and shall be deemed to have been duly given or made as follows:

         (a)    if personally delivered, upon delivery at the address of the
                relevant Party;

         (b)    if sent by airmail, five Business Days after the date of
                posting;

         (c)    if sent by facsimile, on receipt of confirmation that the fax
                has been received by the number to which it was sent;

         provided that if, in accordance with the above provision, any such
         notice, demand or other communication would otherwise be deemed to be
         given or made after 5.00 p.m. such notice, demand or other
         communication shall be deemed to be given or made at 9.00 a.m. on the
         next Business Day (such times being times in Los Angeles, California).

B.       The deemed service provisions set out above do not apply to:

         (a)    a notice served by airmail, if there is a national or local
                suspension, curtailment or disruption of postal services which
                affects the collection or delivery of the notice or is such that
                the notice cannot reasonably be expected to be delivered within
                48 hours or 96 hours (as appropriate) after posting; and

         (b)    a notice served by facsimile, if, before the time at which the
                notice would otherwise be deemed to have been served, the
                receiving Party informs the sending Party that the notice has
                been received in a form which is unclear in any material
                respect.

         In proving service it will be sufficient to prove:

         (a)    in the case of personal service, that it was handed to the Party
                or delivered to or left in an appropriate place for receipt of
                letters at its address;

         (b)    in the case of a letter sent by airmail, that the letter was
                properly addressed, stamped and posted; and

         (c)    in the case of facsimile, that it was properly addressed and
                despatched to the number of the Party.

C.       A Party may notify the other Party to this agreement of a change to its
         name, relevant addressee, address or facsimile number provided that
         such notification shall only be effective on:

                                      -18-

<PAGE>

         (a)    the date specified in the notification as the date on which the
                change is to take place; or

         (b)    if no date is specified or the date specified is less than 5
                Business Days after the date on which notice is given, the date
                falling 5 Business Days after notice of any such change has been
                given.

                                   ARTICLE 20

WAIVER AND AMENDMENT

A.       A waiver of any term, provision or condition of, or consent granted
         under this agreement shall be effective only if given in writing and
         signed by the waiving or consenting Party and then only in the instance
         and for the purpose for which it is given.

B.       No failure or delay on the part of any Party in exercising any right,
         power or privilege under this agreement shall operate as a waiver
         thereof, nor shall any single or partial exercise of any such right,
         power or privilege preclude any other or further exercise thereof or
         the exercise of any other right, power or privilege.

C.       This agreement may be varied only by a document signed by all Parties
         and expressly incorporating the terms of this agreement as varied into
         that document.

D.       The rights and remedies herein provided are cumulative with and not
         exclusive of any rights or remedies provided by law.

                                   ARTICLE 21

NO PARTNERSHIP

Nothing in this agreement and no action taken by the Parties pursuant to this
agreement shall constitute, or be deemed to constitute, the Parties a
partnership or similar co-operative entity.

                                   ARTICLE 22

NO ASSIGNMENT

No Party shall, without the prior written consent of the other, assign, transfer
or declare a trust (save as provided in the Trust Deed and Security Fund
Agreement) of the benefit of all or any of its obligations under this agreement,
or any benefit arising under or out of this agreement, or delegate any of its
obligations under this agreement or subcontract their provision to any third
party save as provided herein (in respect of which it shall remain responsible
for the proper performance of any such obligations).

                                   ARTICLE 23

INSOLVENCY

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

                                      -19-

<PAGE>

because the conservator, liquidator, or statutory successor has failed to pay
all or a portion of any Claims. Payment by the Reinsurer as set forth in this
Article shall be made directly to the Company or to its conservator, liquidator
or statutory successor except where the contract of insurance or reinsurance
specifically provides another payee in the event of insolvency of the Company.

The conservator, liquidator, or statutory successor of the Company shall give
written notice of the pendency of a claim against the Company indicating the
relevant Contract, within a reasonable time after such claim is filed and the
Reinsurer may interpose, at its own expense, in the proceeding where such claim
is to be adjudicated, any defence or defences which it may deem available to the
Company or its conservator, liquidator, or statutory successor. The expense thus
incurred by the Reinsurer shall be payable subject to court approval out of the
estate of the insolvent Company as part of the expense of conservation or
liquidation to the extent of a proportionate share of the benefit which may
accrue to the Company in conservation or liquidation, solely as a result of the
defence undertaken by the Reinsurer.

This Article shall apply to each entity constituting the Company on a separate
basis.

                                   ARTICLE 24

ARBITRATION

A.       As a condition precedent to any right of action hereunder, any dispute
         arising out of the interpretation, performance or breach of this
         agreement, including the formation or validity thereof, shall be
         submitted for decision to a panel of three arbitrators. Notice
         requesting arbitration shall be in writing and sent certified or
         registered mail, return receipt requested.

B.       One arbitrator shall be chosen by each party and the two arbitrators
         shall, before instituting the hearing, choose an impartial third
         arbitrator who shall preside at the hearing. If either party fails to
         appoint its arbitrator within 30 days after being requested to do so by
         the other party, the latter, after 10 days' notice by certified or
         registered mail of its intention to do so, may appoint the second
         arbitrator.

C.       Except as expressly stated in this Article, the arbitration proceedings
         shall be governed by the rules of the International Chamber of Commerce
         in England.

D.       All arbitrators shall be disinterested active or former executive
         officers of insurance or reinsurance companies or Underwriters at
         Lloyd's, London.

E.       Within 30 days after notice of appointment of all arbitrators, the
         panel shall meet and determine timely periods for briefs, discovery
         procedures and schedules for hearings.

F.       The panel shall be relieved of all judicial formality and shall not be
         bound by the strict rules of procedure and evidence Unless the panel
         agrees otherwise, arbitration shall take place in London, England, but
         the venue may be changed when deemed by the panel to be in the best
         interest of the arbitration proceeding. Insofar as the arbitration
         panel looks to substantive law, it shall consider the law of the State
         of New York (except for the provisions thereof related to punitive or
         exemplary damages or awards and conflicts of laws). The decision of any
         two arbitrators when rendered in writing shall be final and binding.
         The panel is empowered to grant interim relief as it may deem
         appropriate.

G.       The panel shall make its decision considering the custom and practice
         of the applicable insurance and reinsurance business within 60 days
         following the termination of the hearings. Judgment upon the award may
         be entered in a court having jurisdiction thereof.

                                      -20-

<PAGE>

H.       Each party shall bear the expense of its own arbitrator and shall
         jointly and equally bear with the other party the cost of the third
         arbitrator. The remaining costs of the arbitration shall be allocated
         by the panel. The panel may, at its discretion, award such further
         costs and expenses as it considers appropriate, including but not
         limited to attorneys fees, to the extent permitted by law.

                                   ARTICLE 25

SERVICE OF SUIT

         Without prejudice to any other permitted mode of service the Parties
         agree that service of process shall be duly served upon if delivered
         personally or sent by registered post, in the case of:

         1.     the Reinsurer to 31 Church Street, Hamilton, Bermuda, HM12
                (marked for the attention of the Chief Executive Officer); and

         2.     the Company to SCPIE Indemnity Company, 1888 Century Park East,
                Suite 800, Los Angeles, California 90067 (marked for the
                attention of the President);

         or such other person and address in relation to a Party as that Party
         shall notify the other in writing from time to time.

                                   ARTICLE 26

MODE OF EXECUTION

A.       This agreement may be executed by:

         1.     an original written ink signature of paper documents;

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

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

B.       The use of any one or a combination of these methods of execution shall
         constitute a legally binding and valid signing of this agreement. This
         agreement may be executed in one or more counterparts, each of which,
         when duly executed, shall be deemed an original.

                                   ARTICLE 27

SURVIVAL

Articles 17 (Confidentiality), 24 (Arbitration), 25 (Service of Suit), 26 (Mode
of Execution) and 27 (Survival) shall survive the commutation or termination of
this agreement.

                                   ARTICLE 28

                                      -21-

<PAGE>

CONDITIONS PRECEDENT

Notwithstanding anything in this agreement to the contrary, it is a condition
precedent to any liability of the Reinsurer under this agreement that on the
Execution Date, the Company shall deliver or cause to be delivered to the
Reinsurer the Opinion of Counsel and the Guarantee, and each of the Company and
the Reinsurer shall deliver or cause to be delivered to the other party the
Security Fund Agreement, the Transitional Services Agreement and the Trust
Agreement in each case duly executed by all parties thereto.

IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed
by their duly authorised representatives this 18th day of December, in the
year of 2002.

/s/ Donald J. Zuk, President
---------------------------------
For and on behalf of
SCPIE INDEMNITY COMPANY

/s/ Donald J. Zuk, President
---------------------------------
For and on behalf of
AMERICAN HEALTHCARE INDEMNITY COMPANY

/s/ Donald J. Zuk, President
---------------------------------
For and on behalf of
AMERICAN HEALTHCARE SPECIALTY INSURANCE COMPANY

/s/ Jonathan Beck   /s/ J. Kemp
---------------------------------
For and on behalf of
GOSHAWK REINSURANCE LIMITED

                                      -22-

<PAGE>

                                   SCHEDULE 1

                                    CONTRACTS

                                      -23-

<PAGE>

                                   SCHEDULE 2

                             FORM OF MONTHLY REPORTS

                                      -24-

<PAGE>

                                   SCHEDULE 3

                                   WARRANTIES

For the purpose of this schedule Company means each of the entities comprising
the Company provided that each such entity only warrants in respect of the
Warranties at paragraphs 2 to 7 as they apply to it and the Contracts issued by
it and not in respect of the other entities comprising the Company.

Any Warranty expressed to be given "to the best of the Company's knowledge and
belief" shall not be qualified in the manner stated unless the Company
establishes it has made all reasonable enquiries of its directors, employees and
professional advisers (including its accountants and actuaries) and relevant
third parties to establish the truth and accuracy of that Warranty.

The Company shall be under no liability in respect of a claim under any of the
Warranties at paragraphs 4, 5 and 6 of this schedule 3 unless and until the
liability of the Company in respect of that claim when aggregated with the
liability of the Company in respect of all other such claims under paragraphs 4,
5 and 6 of this schedule 3 shall exceed US$100,000 (and then the Reinsurer shall
be entitled to recover all and not just the excess).

1.       COMPANY'S CAPACITY

1.1      Authorisations

         The Company has obtained all corporate authorisations and all other
         applicable governmental, statutory, regulatory or other consents,
         licences, waivers or exemptions required to empower it to enter into
         and to perform its obligations under this agreement, the Security Fund
         Agreement and the Trust Agreement.

1.2      Proper Execution

         The Company's obligations under this agreement, the Security Fund
         Agreement and the Trust Agreement are enforceable in accordance with
         their terms.

2.       CONTRACTS

2.1      Validity of Contracts

         (a)    The Company has no knowledge of the invalidity of, or a ground
                for termination, avoidance or repudiation of, any Contract. No
                party to a Contract has given notice of its intention to
                terminate. The Company has not sought to repudiate or disclaim
                any Contract and to the best of the Company's knowledge and
                belief the other party to any Contract has not sought to
                repudiate or disclaim that Contract.

         (b)    The Company is not in material breach of a Contract and no
                matter exists which might give rise to such breach by the
                Company and to the best of the Company's knowledge and belief
                the other party to any Contract is not in material breach of the
                Contract and no matter exists which might give rise to such
                breach by the other party.

2.2      In respect of the particulars of each of the Contracts set out at
         schedule 1:

         (a)    the statements of estimated premium before loading and expense
                ratio at schedule 1 have been prepared on a prudent basis and to
                the best of the information, knowledge and belief

                                      -25-

<PAGE>

                of the Company there exists no fact or matter which would, or is
                likely to, render such basis not to be prudent; and

         (b)    the Contract number and "names of risk" and set out at schedule
                1 are true, complete and accurate.

3.       INSOLVENCY

3.1      No order has been made, petition presented or resolution passed, or any
         other action taken, for the winding up of or for the appointment of a
         liquidator, conservator or statutory successor to the Company or in
         relation to any part of its business and/or assets and to the best of
         the Company's knowledge and belief no such order, petition, resolution
         or other action is pending or contemplated. No transfer of assets is
         being made by the Company and no obligation is being incurred by it in
         connection with the transactions contemplated by this agreement, the
         Security Fund Agreement, the Secondment Agreements or the Trust
         Agreement with the intent to hinder, delay, or defraud either the
         present or future creditors or policyholders of the Company.

3.2      SCPIE Indemnity Company has assets exceeding its liabilities (as such
         terms are defined by Generally Accepted Accounting Principles and
         statutory accounting principles applied on a consistent basis) in an
         amount equal to or exceeding the minimum paid-in capital and surplus as
         required pursuant to California Insurance Code sections 700.01 and
         700.02 and, therefore, is not insolvent.

3.3      American Healthcare Indemnity Company has assets exceeding its
         liabilities (as such terms are defined by Generally Accepted Accounting
         Principles and statutory accounting principles applied on a consistent
         basis) in an amount equal to or exceeding the minimum paid-in capital
         and surplus as required pursuant to Delaware Code Annotated title 18,
         section 511 and, therefore, is not insolvent.

3.4      American Healthcare Speciality Insurance Company has assets exceeding
         its liabilities (as such terms are defined by Generally Accepted
         Accounting Principles and statutory accounting principles applied on a
         consistent basis) in an amount equal to or exceeding minimum paid-in
         capital and surplus as required pursuant to Arkansas Code Annotated
         section 23-63-205 and, therefore, is not insolvent.

4.       LEGAL COMPLIANCE

         The Company is in compliance with all laws, rules and regulations
         applicable to the Company and all elements related to their respective
         businesses, operations and financial condition, including, but not
         limited to, its assets, holdings, employees and policyholders, as the
         case may be.

5.       FINANCIAL CONDITION

         The financial statements of the Company accurately and honestly present
         the Company's financial condition. Since the date of the most recent
         financial statements of the Company, there has been no adverse change
         in the Company's business, assets or condition (financial or
         otherwise).

6.       LITIGATION

                                      -26-

<PAGE>

         There are no actions, suits or proceedings pending, threatened or
         contemplated against or affecting the Company or its assets, except for
         claims in the ordinary course of insurance business.

7.       TAXES

         The Company has paid or caused to be paid to the proper authorities
         when due all federal, state and local taxes applicable to it. The
         Company has filed with the proper authorities when due all federal,
         state and local tax returns applicable to it.

8.       INFORMATION

8.1      General

         To the best of the Company's knowledge and belief all written
         information given by, or on behalf of, the Company to the Reinsurer,
         its advisers or agents (including, within limitation, Milliman USA,
         Inc.) before or during the negotiations leading to this agreement is
         true, complete, accurate and not misleading.

8.2      Material Information

         All information about the Contracts known to the Company which might be
         material to a reinsurer of the Contracts has been disclosed to the
         Reinsurer in writing.

9.       OTHER AGREEMENTS

         The Company is not bound by any letter of intent, exclusivity
         agreement, heads of agreement or equivalent agreement relating to the
         Contracts or the Company.

                                      -27-

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