Document:

exv10w164

EXHIBIT
10.164

Property Catastrophe Excess of Loss

Reinsurance Contract No. 2000250

$1,400,000,000 xs $550,000,000

Effective: January 1, 2007

In consideration of the premium and subject to the

terms and conditions hereinafter set forth

The Reinsurers executing the

Interests and Liabilities Agreement

attached to this Contract

do hereby indemnify, as herein provided and specified, the

PEERLESS INSURANCE COMPANY

Peerless 2007 Property Catastrophe
Excess of Loss Reinsurance Contract
$1,400,000,000 xs $550,000,000

CAT07PRO03

 

 

Table of Contents

	 	 	 	 	 	 	 
	Article	 	 	 	Page	 
	 
	 	 	 	 	 	 
	I
	 	Business Covered	 	 	1	 
	II
	 	Exclusions	 	 	2	 
	III
	 	Term	 	 	3	 
	IV
	 	Ultimate Net Loss	 	 	4	 
	V
	 	Loss Occurrence	 	 	5	 
	VI
	 	Net Retained Lines	 	 	6	 
	VII
	 	Other Reinsurance	 	 	7	 
	VIII
	 	Territory (LM-02201-2005.06.02-A)	 	 	7	 
	IX
	 	Loss Adjustment and Settlement	 	 	7	 
	X
	 	Salvage and Subrogation (LM-01800-2006.09.12-A)	 	 	8	 
	XI
	 	Interest Penalty (LM-01400-2005.08.24-A)	 	 	9	 
	XII
	 	Unauthorized Reinsurance (LM-02502-2006.10.26-A)	 	 	10	 
	XIII
	 	Currency (LM-00500-2005.08.09-A)	 	 	11	 
	XIV
	 	Access to Records (LM-00100-2005.11.01-A)	 	 	11	 
	XV
	 	Errors and Omissions (LM-00800-2005.06.02-A)	 	 	12	 
	XVI
	 	Alterations	 	 	13	 
	XVII
	 	Arbitration (LM-00200-2006.10.25-A)	 	 	13	 
	XVIII
	 	Insolvency (LM-01300-2005.08.24-A)	 	 	15	 
	XIX
	 	Dividends and Taxes (LM-00600-2005.06.02-A)	 	 	16	 
	XX
	 	Federal Excise Tax (LM-01000-2005.08.24-A)	 	 	16	 
	XXI
	 	Service of Suit (LM-01900-2005.08.24-A)	 	 	17	 
	XXII
	 	Offset (LM-01700-2005.06.02-A)	 	 	17	 
	XXIII
	 	Governing Law (LM-01200-2005.06.02-A)	 	 	18	 
	XXIV
	 	Confidentiality (LM-00400-2005.11.10-A)	 	 	18	 
	XXV
	 	Severability(LM-02000-2005.06.02-A)	 	 	19	 
	XXVI
	 	Special Conditions (LM-02100-2006.09.29-A)	 	 	19	 
	XXVII
	 	Agency Agreement	 	 	22	 
	XXIII
	 	Entire Agreement (LM-00701-2005.08.24-A)	 	 	22	 
	XXIX
	 	Third Parties (LM-02700-2005.09.27-A)	 	 	22	 

Attachments:

Exhibit A — Layer 1

Exhibit B — Layer 2

Exhibit C — Layer 3

Exhibit D — Layer 4

Exhibit E — Layer 5

Appendix A — Definition of Profit Center

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Excess of Loss Reinsurance Contract

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Pools, Syndicates, Associations

War Risk Exclusion Clause

Nuclear Incident Exclusion Clause — Physical Damage Reinsurance (USA)

Nuclear Incident Exclusion Clause — Physical Damage Reinsurance (Canada)

Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994)

Worldwide Excluding U.S.A. & Canada)

Insolvency Funds Exclusion Clause

Terrorism Exclusion Clause

Terrorism Exclusion Clause (Losses Occurring After December 31, 2005)

Mold Exclusion

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Property Catastrophe Excess of Loss

Reinsurance Contract No. 2000250

$1,400,000,000 xs $550,000,000

Effective: January 1, 2007

(hereinafter referred to as the “Contract”)

In consideration of the premium and subject to the

terms and conditions hereinafter set forth

This Contract is entered into by and between

PEERLESS INSURANCE COMPANY, Keene, NH

(hereinafter referred to as the “Company”) on the one part, and the various Reinsurers as
identified by the Interests and Liabilities Agreements attaching to and forming a part of this
Contract (hereinafter individually referred to as the “Subscribing Reinsurer” and collectively
referred to as the “Reinsurers”) on the other part.

Article I — Business Covered

By this Contract the Subscribing Reinsurer agrees to reinsure the Company under the policies,
contracts agreements, certificates, other obligations and binders, whether oral or written, of
insurance or reinsurance and/or any endorsements to any of the foregoing, issued, accepted or held
covered provisionally or otherwise, by and on behalf of the Company or a Legal Entity listed in
Appendix A (each, a “Legal Entity” and, collectively, the “Legal Entities”), (hereinafter called
“Policies”) and reinsured, directly or indirectly, by the Company and in force at the effective
date hereof or issued or renewed on or after that date, and classified by the Company or a Legal
Entity as the Property coverages including but not limited to;

	 	•	 	Fire
	 
	 	•	 	Extended Coverage and Allied Lines,
	 
	 	•	 	Inland Marine (including Yachts),
	 
	 	•	 	Multiple Peril policies (Personal and Commercial),
	 
	 	•	 	Homeowners and Farmowners
	 
	 	•	 	Burglary and Theft
	 
	 	•	 	Earthquake and Flood (when added to a Fire policy by endorsement or when part of an
Inland Marine or Multiple Peril policy),
	 
	 	•	 	Miscellaneous Property Insurance,
	 
	 	•	 	Ocean Marine (Yacht business only),
	 
	 	•	 	Water Damage Insurance

subject to the terms, conditions and limitations set forth herein and in the Exhibits attached to
and forming part of this Contract.

Under this Contract, the indemnity for reinsured loss applies only to business written through the
Liberty Mutual Agency Markets Profit Centers, as defined in Exhibit A — Definition of Profit
Center.

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Article II — Exclusions

This Contract does not apply to:

	A.  	(1)  	 	Treaty reinsurance assumed by the Company except for any agency reinsurance, or
business written by affiliates of the Company and reinsured internally within the
companies that comprise the Liberty Mutual Agency Markets strategic business unit, and
specifically any reinsurance transacted among or between the companies that comprise
Liberty Mutual Agency Markets (shown in Exhibit A), or any reinsurance between OneBeacon
Insurance Company, its affiliates and Peerless Insurance Company; or
	 
	 	(2)  	 	Insurance or reinsurance accepted by the Company in the London market.

	B.	 	Loss or damage as excluded in the Pools, Associations and Syndicates Exclusion Clause, as
attached hereto and forming part of this Contract.
	 
	C.	 	Loss or damage caused by flood except under Inland Marine policies and except limited flood
coverage as provided for by the standard Homeowners policies, Manufacturers Output and
Mercantile or Commercial Block policies or other multiple peril policies whether under the
same policy or a separate policy covering the same risk.
	 
	D.	 	Loss or damage as excluded in the War Risk Exclusion Clause, as attached hereto and forming
part of this Contract.
	 
	E.	 	Loss or damage excluded by the following Nuclear Incident Exclusion Clauses as attached
hereto and forming part of this Contract:

	 	(1)	 	Nuclear Incident Exclusion Clause  —  Physical Damage — Reinsurance — U.S.A. —
N.M.A. 1119.
	 
	 	(2)	 	Nuclear Incident Exclusion Clause — Physical Damage — Reinsurance — Canada — N.M.A.
1980a.
	 
	 	(3)	 	Nuclear Energy Risks Exclusion Clause — 1994 — Reinsurance — (Worldwide Excluding
U.S.A. and Canada) — N.M.A. 1975a.

	F.	 	Loss or damage as excluded in the Insolvency Funds Exclusion Clause, as attached hereto and
forming part of this Contract.
	 
	G.	 	Policies classified as Insolvency or Financial Guarantee.
	 
	H.	 	Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or
contamination, other than contamination from smoke damage. Nevertheless, this exclusion does
not preclude any payment of the cost of the removal of debris of property damaged by a loss
otherwise covered hereunder, but subject always to a limit of 25.0% of the property loss under
the original Policy.
	 
	I.	 	Losses in respect of overhead transmission and distribution lines and their supporting
structures, other than those on or within 300 meters (or 1,000 feet) of the insured premises.
It is understood and agreed that public utilities extension and/or supplier’s extension
and/or contingent business interruption coverages are not subject to this exclusion, provided
these are not part of a transmitters’ or distributors’ policy.

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	J.	 	Losses arising out of “extra contractual obligations” or “loss in excess of policy
limits.”

	 	(1)	 	The term “extra contractual obligations” shall mean any punitive,
exemplary, compensatory, or consequential damages paid or payable by the Company or a
Legal Entity as a result of an action against it by its insured or its insured’s assignee
or a third party claimant.
	 
	 	(2)	 	The term “loss in excess of policy limits” shall mean any amount paid or payable by
the Company or a Legal Entity in excess of its policy limits, but otherwise within the
terms of its policy, as a result of an action against the Company or a Legal Entity by its
insured or its insured’s assignee to recover damages the insured is legally obligated to
pay to a third party claimant because of the Company’s or a Legal Entity’s alleged or
actual negligence or bad faith in rejecting a settlement within policy limits, or in
discharging its duty to defend or prepare the defense in the trial of an action against
its insured, or in discharging its duty to prepare or prosecute an appeal consequent upon
such action.

	K.	 	All business underwritten by Liberty International Canada, with the exception of those
locations and risks situated in the United States.
	 
	L.	 	Terrorism-related losses excluded by the Terrorism Exclusion Clauses, both of which are
attached hereto and forming part of this Contract.
	 
	M.	 	Mold — as attached hereto and forming part of this Contract.
	 
	N.	 	Boiler and Machinery.
	 
	O.	 	Business classified by the Company as Automobile Physical Damage
	 
	P.	 	Aircraft hull.
	 
	Q.	 	Motor Cargo (Legal Liability).
	 
	R.	 	Property coverages classified by the Company as “Casualty,” other than burglary, theft and
robbery when afforded under an Inland Marine policy or under the Property insurance section
of a multiple peril policy.
	 
	S.	 	Fidelity and Surety.
	 
	T.	 	Ocean Marine (other than Yacht policies).
	 
	U.	 	Hail damage to growing or standing crops.

Article III — Term

	A.	 	This Contract applies only to losses arising out of loss occurrences commencing during its
effective period. This Contract is effective at 12:01 a.m., January 1, 2007, Local Standard
Time, and shall end at 12:01 a.m., January 1, 2008, Local Standard Time.
	 
	B.	 	If this Contract should expire or terminate while a Loss Occurrence is in progress, the
Subscribing Reinsurer shall nevertheless be liable to the extent of their interest, subject to

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	 	 	the other conditions of this Contract, for all losses in the Loss Occurrence whether happening
before or after such expiration or termination, provided that no claim is made against such
Loss Occurrence on any renewal of this Contract.

Article IV — Ultimate Net Loss

	A.	 	“Ultimate Net Loss” as used in this Contract shall mean: all amounts paid or due and
payable by the Company or a Legal Entity in the investigation, appraisal, adjustment,
settlement, litigation, defense or appeal, payment or subrogation of claims or judgments
arising from each and every loss or loss occurrence for which the Company or a Legal Entity is
or may be found liable under the Policies, less salvages and subrogation recoveries and
amounts recovered or recoverable under pooling agreements or other reinsurances, whether
collectible, or not. “Ultimate Net Loss” includes, but is not limited to, the following paid
or due and payable amounts: Allocated Loss Adjustment Expenses, defense costs, court costs,
supersedeas and appeal bond costs, post and prejudgment interest, Attorneys’ Fees and
Expenses, Claim-Specific Declaratory Judgment Expenses, Field Employee Salaries and Expenses,
Unallocated Loss Adjustment Expenses calculated at 7.0% of any loss, and all other costs of
investigation or litigation. Nothing herein shall be construed to mean that losses under this
Contract are not recoverable until the Company’s or a Legal Entity’s Ultimate Net Loss has
been ascertained.
	 
	B.	 	“Allocated Loss Adjustment Expense” as used herein shall mean any and all expenses paid or
due and payable by the Company or a Legal Entity in the investigation, appraisal, adjustment,
settlement, litigation, defense or appeal, payment or subrogation of claims or judgments
arising from each and every loss or loss occurrence for which the Company or a Legal Entity is
or may be found liable under the Policies, including but not limited to Claim-Specific
Declaratory Judgment Expenses, Attorneys’ Fees and Expenses, Field Employee Salaries and
Expenses, court costs, supersedeas and appeal bond costs, post and prejudgment interest, and
expenses of outside adjusters or other third party administrators.
	 
	C.	 	“Unallocated Loss Adjustment Expense” as used herein shall mean any and all expenses paid or
due and payable by the Company or a Legal Entity in the investigation, appraisal, adjustment,
settlement, litigation, defense or appeal, payment or subrogation of claims or judgments
arising from each and every loss or loss occurrence for which the Company or a Legal Entity is
or may be found liable under the Policies that do not constitute Allocated Loss Adjustment
Expense.
	 
	D.	 	“Claim-Specific Declaratory Judgment Expenses” shall be defined as fees and expenses incurred
in actions brought to determine whether the Company or a Legal Entity has a defense and/or
indemnification obligation for individual claims presented against Policies covered under this
Contract. Any Claim-Specific Declaratory Judgment Expense shall be deemed to have been fully
incurred on the same date as the insured’s original loss or loss occurrence (if any) giving
rise to the action, unless otherwise provided for within this Contract.
	 
	E.	 	The term “Attorneys’ Fees and Expenses” as used above, shall mean all fees and expenses of
attorneys, including but not limited to the fees and expenses of the Company’s or its
affiliates’ in-house attorneys providing legal advice on coverage questions and/or defending
the Company or Legal Entity in coverage litigation, and fees and expenses of outside attorneys
and/or staff counsel in the defense of policyholder claims. Such Attorneys’ Fees and
Expenses for in-house attorneys and staff counsel shall be calculated

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	 	 	at the rate for such attorneys plus the expenses incurred by such attorneys, but excluding
office expenses of the Company and its affiliates and salaries and expenses of its other
employees which constitute Unallocated Loss Adjustment Expense.
	 
	F.	 	The term “Field Employee Salaries and Expenses” as used above, shall mean a pro rata share
of salaries and expenses of the Company’s or its affiliates’ field employees according to the
time occupied in adjusting, defending, and settling such losses or loss occurrences, and of
expenses of all of the Company’s or its affiliates’ officers and employees incurred in
connection with the loss; except that salaries of officers and employees engaged in general
management and located in the home office of the Company or its affiliates and any office
expense of the Company or its affiliates do not constitute Field Employee Salaries and
Expenses, but rather Unallocated Loss Adjustment Expense.

Article V — Loss Occurrence

	A.	 	The term “Loss Occurrence” shall mean the sum of all individual losses directly occasioned
by any one disaster, accident or loss or series of disasters, accidents or losses arising out
of one event which occurs within the area of one state of the United States or province of
Canada and states or provinces contiguous thereto and to one another. However, the duration
and extent of any one “Loss Occurrence” shall be limited to all individual losses sustained by
the Company or a Legal Entity occurring during any period of 168 consecutive hours arising out
of and directly occasioned by the same event, except that the term “Loss Occurrence” shall be
further defined as follows:

	 	1.	 	As regards windstorm, hail, tornado, cyclone including ensuing collapse and water
damage, all individual losses sustained by the Company or a Legal Entity occurring during
any period of 72 consecutive hours arising out of and directly occasioned by the same
event. However, as respects named hurricanes or tropical storms within the 48 contiguous
states and Canada, all individual losses sustained by the Company or a Legal Entity
occurring during any period of 168 consecutive hours arising out of and directly
occasioned by the same event. However, the event need not be limited to one state or
province or states or provinces contiguous thereto.
	 
	 	2.	 	As regards riot, riot attending a strike, civil commotion, vandalism and malicious
mischief, all individual losses sustained by the Company or a Legal Entity occurring
during any period of 72 consecutive hours within the area of one municipality or county
and the municipalities or counties contiguous thereto arising out of and directly
occasioned by the same event. The maximum duration of 72 consecutive hours may be
extended in respect of individual losses which occur beyond such 72 consecutive hours
during the continued occupation of an assured’s premises by strikers, provided such
occupation commenced during the aforesaid period.
	 
	 	3.	 	As regards earthquake (the epicenter of which need not necessarily be within the
territorial confines referred to in the introductory portion of this paragraph A) and
fire following directly occasioned by the earthquake, only those individual fire losses
which commence during the period of 168 consecutive hours may be included in the
Company’s or a Legal Entity’s “Loss Occurrence.”
	 
	 	4.	 	As regards “freeze,” only individual losses directly occasioned by collapse,
breakage of glass and water damage (caused by bursting of frozen pipes and tanks) may be
included in the Company’s or Legal Entity’s “Loss Occurrence.”

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	 	5.	 	As regards firestorms, brush fires and any other fires or series of fires,
irrespective of origin (except as provided in subparagraphs 2 and 3 above), which spread
through trees, grassland or other vegetation, all individual losses sustained by the
Company or a Legal Entity which commence during any period of 168 consecutive hours and
within a 150-mile radius of any fixed point selected by the Company may be included in
the Company’s or a Legal Entity’s “Loss Occurrence.” However, an individual loss subject
to this subparagraph 5 cannot be included in more than one “Loss Occurrence.”

	B.	 	For all “Loss Occurrences,” other than those referred to in subparagraph 2 of paragraph A
above, the Company may choose the date and time when any such period of consecutive hours
commences, provided that it is not earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company or a Legal Entity arising out of that
disaster, accident or loss and provided that only one such period of 168 consecutive hours
shall apply with respect to one event except for any “Loss Occurrences” referred to in
subparagraph 1 of paragraph A above defined as occurring during any period of 72 consecutive
hours where only one such period of 72 consecutive hours shall apply with respect to one
event, regardless of the duration of the event.
	 
	C.	 	As respects those “Loss Occurrences” referred to in subparagraph 2 of paragraph A above, if
the disaster, accident or loss occasioned by the event is of greater duration than 72
consecutive hours, then the Company may divide that disaster, accident or loss into two or
more “Loss Occurrences,” provided no two periods overlap and no individual loss is included in
more than one such period, and provided that no period commences earlier than the date and
time of the occurrence of the first recorded individual loss sustained by the Company or a
Legal Entity arising out of that disaster, accident or loss.
	 
	D.	 	No individual losses occasioned by an event that would be covered by 72 hours clauses may be
included in any “Loss Occurrence” claimed under 168 hours provision.
	 
	E.	 	Any date change, including leap year calculations, shall not in and of itself be regarded as
a Loss Occurrence for the purposes of this Contract.
	 
	F.	 	Losses directly or indirectly occasioned by:

	 	1.	 	loss of, alteration of, or damage to, or
	 
	 	2.	 	a reduction in the functionality, availability or operation of a computer system,
hardware, program, software, data, information repository, microchip, integrated circuit
or similar device in computer equipment or non-computer equipment, whether the property
of the policyholder of the Company or a Legal Entity or not, do not in and of themselves
constitute an event unless arising out of one or more of the following perils:
	 
	 	 	 	fire, lightning, explosion, aircraft or vehicle impact, falling objects, windstorm, hail,
tornado, cyclone, hurricane, earthquake, volcano, tsunami, flood, freeze or weight of
snow.

Article VI — Net Retained Lines

	A.	 	This Contract applies only to such portion of any Policy that the Company, directly or
indirectly, whether insurer or reinsurer, retains net for its own respective account (prior
to

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	 	 	the deduction of any underlying reinsurance specifically permitted in this Contract). In
calculating the amount of any loss hereunder and in computing the amount in excess of which
this Contract attaches only loss or losses in respect of that portion of any insurance, or
reinsurance which the Company, directly or indirectly, whether insurer or reinsurer, retains
net for its own account shall be included.
	 
	B.	 	It is agreed that the amount of the Subscribing Reinsurers’ liability hereunder in respect of
any loss shall not be increased by reason of the inability of the Company to collect from any
other reinsurer, whether specific or general, any amount which may have become due from such
reinsurers whether such inability arises from the insolvency of such other reinsurer or
otherwise.
	 
	C.	 	Allocation of losses and expenses to Legal Entities other than the Company pursuant to
inter-company reinsurance among the Legal Entities shall be entirely disregarded for all
purposes of this Contract.

Article VII — Other Reinsurance

	A.	 	It is understood and agreed that the Company may purchase facultative and underlying property
per risk excess of loss covers which will inure to the benefit of this Contract.
	 
	B.	 	The Company may have in force other excess catastrophe reinsurances, recoveries under which
shall inure solely to the benefit of the Company.

Article VIII — Territory (LM-02201-2005.06.02-A)

	A.	 	As respects Exhibits A & B, this Contract is worldwide in scope and shall cover risks
wherever located.
	 
	B.	 	As respects Exhibits C & D, this Contract is worldwide in scope and shall cover risks
wherever located, except for loss or damage in the State of California.
	 
	C.	 	As respects Exhibit E, the Subscribing Reinsurer shall be liable in respect of all losses
occurring in the Northeast, or Connecticut, Delaware, District of Columbia,
Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode
Island and Vermont and Earthquake losses occurring in New Madrid, or Alabama, Arkansas,
Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Ohio, Oklahoma,
Tennessee, and Wisconsin.
	 
	D.	 	It is specifically agreed that the retention of the Company shall apply to losses occurring
on property anywhere in the world.

Article IX — Loss Adjustment and Settlement

	A.	 	The Company shall give notice, as soon as practicable, to the Subscribing Reinsurer of any
claim that it has reason to believe could involve this Contract. The Company shall keep the
Subscribing Reinsurer informed of significant developments likely to affect the cost of any
claim or claims hereunder.

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	B.	 	The Company or a Legal Entity may commence, continue, defend, settle, or withdraw from
actions, suits, or prosecutions and, generally, do all such things relating to any claim or
loss in which the Subscribing Reinsurer is interested as, in the Company’s or such Legal
Entity’s judgment, may be beneficial or expedient to the Company or such Legal Entity, as
applicable, and the Subscribing Reinsurer. The Company and the Legal Entities shall be the
sole judge as to what claims are covered under their Policies. All of the Ultimate Net Loss
and Loss Occurrences, as well as all loss settlements made and judgments paid by the Company
or a Legal Entity, provided they are within the terms of this Contract either under the strict
conditions of the Company’s or Legal Entities’ Policies or by way of compromise, shall be
unconditionally binding upon the Subscribing Reinsurer, who agrees to pay all amounts for
which it is liable immediately upon reasonable evidence of the amount due being furnished to
the Subscribing Reinsurer by the Company. The true intent of this Contract is that the
Subscribing Reinsurer shall, in every case to which this Contract applies, follow the
settlements of the Company and the Legal Entities.

Article X — Salvage and Subrogation (LM-01800-2006.09.12-A)

	A.	 	The Subscribing Reinsurer shall be credited with their share of salvage and/or subrogation
in respect of claims and settlements under this Contract, less its share of recovery expense.
Unless the Company agrees to waive such rights in the settlement of a disputed claim, or the
Company and the Subscribing Reinsurer agree to the contrary, the Company or the Legal Entities
shall enforce this right to salvage and/or subrogation and shall prosecute all claims arising
out of such right. Should the Company or a Legal Entity refuse or neglect to enforce this
right, the Subscribing Reinsurer is hereby empowered and authorized to institute appropriate
action in the name of the Company or a Legal Entity, as applicable.
	 
	B.	 	Amounts recovered from salvage and/or subrogation shall always be used to reimburse the
excess Subscribing Reinsurer (and the Company, should it carry a portion of excess coverage
net) in the reverse order of their participation in the loss before being used in any way to
reimburse the Company or a Legal Entity for its primary loss. If the amount recovered
exceeds the recovery expense, the recovery expense shall be borne by each party in proportion
to its benefit from the recovery. If the recovery expense exceeds the amount recovered, the
amount recovered (if any) shall be applied to the reimbursement of recovery expense and the
remaining expense, as well as any originally incurred loss expense, shall be added to the
Ultimate Net Loss. If no amount is recovered from salvage and/or subrogation, the expense
incurred in attempting such recovery shall be deemed loss expense and shall be added to the
Ultimate Net Loss.
	 
	C.	 	All salvage and/or subrogation recoveries obtained by either party, subsequent to payments
made by the Subscribing Reinsurer under this Contract, shall be applied as if obtained prior
to said payments and all necessary adjustments shall be made between the Company and the
Subscribing Reinsurer as soon as practicable after said salvage and/or subrogation recovery is
obtained.
	 
	D.	 	The Company shall have the right, before the happening of the loss, to waive its right of
subrogation as to that loss.

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Article XI — Interest Penalty (LM-01400-2005.08.24-A)

	A.	 	The interest amounts provided for in this Article shall apply to the Subscribing Reinsurer or
to the Company in the following circumstances:

	 	1.	 	If a loss payment owed by the Subscribing Reinsurer to the Company is not received
within 45 calendar days following the date of presentation to the Subscribing
Reinsurer of information necessary to approve payment of the claim, and/or
	 
	 	2.	 	If any premium payment owed by the Company to the Subscribing Reinsurer is not
received within 45 calendar days following the date on which payment is due, and/or
	 
	 	3.	 	If any premium adjustment, agreed by either Party to the other, is not received
within 150 calendar days following the expiry or anniversary of this Contract, and/or
	 
	 	4.	 	If any return of premiums, commissions, profit sharing, or any amounts not provided
in subparagraphs 1, 2, and 3 above, are not received in accordance with the date
specified in this Contract or if no date is specified, within 90 calendar days following
the date the debtor Party received the billing.

	B.	 	Failure by the Subscribing Reinsurer or Company to comply with their respective payment
obligations within the time periods as herein provided shall, as of that date, be subject to
an interest payment computed by multiplying the amount due by a variable rate consisting of
the U.S. Prime Rate as published in the Eastern Edition of The Wall Street Journal on the
first day of the calendar month in which the amount became past due, plus 2.0%. The variable
rate shall be adjusted monthly thereafter to equal the U.S. Prime Rate as published in the
Eastern Edition of The Wall Street Journal on the first day of each successive month during
which the amount due remains unpaid, plus 2.0%. The product shall then be multiplied by
1/365 for each day after the due date that the amount due and the interest amount remain
unpaid. Any interest that occurs pursuant to this Article shall be calculated by the Party to
which it is owed.

	C.	 	The validity of any claim or payment may be contested under the provisions of this Contract.
If the debtor Party prevails in an arbitration or any other proceeding with respect to the
amounts in dispute, there shall be no interest penalty due. If the creditor Party wholly or
partially prevails on any of the amounts in dispute, the interest penalty shall be awarded as
outlined above. Such interest penalty shall be calculated from the date the monies were due
and owing to the date of resolution of the arbitration or proceeding, and shall be payable as
of the date of resolution of the arbitration or proceeding.

	D.	 	If a Subscribing Reinsurer advances the entire or partial payment of any claim it is
contesting, and wholly or partially prevails in the contest, the Company shall promptly return
the applicable amount of such payment. The arbitrator(s) hearing such dispute shall
determine if interest shall be added to the amount returned by the Company.

	E.	 	Any interest owing pursuant to this Article may be waived by the Party to which it is owed.
Further, any interest calculated pursuant to this Article that is $100 or less shall be
waived. Any waiver of any interest pursuant to this paragraph, however, shall not affect the
waiving Party’s right to claim and/or pursue interest for any other failure by the other Party
to make payment when due under this Article.

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Article XII — Unauthorized Reinsurance (LM-02502-2006.10.26-A)

(Applies only to a Subscribing Reinsurer who at the inception of the Contract or at any time
thereafter does not qualify for full credit with any insurance regulatory authority having
jurisdiction over the Company’s reserves.)

As regards policies or bonds issued by the Company coming within the scope of this Contract, the
Company agrees that when it shall file with the insurance regulatory authority or set up on its
books reserves for unearned premium and losses covered hereunder which it shall be required by law
to set up, it will forward to the Subscribing Reinsurer a statement showing the proportion of such
reserves which is applicable to the Subscribing Reinsurer. The Subscribing Reinsurer hereby agrees
to fund such reserves in respect of unearned premium, known outstanding losses that have been
reported to the Subscribing Reinsurer and allocated loss adjustment expense relating thereto,
losses and allocated loss adjustment expense paid by the Company or the Legal Entities but not
recovered from the Subscribing Reinsurer, plus reserves for losses incurred but not reported as
determined by the Company, as shown in the statement prepared by the Company (hereinafter referred
to as “Subscribing Reinsurer Obligations”) by Letters of Credit, unless the method of funding is
determined by applicable law, statute, or regulation.

The Subscribing Reinsurer agrees to apply for and secure timely delivery to the Company of clean,
irrevocable, and unconditional Letters of Credit issued by a bank that is a qualified U.S.
financial institution and containing provisions acceptable to the insurance regulatory authorities
having jurisdiction over the Company’s reserves in an amount equal to the Subscribing Reinsurer’s
proportion of said reserves. At the Company’s request, Subscribing Reinsurer will agree to provide
separate Letters of Credit for any Legal Entities and the Company, covered under this Contract.
Such Letters of Credit shall be issued for a period of not less than one year, and shall be
automatically extended for one year from their date of expiration or any future expiration date
unless 60 days prior to any expiration date the issuing bank shall notify the Company by certified
mail that the issuing bank elects not to consider the Letters of Credit extended for any additional
period.

The Subscribing Reinsurer and Company agree that the Letters of Credit provided by the Subscribing
Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time,
notwithstanding any other provision of this Contract, and be utilized 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, without diminution because of the
insolvency of the Company or the Subscribing Reinsurer for one or more of the following purposes:

	A.	 	To pay or reimburse the Company for:

	 	1.	 	The Subscribing Reinsurer’s share under this Contract of premiums returned, but not
yet recovered from the Subscribing Reinsurer, to the owners of policies reinsured under
this Contract on account of cancellations of such policies; and
	 
	 	2.	 	The Subscribing Reinsurer’s share, under this Contract, of surrenders and benefits
or losses paid by the Company or a Legal Entity, but not yet recovered from the
Subscribing Reinsurer, under the terms and provisions of the policies reinsured under
this Contract; and

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	 	3.	 	Any other amounts necessary to secure the credit or reduction from liability for
reinsurance taken by the Company.

	B.	 	Where the Letters of Credit will expire without renewal or be reduced or replaced by Letters
of Credit for a reduced amount and where the Subscribing Reinsurer’s entire obligations under
this Contract remain unliquidated and undischarged 10 days prior to the termination date, to
withdraw amounts equal to the Subscribing Reinsurer’s share of the liabilities, to the extent
that the liabilities have not yet been funded by the Subscribing Reinsurer and exceed the
amount of any reduced or replacement Letters of Credit, and deposit those amounts in a
separate account in the name of the Company in a qualified U.S. financial institution apart
from its general assets, in trust for such uses and purposes specified in above as may remain
after withdrawal and for any period after the termination date.

Any and all disputes between the Company and any Subscribing Reinsurer or Reinsurers (“Party”,
individually, or “Parties”, collectively) arising out of, relating to, or concerning this Article
shall be resolved pursuant to the ARIAS-U.S. Newer Arbitrator Program. Unless the Parties
otherwise agree, the ARIAS Newer Arbitrator Program expedited proceeding with a single Newer
Arbitrator shall be used to resolve any such disputes.

Article XIII — Currency (LM-00500-2005.08.09-A)

Whenever a reference to a monetary currency appears in this Contract, it shall be construed
to mean United States Dollars (“USD”). All amounts paid or received by the Company in any other
currency shall be converted into United States Dollars at the rate of exchange on the date at
which it is entered on the books of the Company.

Article XIV — Access to Records (LM-00100-2005.11.01-A)

	A.	 	Except as otherwise provided in this Article, the Subscribing Reinsurer, or its duly
authorized representative, may upon reasonable prior written notice to the Company, at the
Subscribing Reinsurer’s own expense, examine at the offices of the Company or its affiliates,
during normal office hours, the Company’s or the Legal Entities’ policy,
accounting, underwriting or claim records and files, or any such additional relevant records
and files, as they exist in the Company’s or its affiliates’ possession or reasonable control,
relating to business ceded under this Contract. The Subscribing Reinsurer’s notice shall
reasonably describe the nature of the inspection that it wishes to conduct, the persons
conducting the inspection and upon notice of available files from the Company, the files that
it wishes to review. Subject to the limitations expressed in this Article, this right of
inspection shall survive termination or expiration of this Contract and shall continue as long
as either party has any rights or obligations under this Contract.
	 
	B.	 	The Company reserves the right to deny the Subscribing Reinsurer access to records or files
concerning any particular claim(s) if the Subscribing Reinsurer has not disputed liability for
payment of such claim(s), and payment of such claim(s) is more than 90 days overdue according
to the Company’s records. The Company shall, however, prior to an arbitration demand that may
be instituted by either party, continue to respond to reasonable specific requests for
information and questions raised by the Subscribing Reinsurer concerning such claims; and
nothing in this Article shall restrict the right or ability of the Subscribing Reinsurer to
seek discovery of relevant information in an arbitration proceeding pursuant to the
Arbitration Article of this Contract.

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	C.	 	As a condition precedent to access to records under this Article, the Subscribing Reinsurer,
its personnel and any authorized third party representative of the Subscribing Reinsurer shall
agree to the provisions of the Confidentiality Article of this Contract.
	 
	D.	 	The Company reserves the right to withhold any documents from the Subscribing Reinsurer (1)
concerning Trade Secrets of the Company or its affiliates, (2) subject to the terms of a third
party non-disclosure agreement with the Company or its affiliates requiring third party
consent to disclosure, (3) subject to the Work Product Privilege or Attorney-Client Privilege
or (4) concerning individual private information that as a matter of law cannot be disclosed
by the Company or its affiliates (hereinafter referred to in the Contract as “Privileged
Documents”). The Company shall reasonably try to exempt the Subscribing Reinsurer from any
third party non-disclosure agreement or obtain consent from the third party to disclose to the
Subscribing Reinsurer.
	 
	E.	 	Notwithstanding the foregoing, the Company shall permit and not object to the Subscribing
Reinsurer’s access to Privileged Documents in connection with the underlying claim reinsured
hereunder following final settlement or final adjudication of the case or cases involving
such claim, with prejudice against all claimants, and all parties to such
adjudications; provided that the Company may defer release of such Privileged Documents if
there are subrogation, contribution, or other third party actions with respect to that claim
or case, which might jeopardize the Company’s or its affiliates’ defense by release of such
Privileged Documents. In the event that the Company shall seek to defer release of such
Privileged Documents, it will in consultation with the Subscribing Reinsurer take other steps
as reasonably necessary to provide the Subscribing Reinsurer with the information it
reasonably requires to indemnify the Company without causing a loss of such privileges. The
Subscribing Reinsurer, however, shall not have access to Privileged Documents relating to any
dispute between the Company and the Subscribing Reinsurer.
	 
	F.	 	For purposes of this Article, “Trade Secrets” shall have the meaning provided in Section 1839
of the United States Economic Espionage Act of 1996. “Attorney-Client Privilege” shall mean
communications of a confidential nature between (1) the Company or its affiliates, or anyone
retained or in the control of the Company or its affiliates,, or their in-house or outside
legal counsel, or anyone in the control of such legal counsel, and (2) any in-house or outside
legal counsel which relate to legal advice being sought by the Company or its affiliates
and/or which contains legal advice being provided to the Company or its affiliates. “Work
Product Privilege” shall mean communications, written materials and tangible things prepared
by or for in-house or outside counsel, or prepared by or for the Company or its affiliates, in
anticipation of or in connection with litigation, arbitration or other dispute resolution
proceedings.

Article XV — Errors and Omissions (LM-00800-2005.06.02-A)

Any inadvertent delay, omission, or error in complying with the terms and conditions of this
Contract shall not be held to relieve either party hereto from any liability, which would attach
to it hereunder if such delay, omission, or error had not been made, provided such delay,
omission, or error is rectified upon discovery.

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Article XVI — Alterations

The Contract may at any time be altered by mutual consent of the parties by addendum or by
correspondence, either of which to be authorized and signed by a responsible official of the
parties and such addendum or correspondence shall be binding on the parties and be deemed to be an
integral part of this Contract.

Article XVII — Arbitration (LM-00200-2006.10.25-A)

	A.	 	Disputes to be Arbitrated. With the exception of any dispute resolution procedures
that are otherwise contained in this Contract, any and all disputes between the Company and
any Subscribing Reinsurer or Reinsurers (“Party” individually or “Parties” collectively)
arising out of, relating to, or concerning this Contract, whether sounding in contract or tort
and whether arising during or after this Contract’s formation, or after its termination,
including disputes as to whether the Contract was validly formed or is voidable, shall be
submitted to the decision of an arbitration panel (“Panel”). The Panel shall consist of an
umpire and two party-appointed arbitrators unless a Party meets the requirements of paragraph
C of this Article and demands arbitration pursuant thereto, in which case the Panel would
consist of an umpire only.
	 
	B.	 	Procedures. Except as provided herein, any arbitration shall be based upon
the Procedures for the resolution of U.S. Insurance and Reinsurance Disputes, Regular Panel
Version, dated April 2004 (the “Procedures”), developed by the Insurance and Reinsurance
Dispute Resolution Task Force, subject to the following modifications:

	 	1.	 	Qualifications of the arbitrators and umpires shall be in accordance with
Alternative section 6.2 of the Procedures.
	 
	 	2.	 	The Parties hereby designate the umpire list maintained by ARIAS (U.S.) as the list
to be used in the event that section 6.7(a) of the Procedures is invoked.
	 
	 	3.	 	Unless otherwise mutually agreed, the members of the Panel shall be impartial and
disinterested. The members of the Panel may not be: (1) in the control of any Party or
its parent, affiliate, or agent, (2) a former director or officer of any Party or its
parent, affiliate, or agent, or (3) a likely witness in the arbitration. The
requirement of impartiality means that all members of the Panel shall have the same
obligation to approach the Panel’s duties and decisions with fairness and without
consideration for the fact that Panel members may have been appointed by one of the
Parties. The requirement of impartiality does not mean that any arbitrator can have no
previous knowledge of or experience with respect to issues involved in the dispute or
disputes.
	 
	 	4.	 	The first sentence of Section 10.4 of the Procedures shall be replaced by the
following sentence: “The Panel shall require that each Party submit concise written
statements of position, including summaries of the facts and evidence a Party intends to
present, discussion of the applicable law and the basis for the requested Award or denial
of relief sought.”
	 
	 	5.	 	Once the Panel has been constituted, no Party (or anyone acting for a Party) shall
have any communications concerning the arbitration or any of the issues before the Panel
with any member of the Panel that is not also disclosed to all other Parties and all
members of the Panel. Each Panel member shall have a continuing duty to

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	 	 	 	disclose promptly to all Parties and all Panel members any violation of this prohibition
and the specifics of any improper communications that occurred. This prohibition shall
remain in place until all challenges to any arbitration awards and decisions have been
either waived or finally concluded.
	 
	 	6.	 	Section 11.1 of the Procedures shall be replaced by the following provision: “The
Parties may propound discovery seeking disclosure of such information and/or
documents relevant to the dispute or necessary for the proper resolution of the dispute.”
	 
	 	7.	 	Position statements may be amended at any reasonable time, but not later than the
close of discovery without a showing to the Panel that the amending Party could not
reasonably have raised the new claim or issue at an earlier time.
	 
	 	8.	 	The Panel shall hold an evidentiary hearing, if one is necessary, within one year
of the arbitration demand, unless the Parties otherwise agree. Should a Party seek a
reasonable extension to this time frame for good cause shown, the other Party’s agreement
shall not be unreasonably withheld.
	 
	 	9.	 	To the extent permitted by the law, the Panel shall have the authority to issue
subpoenas and other orders to enforce its decisions.
	 
	 	10.	 	The Panel may award reasonable attorneys’ fees and arbitration costs to the
prevailing Party, as determined by the Panel.
	 
	 	11.	 	Section 14.3 of the Procedures shall be replaced by the following provision: “The
Panel shall make a decision and issue an award with regard to the terms expressed in this
Contract, and the custom and practice of the property and casualty insurance and
reinsurance business. The Panel shall not be obligated to follow the strict rules of law
and evidence.”

	C.	 	Alternative Streamlined Procedures. Notwithstanding the foregoing provisions of
this Article, the Alternative Streamlined Procedures set forth in section 16 of the
Procedures, as modified by sections B3, B4, and B9 through B11 of this Article, shall apply in
the event that, in a consolidated proceeding or otherwise, the Party initiating arbitration is
seeking payment of a total amount that is no greater than one million dollars ($1,000,000), or
the currency equivalent thereof. Sections 16.1, 16.2, 16.3 and the second sentence of section
16.4 of the Alternative Streamlined Procedures shall not apply. The Parties agree to comply
with section 6.7 of the Procedures to appoint a single umpire, and hereby designate the umpire
list maintained by ARIAS (U.S.) as the list to be used in section 6.7(a).

	D.	 	Hearing Location. The hearing shall be held in Boston, Massachusetts, unless the
Parties mutually agree to a different location.

	E.	 	Confirmation. Either Party may apply to a court of competent jurisdiction for an
order confirming any award of the Panel; a judgment of that court shall thereupon be entered
on any award. If such an order is issued, the Party against whom confirmation is sought
shall pay the attorneys’ fees incurred of the Party who applied for the confirmation order and
all court costs of any such proceeding.

	F.	 	Equitable Relief from a Court of Law. Nothing herein shall be construed to prevent
any participating Party from applying to a court of competent jurisdiction to issue a
restraining

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	 	 	order or other equitable relief to maintain the “status quo” of the Parties participating in
the arbitration pending the decision and award by the Panel.
	 
	G.	 	Consolidated Proceedings.

	 	1.	 	Same contract, single Subscribing Reinsurer. Both the Company and any single
Subscribing Reinsurer on this Contract have the right to combine any and all disputes
between them that concern this Contract (including any renewal of this Contract or any
contract for which this Contract is a renewal) into a single arbitration proceeding
before a single Panel, except that the standard for determining whether a Party may add a
new issue, claim, or dispute to an arbitration proceeding shall be the standard for
amending a Position statement, as set forth in paragraph B7 of this Article.
	 
	 	2.	 	Multiple contracts, single Subscribing Reinsurer. The Company has the right to
combine any and all disputes between the Company and a single Subscribing Reinsurer into
a single arbitration proceeding before a single Panel where such disputes involve this
Contract and any additional contracts between the two Parties, except that the standard
for determining whether a Party may add a new issue, claim, or dispute to an arbitration
proceeding shall be the standard for amending a Position statement, as set forth in
paragraph B7 of this Article.
	 
	 	3.	 	Same contract, multiple Reinsurers. At the Company’s option, if more than one
Subscribing Reinsurer is involved in arbitration relating to this Contract, where there
are common questions of law or fact and a possibility of conflicting awards or
inconsistent results, all such Reinsurers shall constitute and act as one Party for
purposes of this Article and communications shall be made by the Company to each of the
Reinsurers constituting the one Party; provided, however, that the Reinsurers shall have
the right to assert several, rather than joint defenses or claims, and to be represented
by separate counsel. This provision shall not change the liability of each of the
Reinsurers under the terms of this Contract from several to joint.

	H.	 	Choice of Law. The law set forth in the Governing Law Article shall apply to this
Arbitration Article. In addition, to the extent the Panel (or the umpire in an Alternative
Streamlined Procedure) looks to applicable law, such Panel or umpire shall apply the law as
set forth in the Governing Law Article of this Contract.

	I.	 	Survival of Article. This Article shall survive the termination or expiration of
this Contract.

Article XVIII — Insolvency (LM-01300-2005.08.24-A)

(If more than one reinsured company is referenced within the definition of “Company” in the
Preamble to this Contract, this Article shall apply severally to each such company. Further, this
Article and the laws of the domiciliary state shall apply in the event of the insolvency of any
company intended to be covered hereunder. In the event of a conflict between any provision of this
Article and the laws of the domiciliary state of any company intended to be covered hereunder, that
domiciliary state’s laws shall prevail.)

	A.	 	In the event of the insolvency of the Company, reinsurance under this Contract shall be
payable on demand, with reasonable provision for verification, on the basis of claims allowed
against the insolvent Company by any court of competent jurisdiction or by any liquidator,
receiver, conservator, or statutory successor of the Company having authority to

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	 	 	allow such claims, without diminution because of such insolvency or because such liquidator,
receiver, conservator, or statutory successor has failed to pay all or a portion of any claims.
Such payments by the Subscribing Reinsurer shall be made directly to the Company or its
liquidator, receiver, conservator, or statutory successor, except to the extent Section 4118(a)
of the New York Insurance Law applies, or except (1) where the Contract specifically provides
another payee of such reinsurance in the event of the insolvency of the Company, or (2) where
the Subscribing Reinsurer with the consent of the direct insured or insureds has assumed such
Policy obligations of the Company as direct obligations of the Subscribing Reinsurer to the
payees under such Policies and in substitution for the obligations of the Company to such
payees.
	 
	B.	 	It is agreed, however, that the liquidator, receiver, conservator, or statutory successor of
the insolvent Company shall give written notice to the Subscribing Reinsurer of the pendency
of a claim against the insolvent Company on the policy or policies reinsured within a
reasonable time after such claim is filed in the insolvency proceeding and that during the
pendency of such claim the Subscribing Reinsurer may investigate such claim and interpose, at
their own expense, in the proceeding where such claim is to be adjudicated, any defense or
defenses which it may deem available to the Company or its liquidator, receiver,
conservator, or statutory successor. The expense thus incurred by the Subscribing
Reinsurer shall be chargeable, subject to court approval, against the insolvent Company as
part of the expense of liquidation to the extent of a proportionate share of the benefit,
which may accrue to the Company solely as a result of the defense undertaken by the
Subscribing Reinsurer.
	 
	C.	 	Where two or more Subscribing Reinsurers are involved in the same claim and a majority in
interest elects 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 XIX — Dividends and Taxes (LM-00600-2005.06.02-A)

In consideration of the terms of this Contract, the Company shall not claim any deduction in
respect of any amount paid as dividends or as reinsurance premium when making tax returns, other
than income or profits tax returns to any State or to the District of Columbia or Canada.

Article XX — Federal Excise Tax (LM-01000-2005.08.24-A)

	A.	 	This Article is applicable to those Reinsurers who are domiciled outside of the United States
of America, except those Reinsurers exempt from Federal Excise Tax. Reinsurers that claim
exempt status from Federal Excise Tax shall provide to the Company, upon its request, proof
that the exempt status adequately satisfies the demands of the U.S. Internal Revenue Service,
Department of the Treasury, or its successor and/or other applicable U.S. government
authority.

	B.	 	The Reinsurers shall allow the applicable percentage of the premium payable hereon (as
imposed under Section 4371 of the Internal Revenue Code) for the purpose of paying Federal
Excise Tax to the extent such premium is subject to such tax.

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	C.	 	In the event of any return of premium, the Reinsurers shall deduct the aforesaid
percentage from the return premium payable hereon and the Company or its agent shall recover
such tax from the United States Government.

Article XXI — Service of Suit (LM-01900-2005.08.24-A)

(This Article applies to unauthorized Reinsurers and to Reinsurers who are domiciled outside
the United States of America.)

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

	B.	 	In the event of the failure of the Subscribing Reinsurer to pay any amount claimed to be due
hereunder, the Subscribing Reinsurer, at the request of the Company, will submit to the
jurisdiction of a Court of competent jurisdiction within the United States. Nothing in this
Article constitutes or should be understood to constitute a waiver of the Subscribing
Reinsurer’ rights to commence an action in any Court of competent jurisdiction in the United
States, to remove an action to a United States District Court, or to seek a transfer of a case
to another Court as permitted by the laws of the United States or of any state in the United
States. The Subscribing Reinsurer, once the appropriate Court is selected, whether such court
is the one originally chosen by the Company and accepted by Subscribing Reinsurer or is
determined by removal, transfer, or otherwise, as provided for above, will comply with all
requirements necessary to give said Court jurisdiction and, in any suit instituted against any
of them upon this Contract, will abide by the final decision of such Court or of any Appellate
Court in the event of an appeal.

	C.	 	Service of process in such suit may be made upon Mendes & Mount, LLP, 750 Seventh Avenue, New
York, New York 10019.

	D.	 	The above-named are authorized and directed to accept service of process on behalf of
Subscribing Reinsurer in any such suit. Further, pursuant to any statute of any state,
territory, or district of the United States that makes provision therefore, the Subscribing
Reinsurer hereby designate the Superintendent, Commissioner, or Director of Insurance, or
other officer specified for that purpose in the statute, or their successor(s) in office, as
their true and lawful attorney upon whom may be served any lawful process in any action, suit,
or proceedings instituted by or on behalf of the Company or any beneficiary hereunder arising
out of this Contract, and hereby designate the above-named as the person to whom the said
officer is authorized to mail such process or a true copy thereof.

Article XXII — Offset (LM-01700-2005.06.02-A)

	Each party to this Contract together with their successors or assigns shall have and may
exercise, at any time, the right to offset any balance(s) due the other (or, if more than one, any
other). Such offset may include balances due under this Contract, and any other contracts between
the parties, whether such balances arises from premium, losses, or otherwise, and regardless of the
capacity of any party, whether as assuming and/or ceding insurer, under the various reinsurance
contracts involved, provided however, that in the event of insolvency of a

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party hereto, offsets shall only be allowed in accordance with the provisions of the applicable
law, statute, or regulation governing such offset.

Article XXIII — Governing Law (LM-01200-2005.06.02-A)

The validity and interpretation of this Contract shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts.

Article XXIV — Confidentiality (LM-00400-2005.11.10-A)

	A.	 	Confidential Information. The submission materials, and any policy, financial,
underwriting, accounting, and claims information, data statements, representations, and other
materials provided by the Company and received by the Subscribing Reinsurer in the course of
an audit, inspection, or otherwise, represent confidential or proprietary
information (“Confidential Information”). This Confidential Information is intended for the
sole use of the Subscribing Reinsurer (and its retrocessionaires, respective auditors,
accountants, and legal counsel) as may be necessary in analyzing and/or accepting a
participation in and/or executing its responsibilities under or related to this Contract.
Subscribing Reinsurer acknowledges and agrees that with respect to any review of Confidential
Information by Subscribing Reinsurer, and/or discussion of Confidential Information, Company
does not waive and does not intend to waive any available privilege or protection. The
review of Confidential Information by Subscribing Reinsurer and/or discussion of
Confidential Information with Company shall not destroy, waive, or otherwise impair the
proprietary and/or protected status of any Confidential Information or any information
revealed in such discussion with Company personnel, whether reviewed by and/or
discussed with Subscribing Reinsurer intentionally or inadvertently, nor does the review of
the Confidential Information and/or discussion of Confidential Information with Company
constitute an estoppel or waiver of Company’s rights to assert the attorney-client or
work-product privileges, or any other applicable privilege or protection, over certain
documents contained in the Company files and/or certain information.

	B.	 	The Company and Subscribing Reinsurer agree that no confidentiality obligations will apply to
Confidential Information to the extent such Confidential Information: (1) is or becomes
available to the public, other than as a result of impermissible disclosure by the Subscribing
Reinsurer, (2) was or became available lawfully to Subscribing Reinsurer from a source, other
than Company its affiliates or their personnel, that is not subject to a confidentiality
obligation, (3) was developed independently by Subscribing Reinsurer prior to disclosure by
Company its affiliates or their personnel, as demonstrated by Subscribing Reinsurer’s records,
or (4) is required to be disclosed by law, regulation, court, or regulatory agency action.

	C.	 	Subscribing Reinsurer agrees to preserve all confidentiality and privilege pertaining to all
Confidential Information provided by Company and all knowledge and information gained through
its review of Confidential Information or discussions with Company personnel. Subscribing
Reinsurer further agrees not to disclose any such Confidential Information to any other
person or entity except as such disclosure may be necessary to its
retrocessionaires, accountants, attorneys, auditors, actuaries or third party catastrophe
modelers or as otherwise required by law. Subscribing Reinsurer agrees that no
Confidential Information is to be copied and/or removed from Company’s premises without the
express permission of Company.

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	D.	 	Third-Party Demand. Should Subscribing Reinsurer receive a third-party demand
pursuant to subpoena, summons, or court or governmental order, to disclose Confidential
Information (including Non-public personally identifiable information) that has been provided
by the Company, the Subscribing Reinsurer shall make commercially reasonable efforts to notify
the Company promptly upon receipt of the demand and prior to disclosure of the Confidential
Information and provide the Company a reasonable opportunity to object to the disclosure. If
the Company timely objects to the release of the Confidential Information, the Subscribing
Reinsurer will comply with the reasonable requests of the Company in connection with the
Company’s efforts to resist release of the Confidential Information. The Company shall bear the
cost of resisting the release of the Confidential Information.
	 
	E.	 	Survival. The parties agree that the obligations contained in this Article shall
survive the expiration or termination of this Contract.

Article XXV — Severability (LM-02000-2005.06.02-A)

If any provision of this Contract shall be rendered illegal or unenforceable by the laws,
regulations or public policy of any state, such provision shall be considered void in such state,
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.

Article XXVI — Special Conditions (LM-02100-2006.09.29-A)

	A.	 	This Article applies only in the event that:

	 	1.	 	A State Insurance Department or other legal authority orders the Subscribing
Reinsurer to cease writing business or has imposed upon it any other restrictions on or
conditions relating to the Subscribing Reinsurer’s license or conduct of business in any
jurisdiction; or
	 
	 	2.	 	The Subscribing Reinsurer has become insolvent or has been placed into liquidation
or receivership (whether voluntary or involuntary), or there have been instituted against
it proceedings for the appointment of a receiver, liquidator, rehabilitator,
conservator, trustee in bankruptcy, or other agent known by whatever name, to take
possession of its assets or control of its operations; or
	 
	 	3.	 	The Subscribing Reinsurer’s policyholders’ surplus has been reduced by 25.0% of the
amount of surplus at the inception of this Contract; or
	 
	 	4.	 	The Subscribing Reinsurer has become merged with, acquired, or controlled by any
company, corporation, or individual(s) not controlling the Subscribing Reinsurer’s
operations at the inception of this Contract; or
	 
	 	5.	 	The Subscribing Reinsurer’s A.M. Best Rating has been assigned or downgraded below
A- or Standard & Poor’s Rating has been assigned or downgraded below A-; or
	 
	 	6.	 	The Subscribing Reinsurer fails to maintain its surplus at a level of at least 200%
of the Subscribing Reinsurer’s Risk-Based Capital; or

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	 	7.	 	The Subscribing Reinsurer announces intentions to cease underwriting operations; or
	 
	 	8.	 	The Subscribing Reinsurer voluntarily ceases underwriting operations; or
	 
	 	9.	 	The Subscribing Reinsurer has reinsured its entire liability under this Contract,
or has entered into a novation extinguishing its entire liability under this Contract
without the Company’s prior written consent.

	B.	 	If one or more of the above-stated circumstances occur, the Company shall provide the
Subscribing Reinsurer with a written statement of the Subscribing Reinsurer’s share of all
paid recoverables, case reserves, loss adjustment expenses, incurred but not reported losses,
reserves for unearned premium, and ceding commissions due under this Contract (collectively
“Obligations”). Within 15 days of the Subscribing Reinsurer’s receipt of such statement, the
Subscribing Reinsurer agrees to fund all Obligations by clean, irrevocable, and unconditional
Letters of Credit payable exclusively to the Company and issued by a bank acceptable to the
Company. At the Company’s request, the Subscribing Reinsurer shall agree to provide separate
Letters of Credit for any distinct legal entities within the Company covered under this
Contract. Such Letters of Credit shall be issued for a period of not less than one year, and
shall be automatically extended for one year from their dates of expiration or any future
expiration dates, unless 60 days prior to any expiration date the issuing bank shall notify
the Company by certified mail that the issuing bank elects not to extend any Letter of Credit
for any additional period.

	C.	 	The Subscribing Reinsurer and Company agree that the Letters of Credit provided by the
Subscribing Reinsurer, pursuant to the provisions of this Contract, may be drawn upon at any
time, notwithstanding any other provision of this Contract, and be utilized 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, without diminution because
of the insolvency of the Company or the Subscribing Reinsurer for one or more of the following
purposes:

	 	1.	 	To pay or reimburse the Company for:

	 	a.	 	The Subscribing Reinsurer’s share under this Contract of premiums
returned, but not yet recovered from the Subscribing Reinsurer, to the owners of
Policies reinsured under this Contract due to cancellations of such Policies; and
	 
	 	b.	 	The Subscribing Reinsurer’s share, under this Contract, of surrenders
and benefits or liabilities paid by the Company, but not yet recovered from the
Subscribing Reinsurer, under the terms and provisions of the Policies reinsured
under this Contract; and
	 
	 	c.	 	Any other amounts necessary to secure the credit or reduction from
liability for reinsurance taken by the Company.

	 	2.	 	Where the Letters of Credit will expire without renewal or be reduced or replaced
by Letters of Credit for a reduced amount and where the Subscribing Reinsurer’s entire
obligations under this Contract remain unliquidated and undischarged 10 days prior to the
termination date, to withdraw amounts equal to the Subscribing Reinsurer’s share of the
liabilities, to the extent that the liabilities have not yet been funded by the
Subscribing Reinsurer and exceed the amount of any reduced or replacement Letters of
Credit, and deposit those amounts in a separate account in the name of the

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Page 20 of 48

 

	 	 	 	Company in a qualified U.S. financial institution apart from its general assets, in trust
for such uses and purposes as specified above as may remain after withdrawal and for any
period after the termination date.

	D.	 	At annual intervals, or at the Company’s option, on a quarterly basis, the Company shall
prepare an adjusted statement of the Subscribing Reinsurer’s Obligations, for the sole purpose
of amending the Letters of Credit, in the following manner:

	 	1.	 	If the statement shows that the Subscribing Reinsurer’s Obligations exceed the
balance of credit as of the statement date, the Subscribing Reinsurer shall, within 15
days after receipt of notice of such excess, secure delivery to the Company of an
amendment to the Letters of Credit increasing the amount of credit by the amount of such
difference.
	 
	 	2.	 	If, however, the statement shows that the Subscribing Reinsurer’s Obligations are
less than the balance of credit as of the statement date, the Company shall, within 15
days after receipt of written request from the Subscribing Reinsurer, release such excess
credit by agreeing to secure an amendment to the Letters of Credit reducing the amount of
credit available by the amount of such excess credit.

	E.	 	If the Subscribing Reinsurer fails to fund such Obligations by Letters of Credit as described
above, the Company may terminate this Contract at any time by the giving of 30 days prior
written notice to the Subscribing Reinsurer.

	F.	 	The coverage afforded by this Contract shall cease as of the date of termination and the
Subscribing Reinsurer shall return the unearned premium, if any. If coverage hereunder
terminates while a claim covered by this Contract is in progress, the Subscribing Reinsurer
shall be liable subject to all other conditions hereof for its proportion of the entire claim,
provided that the event giving rise to the claim started before such termination.

	G.	 	If the Company elects to terminate this Contract, the Company shall have the option to
commute the Subscribing Reinsurer’s liability for loss(es), whether reported or unreported,
comprising the sum total of the present value of the ceded: (1) case reserves and allocated
loss adjustment expense, (2) projected ultimate losses, (3) any unearned premium reserve, and
(4) undiscounted outstanding paid claims (hereinafter the “Commutation Losses”), on Policies
covered by this Contract as of the effective date of termination.

	 	1.	 	The Company shall submit a statement of valuation showing the elements considered
reasonable to establish the Commutation Losses, and the Subscribing Reinsurer shall pay
the amount requested. In the event the Company and the Subscribing Reinsurer cannot agree
on the statement of valuation of the Subscribing Reinsurer’s liability under such
Policies, either party may request in writing that the differences be settled by a panel
of three actuaries. Each party shall appoint an actuary to assess such liability within
15 days after receipt of the written request for commutation. Upon such appointment, the
two actuaries shall appoint a third actuary. If the two actuaries fail to agree on the
third actuary within 30 days of their appointment, each of them shall nominate three
individuals, of whom the other shall decline two, and the final decision shall be made by
drawing lots. The actuaries shall then investigate and capitalize such Commutation Loss
(es) within 30 days. As used herein, “capitalize” shall mean to determine the present
value of Commutation Losses, without regard to the Subscribing Reinsurer’s ability to pay
such losses. The panel shall meet in Boston,

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Excess of Loss Reinsurance Contract

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Page 21 of 48

 

	 	 	 	Massachusetts, unless the Company and Subscribing Reinsurer agree otherwise.
	 
	 	2.	 	All actuaries shall be disinterested in the outcome of the commutation and shall be
Fellows of the Society of Actuaries/Fellows of the Casualty Actuarial Society. Except as
stated below, the expense of the actuaries and of the commutation shall be equally
divided between the parties of the commutation.
	 
	 	3.	 	The decision in writing of the actuaries, when filed with the parties hereto, shall
be final and binding, except that if the Company does not agree with the capitalized
value of the Commutation Loss(es), the Company shall have no obligation to commute. In
the event the Company does not agree with the capitalized value of the Commutation Loss
(es) and does not move forward with commutation, the expense of the actuaries (including
reasonable expense of the actuary appointed by the Subscribing Reinsurer) will be paid by
the Company. If the Contract is commuted, payment by the Subscribing Reinsurer to the
Company or any other third party mutually agreed upon by the Subscribing Reinsurer and
the Company shall constitute a complete and final release of the Subscribing Reinsurer in
respect to its liability under this Contract.

	H.	 	Termination under the terms of this Article can be made after the date of expiration of
this Contract.

Article XXVII — Agency Agreement (LM-02800-2006.04.12-A)

If more than one reinsured Company is named as a party to this Contract, Peerless Insurance
Company shall be deemed the agent of the other reinsured companies for purposes of sending or
receiving notices required by the terms and conditions of this Contract, and for purposes of
remitting or receiving any monies due any party.

Article XXVIII — Entire Agreement (LM-00701-2005.08.24-A)

	This Contract shall constitute the entire agreement between the Company and the Subscribing
Reinsurer with respect to the subject matter of this Contract and shall supersede all prior
understandings, negotiations, and discussions, whether oral or written, by or between the Company
and the Subscribing Reinsurer relating to the subject matter hereof. There are no general or
specific warranties, representations or other agreements by or among the Company and the
Subscribing Reinsurer in connection with entering into this Contract except as specially set forth
in this Contract. Notwithstanding the foregoing, this Contract may be amended or modified only by
a writing signed by both the Company and the Subscribing Reinsurer.

Article XXIX — Third Parties (LM-02700-2005.09.27-A)

	This Contract shall not be deemed to give any right or remedy to any third party whatsoever
unless said right or remedy is specifically granted to such third party by the terms of this
Contract.

Peerless 2007 Property Catastrophe

Excess of Loss Reinsurance Contract

$1,400,000,000 xs $550,000,000

Page 22 of 48

 

Exhibit A

First Property Catastrophe Excess of Loss

Retention and Limit

It is warranted that the Company shall retain not less than 5.0% hereon net for their own account.

All catastrophe losses will qualify as losses towards the retention.

No claim shall be made in any one Loss Occurrence unless at least two risks insured or reinsured
by the Company are involved in such Loss Occurrence. For purposes hereof, the Company shall be the
sole judge of what constitutes one risk.

To pay up to $200,000,000 each and every Loss Occurrence excess of $550,000,000 Ultimate Net Loss
each and every Loss Occurrence.

It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and all
of their subsidiaries (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any Loss Occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the application of
the limit and retention set forth herein. The limit, retention and reinsurance recovery will be
allocated to the Company in the same ratio that the Ultimate Net Loss bears to the total Ultimate
Net Loss of the Company and the Legal Entities, on the one hand, and the LMG Companies, on the
other.

Rates and Premium

The premium to be paid to the Subscribing Reinsurer under this Exhibit shall be calculated at a
rate of .0870% of the Subject Earned Premium for all classes of Business Covered, as stated in
Article I — Business Covered, for the Liberty Mutual Agency Markets Group of Profit Centers, as
defined in Appendix A — Definition of Profit Centers.

Reports and Remittances

The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $2,538,000 for
the Liberty Mutual Agency Markets Group of Profit Centers, payable in two equal half yearly
installments of $1,269,000 on January 1st, and July 1st, 2007. In the event this Contract is
terminated prior to January 1, 2008, the minimum premium shall be prorated and no deposit premium
installments shall be due after the effective date of termination.

As soon as practical after the close of the contract year the Company shall render to the
Subscribing Reinsurer a statement of the Subject Earned Premium for the Company and the LMG
Companies, as defined herein, for the term of this Contract, and if the premium due under this
Exhibit, calculated at a rate of 1.85% of the subject earned premium of the Company and the LMG
Companies, exceeds the minimum and deposit premium stipulated herein for the

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Excess of Loss Reinsurance Contract

$1,400,000,000 xs $550,000,000

Page 23 of 48

 

Company and the LMG Companies, the Company shall pay the Subscribing Reinsurer, 4.7% of the amount
due and the balance shall be payable to the Subscribing Reinsurer forthwith.

The term Subject Earned premium shall mean the premiums earned by the Company and the Legal
Entities on classes of business covered under this Contract, times the rates below. No deduction
shall be made for dividends declared, paid or credited to policyholders of the Company or the
Legal Entities.

	 	 	 	 	 
	ASLOB	 	Percentage
	Fire
	 	 	100	%
	Allied Lines
	 	 	100	%
	Homeowners
	 	 	60	%
	Farmowners
	 	 	60	%
	Commercial Multiple Peril
(Property)
	 	 	100	%
	Inland Marine
	 	 	100	%
	Burglary & Theft
	 	 	100	%

Reinstatement

It is hereby understood and agreed that each claim hereon reduces the amount of indemnity from the
time of the Loss Occurrence by the sum paid, but any amount so exhausted is hereby automatically
reinstated from the time of the Loss Occurrence.

For each amount so reinstated the Company agrees to pay an additional premium calculated at 100%
of the developed premium hereon, but pro rata as to the fraction of the face value of this
Contract (i.e., the fraction of $200,000,000) reinstated. Such reinstatement premium shall be
payable simultaneously with each loss settlement. For purposes of calculating reinstatement
premium, the reinsurance premium is deemed to be $48,600,000, multiplied by the ratio that the
Company’s reinsurance recovery bears to the total reinsurance recovery of the Company and the LMG
Companies.

Nevertheless, the liability of the Subscribing Reinsurer hereunder shall never exceed $200,000,000
in respect of any one Loss Occurrence nor $400,000,000 in all during the period of this Contract.

If at the time of a loss settlement hereon the developed premium is unknown, the above calculation
of reinstatement premium shall be based upon the deposit premium, subject to adjustment when the
developed premium is finally established.

Peerless 2007 Property Catastrophe

Excess of Loss Reinsurance Contract

$1,400,000,000 xs $550,000,000

Page 24 of 48

 

Exhibit B

Second Property Catastrophe Excess of Loss

Retention and Limit

It is warranted that the Company shall retain not less than 5.0% hereon net for their own
account.

All catastrophe losses will qualify as losses towards the retention.

No claim shall be made in any one Loss Occurrence unless at least two risks insured or reinsured
by the Company are involved in such Loss Occurrence. For purposes hereof, the Company shall be
the sole judge of what constitutes one risk.

To pay up to $350,000,000 each and every Loss Occurrence excess of $750,000, Ultimate Net Loss
each and every Loss Occurrence.

It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and all
of their subsidiaries (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any Loss Occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the application
of the limit and retention set forth herein. The limit, retention and reinsurance recovery will
be allocated to the Company in the same ratio that the Ultimate Net Loss bears to the total
Ultimate Net Loss of the Company and the Legal Entities, on the one hand, and the LMG Companies,
on the other.

Rates and Premium

The premium to be paid to the Subscribing Reinsurer under this Exhibit shall be calculated at a
rate of .1241% of the Subject Earned Premium for all classes of Business Covered, as stated in
Article I — Business Covered, for the Liberty Mutual Agency Markets Group of Profit Centers, as
defined in Appendix A — Definition of Profit Centers.

Reports and Remittances

The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $3,619,000
for the Liberty Mutual Agency Markets Group of Profit Centers, payable in two equal half yearly
installments of $1,809,500 on January 1st, and July 1st, 2007. In the event this Contract is
terminated prior to January 1, 2008, the minimum premium shall be prorated and no deposit
premium installments shall be due after the effective date of termination.

As soon as practical after the close of the contract year the Company shall render to the
Subscribing Reinsurer a statement of the Subject Earned Premium of the Company and the LMG
Companies, as defined herein, for the term of this Contract, and if the premium due under this
Exhibit, calculated at a rate of 2.64% of the subject earned premium of the Company and the LMG
Companies, exceeds the minimum and deposit premium stipulated herein for the Company and the LMG
Companies, the Company shall pay the Subscribing Reinsurer, 4.7% of the amount due and the
balance shall be payable to the Subscribing Reinsurer forthwith.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 

Excess of Loss Reinsurance Contract

$1,400,000,000 xs $550,000,000

Page 25 of 48

 

The term Subject Earned premium shall mean the premiums earned by the Company and the Legal
Entities on classes of business covered under this Contract, times the rates below. No deduction
shall be made for dividends declared, paid or credited to policyholders of the Company or the
Legal Entities.

	 	 	 	 	 
	ASLOB	 	Percentage
	Fire
	 	 	100	%
	Allied Lines
	 	 	100	%
	Homeowners
	 	 	60	%
	Farmowners
	 	 	60	%
	Commercial Multiple Peril (Property)
	 	 	100	%
	Inland Marine
	 	 	100	%
	Burglary & Theft
	 	 	100	%

Reinstatement

It is hereby understood and agreed that each claim hereon reduces the amount of indemnity from
the time of the Loss Occurrence by the sum paid, but any amount so exhausted is hereby
automatically reinstated from the time of the Loss Occurrence.

For each amount so reinstated the Company agrees to pay an additional premium calculated at 100%
of the developed premium hereon, but pro rata as to the fraction of the face value of this
Contract (i.e., the fraction of $350,000,000) reinstated. Such reinstatement premium shall be
payable simultaneously with each loss settlement. For purposes of calculating reinstatement
premium, the reinsurance premium is deemed to be $69,300,000, multiplied by the ratio that the
Company’s reinsurance recovery bears to the total reinsurance recovery of the Company and the
LMG Companies.

Nevertheless, the liability of the Subscribing Reinsurer hereunder shall never exceed
$350,000,000 in respect of any one Loss Occurrence nor $700,000,000 in all during the period of
this Contract.

If at the time of a loss settlement hereon the developed premium is unknown, the above
calculation of reinstatement premium shall be based upon the deposit premium, subject to
adjustment when the developed premium is finally established.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
$1,400,000,000 xs $550,000,000

Page 26 of 48

 

Exhibit C

Third Property Catastrophe Excess of Loss

Retention and Limit

It is warranted that the Company shall retain not less than 5.0% hereon net for their own
account.

All catastrophe losses, including those in the State of California will qualify as losses
towards the retention.

No claim shall be made in any one Loss Occurrence unless at least two risks insured or reinsured
by the Company are involved in such Loss Occurrence. For purposes hereof, the Company shall be
the sole judge of what constitutes one risk.

To pay up to $300,000,000 each and every Loss Occurrence excess of $1,100,000, Ultimate Net Loss
each and every Loss Occurrence.

It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and all
of their subsidiaries (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any Loss Occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the application
of the limit and retention set forth herein. The limit, retention and reinsurance recovery will
be allocated to the Company in the same ratio that the Ultimate Net Loss bears to the total
Ultimate Net Loss of the Company and the Legal Entities, on the one hand, and the LMG Companies,
on the other.

Rates and Premium

The premium to be paid to the Subscribing Reinsurer under this Exhibit shall be calculated at a
rate of .0870% of the Subject Earned Premium for all classes of Business Covered, as stated in
Article I — Business Covered, for the Liberty Mutual Agency Markets Group of Profit Centers, as
defined in Appendix A — Definition of Profit Centers.

Reports and Remittances

The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $2,538,000
for the Liberty Mutual Agency Markets Group of Profit Centers, payable in two equal half yearly
installments of $1,269,000 on January 1st, and July 1st, 2007. In the event this Contract is
terminated prior to January 1, 2008, the minimum premium shall be prorated and no deposit
premium installments shall be due after the effective date of termination.

As soon as practical after the close of the contract year the Company shall render to the
Subscribing Reinsurer a statement of the Subject Earned Premium of the Company and the LMG
Companies, as defined herein, for the term of this Contract, and if the premium due under this
Exhibit, calculated at a rate of 1.85% of the subject earned premium of the Company and the LMG
Companies, exceeds the minimum and deposit premium stipulated herein for the Company and the LMG
Companies, the Company shall pay the Subscribing Reinsurer, 4.7% of the amount due and the
balance shall be payable to the Subscribing Reinsurer forthwith.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
 $1,400,000,000 xs $550,000,000

Page 27 of 48

 

The term Subject Earned premium shall mean the premiums earned by the Company and the Legal
Entities on classes of business covered under this Contract, times the rates below. No deduction
shall be made for dividends declared, paid or credited to policyholders of the Company or the
Legal Entities.

	 	 	 	 	 
	ASLOB	 	Percentage
	Fire
	 	 	100	%
	Allied Lines
	 	 	100	%
	Homeowners
	 	 	60	%
	Farmowners
	 	 	60	%
	Commercial Multiple Peril (Property)
	 	 	100	%
	Inland Marine
	 	 	100	%
	Burglary & Theft
	 	 	100	%

Reinstatement

It is hereby understood and agreed that each claim hereon reduces the amount of indemnity from
the time of the Loss Occurrence by the sum paid, but any amount so exhausted is hereby
automatically reinstated from the time of the Loss Occurrence.

For each amount so reinstated the Company agrees to pay an additional premium calculated at 100%
of the developed premium hereon, but pro rata as to the fraction of the face value of this
Contract (i.e., the fraction of $300,000,000) reinstated. Such reinstatement premium shall be
payable simultaneously with each loss settlement. For purposes of calculating reinstatement
premium, the reinsurance premium is deemed to be $48,600,000, multiplied by the ratio that the
Company’s reinsurance recovery bears to the total reinsurance recovery of the Company and the
LMG Companies.

Nevertheless, the liability of the Subscribing Reinsurer hereunder shall never exceed
$300,000,000 in respect of any one Loss Occurrence nor $600,000,000 in all during the period of
this Contract.

If at the time of a loss settlement hereon the developed premium is unknown, the above
calculation of reinstatement premium shall be based upon the deposit premium, subject to
adjustment when the developed premium is finally established.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
$1,400,000,000 xs $550,000,000

Page 28 of 48

 

Exhibit D

Fourth Property Catastrophe Excess of Loss

Retention and Limit

It is warranted that the Company shall retain not less than 5.0% hereon net for their own
account.

All catastrophe losses including those in the State of California will qualify as losses towards
the retention.

No claim shall be made in any one Loss Occurrence unless at least two risks insured or reinsured
by the Company are involved in such Loss Occurrence. For purposes hereof, the Company shall be
the sole judge of what constitutes one risk.

To pay up to $250,000,000 each and every Loss Occurrence excess of $1,400,000, Ultimate Net Loss
each and every Loss Occurrence.

It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and all
of their subsidiaries (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any Loss Occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the application
of the limit and retention set forth herein. The limit, retention and reinsurance recovery will
be allocated to the Company in the same ratio that the Ultimate Net Loss bears to the total
Ultimate Net Loss of the Company and the Legal Entities, on the one hand, and the LMG Companies,
on the other.

Rates and Premium

The premium to be paid to the Subscribing Reinsurer under this Exhibit shall be calculated at a
rate of .0484% of the Subject Earned Premium for all classes of Business Covered, as stated in
Article I — Business Covered, for the Liberty Mutual Agency Markets Group of Profit Centers, as
defined in Appendix A — Definition of Profit Centers.

Reports and Remittances

The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $1,410,000
for the Liberty Mutual Agency Markets Group of Profit Centers, payable in two equal half yearly
installments of $705,000 on January 1st, and July 1st, 2007. In the event this Contract is
terminated prior to January 1, 2008, the minimum premium shall be prorated and no deposit
premium installments shall be due after the effective date of termination.

As soon as practical after the close of the contract year the Company shall render to the
Subscribing Reinsurer a statement of the Subject Earned Premium of the Company and the LMG
Companies, as defined herein, for the term of this Contract, and if the premium due under this
Exhibit, calculated at a rate of 1.03% of the subject earned premium of the Company and the LMG
Companies, exceeds the minimum and deposit premium stipulated herein for the Company and the LMG
Companies, the Company shall pay the Subscribing Reinsurer, 4.7% of the amount due and the
balance shall be payable to the Subscribing Reinsurer forthwith.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
$1,400,000,000 xs $550,000,000

Page 29 of 48

 

The term Subject Earned premium shall mean the premiums earned by the Company and the Legal
Entities on classes of business covered under this Contract, times the rates below. No deduction
shall be made for dividends declared, paid or credited to policyholders of the Company or the
Legal Entities.

	 	 	 	 	 
	ASLOB	 	Percentage
	Fire
	 	 	100	%
	Allied Lines
	 	 	100	%
	Homeowners
	 	 	60	%
	Farmowners
	 	 	60	%
	Commercial Multiple Peril
(Property)
	 	 	100	%
	Inland Marine
	 	 	100	%
	Burglary & Theft
	 	 	100	%

Reinstatement

It is hereby understood and agreed that each claim hereon reduces the amount of indemnity from
the time of the Loss Occurrence by the sum paid, but any amount so exhausted is hereby
automatically reinstated from the time of the Loss Occurrence.

For each amount so reinstated the Company agrees to pay an additional premium calculated at 100%
of the developed premium hereon, but pro rata as to the fraction of the face value of this
Contract (i.e., the fraction of $250,000,000) reinstated. Such reinstatement premium shall be
payable simultaneously with each loss settlement. For purposes of calculating reinstatement
premium, the reinsurance premium is deemed to be $27,000,000, multiplied by the ratio that the
Company’s reinsurance recovery bears to the total reinsurance recovery of the Company and the
LMG Companies.

Nevertheless, the liability of the Subscribing Reinsurer hereunder shall never exceed
$250,000,000 in respect of any one Loss Occurrence nor $500,000,000 in all during the period of
this Contract.

If at the time of a loss settlement hereon the developed premium is unknown, the above
calculation of reinstatement premium shall be based upon the deposit premium, subject to
adjustment when the developed premium is finally established.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
$1,400,000,000 xs $550,000,000

Page 30 of 48

 

Exhibit E

Fifth Property Catastrophe Excess of Loss

Retention and Limit

It is warranted that the Company shall retain not less than 5.0% hereon net for its own account.

All catastrophe losses including those defined in Article VIII — Territory, Paragraph C, will
qualify as losses towards the retention.

No claim shall be made in any one Loss Occurrence unless at least two risks insured or reinsured
by the Company are involved in such Loss Occurrence. For purposes hereof, the Company shall be
the sole judge of what constitutes one risk.

To pay up to $300,000,000 each and every Loss Occurrence excess of $1,650,000,000 Ultimate Net
Loss each and every Loss Occurrence.

It is understood and agreed that the limit and retention described above applies to both the
Company, and to Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and all
of their subsidiaries (other than the Company and the Legal Entities) (hereinafter “the LMG
Companies”). Any Loss Occurrence affecting both the LMG Companies, on the one hand, and the
Company and the Legal Entities, on the other, shall be combined with respect to the application
of the limit and retention set forth herein. The limit, retention and reinsurance recovery will
be allocated to the Company in the same ratio that the Ultimate Net Loss bears to the total
Ultimate Net Loss of the Company and the Legal Entities, on the one hand, and the LMG Companies,
on the other.

Rates and Premium

The premium to be paid to the Subscribing Reinsurer under this Exhibit shall be calculated at a
rate of .1034% of the Subject Earned Premium for all classes of Business Covered, as stated in
Article I — Business Covered, for risks defined in Article VIII — Territory, Paragraph C, for the
Liberty Mutual Agency Markets Group of Profit Centers, as defined in Appendix A — Definition of
Profit Centers.

Reports and Remittances

The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium of $987,000 for
the Liberty Mutual Agency Markets Group of Profit Centers, payable in two equal half yearly
installments of $493,500 on January 1st, and July 1st, 2007. In the event this Contract is
terminated prior to January 1, 2008, the minimum premium shall be prorated and no deposit
premium installments shall be due after the effective date of termination.

As soon as practical after the close of the contract year the Company shall render to the
Subscribing Reinsurer a statement of the Subject Earned Premium of the Company and the LMG
Companies, as defined herein for risks defined in Article VIM — Territory, Paragraph C, for the
term of this Contract, and if the premium due under this Exhibit, calculated at a rate of 2.20%
of the defined subject earned premium of the Company and the LMG Companies, exceeds the minimum
and deposit premium stipulated herein for the Company and the LMG Companies, the Company shall
pay the Subscribing Reinsurer, 4.7% of the amount due and the balance shall be payable to the
Subscribing Reinsurer forthwith.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
 $1,400,000,000 xs $550,000,000

Page 31 of 48

 

The term Subject Earned premium shall mean the premiums earned by the Company and the Legal
Entities on classes of business covered under this Contract, times the rates below. No deduction
shall be made for dividends declared, paid or credited to policyholders of the Company or the
Legal Entities.

	 	 	 	 	 
	ASLOB	 	Percentage
	Fire
	 	 	100	%
	Allied Lines
	 	 	100	%
	Homeowners
	 	 	60	%
	Farmowners
	 	 	60	%
	Commercial Multiple Peril (Property)
	 	 	100	%
	Inland Marine
	 	 	100	%
	Burglary & Theft
	 	 	100	%

Reinstatement

It is hereby understood and agreed that each claim hereon reduces the amount of indemnity from
the time of the Loss Occurrence by the sum paid, but any amount so exhausted is hereby
automatically reinstated from the time of the Loss Occurrence.

For each amount so reinstated the Company agrees to pay an additional premium calculated at 100%
of the developed premium hereon, but pro rata as to the fraction of the face value of this
Contract (i.e., the fraction of $300,000,000) reinstated. Such reinstatement premium shall be
payable simultaneously with each loss settlement. For purposes of calculating reinstatement
premium, the reinsurance premium is deemed to be $18,900,000, multiplied by the ratio that the
Company’s reinsurance recovery bears to the total reinsurance recovery of the Company and the
LMG Companies.

Nevertheless, the liability of the Subscribing Reinsurer hereunder shall never exceed
$300,000,000 in respect of any one Loss Occurrence nor $600,000,000 in all during the period of
this Contract.

If at the time of a loss settlement hereon the developed premium is unknown, the above
calculation of reinstatement premium shall be based upon the deposit premium, subject to
adjustment when the developed premium is finally established.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
 $1,400,000,000 xs $550,000,000

Page 32 of 48

 

Appendix A

Definition of Profit Centers:

For purposes of Article I or any Articles, wherever the word Profit Centers is used, the Profit
Centers are defined to include the following Profit Centers of Liberty Mutual Agency Market
(LMAM).

	 	 	 	 	 
	 	 	 	 	Business Produced
	 	 	 	 	By Agents Resident
	Profit Center	 	Legal Entities Used By Profit Center	 	in the Following State
	America First Insurance:

	 	America First Insurance Co.
	 	AK, LA, OK, TX
	 

	 	America First Lloyd’s Insurance Co.
	 	AK, LA, OK, TX
	 

	 	Peerless Insurance Co.
	 	AK, LA, OK, TX
	 
	 	 	 	 
	 

	 	Liberty County Mutual Insurance Co.
	 	For business classified as
LMAM and produced by this Profit
Center only
	 
	 	 	 	 
	 

	 	Wausau/Business Solutions Group*
	 	(Multi-State Business **)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business **)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business **)
	 
	 	 	 	 
	Colorado Casualty:

	 	Colorado Casualty Insurance Co.
	 	AZ, CO, NM, NV, WY, UT
	 

	 	Golden Eagle Insurance Corp.
	 	AZ, CO, NM, NV, WY, UT
	 

	 	One Beacon Insurance Co. Cession to
Peerless Insurance Co.
	 	AZ, CO, NM, NV, WY, UT
	 
	 	 	 	 
	 

	 	Wausau/Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)
	 
	 	 	 	 
	Golden Eagle Insurance:

	 	Golden Eagle Insurance Corp.
	 	CA
	 

	 	One Beacon Insurance Co. Cession to
Peerless Insurance Co.
	 	CA
	 

	 	Peerless Insurance Co.
	 	CA
	 
	 	 	 	 
	 

	 	Wausau/Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)
	 
	 	 	 	 
	Hawkeye-Security Insurance:

	 	Hawkeye-Security Insurance Co.
	 	IA, KS, MN, MO, NE, ND,

SD, WI
	 

	 	Consolidated Insurance Co.
	 	IA, KS, MN, MO, NE, ND,

SD, WI
	 

	 	Indiana Insurance Co.
	 	IA, KS, MN, MO, NE, ND,

SD, WI
	 

	 	One Beacon Insurance Co. Cession to
Peerless Insurance Co.
	 	IA, KS, MN, MO, NE, ND,

SD, WI
	 

	 	Peerless Insurance Co.
	 	IA, KS, MN, MO, NE, ND,

SD, WI
	 
	 	 	 	 
	 

	 	The Midwestern Indemnity Co
	 	IA, KS, MN, MO, NE, ND,

SD, WI
	 
	 	 	 	 
	 

	 	Wausau/Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
 $1,400,000,000 xs $550,000,000

Page 33 of 48

 

Definition of Profit Centers Continued;

	 	 	 	 	 
	 	 	 	 	Business Produced
	 	 	 	 	By Agents Resident
	Profit Center	 	Legal Entities Used By Profit Center	 	in the Following States
	Indiana Insurance:

	 	Indiana Insurance Co.
	 	IL, IN, KY, MI, OH, TN
	 

	 	Consolidated Insurance Co.
	 	IL, IN, KY, MI, OH, TN
	 

	 	Mid-American Fire and Casualty Co.
	 	IL, IN, KY, MI, OH, TN
	 

	 	One Beacon Insurance Co. Cession to
Peerless Insurance Co.
	 	IL, IN, KY, MI, OH, TN
	 

	 	Peerless Insurance Co.
	 	IL, IN, KY, MI, OH, TN
	 

	 	The Midwestern Indemnity Co.
	 	IL, IN, KY, MI, OH, TN
	 
	 	 	 	 
	 

	 	Globe American Casualty Co.
	 	All States
	 

	 	National Insurance Association
	 	All States
	 
	 	 	 	 
	 

	 	Wausau/Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**}
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)
	 
	 	 	 	 
	Liberty Northwest Insurance:

	 	Liberty Northwest Insurance Corp.
	 	All States
	 

	 	North Pacific Insurance Company
	 	All States
	 

	 	Oregon Automobile Insurance Co.
	 	All States
	 
	 	 	 	 
	 

	 	Wausau/Business Solutions Group*
	 	(Multi-State Business**)
	 
	 	 	 	 
	Montgomery Insurance:

	 	Montgomery Mutual Insurance Co.
	 	AL, DC, DE, FL, GA, MD,

MS, NC, SC, VA, WV
	 

	 	Colorado Casualty Insurance Co.
	 	AL, DC, DE, FL, GA, MD,

MS, NC, SC, VA, WV
	 

	 	Excelsior Insurance Co.
	 	AL, DC, DE, FL, GA, MD,

MS, NC, SC, VA, WV
	 

	 	One Beacon Insurance Co. Cession to
Peerless Insurance Co.
	 	AL, DC, DE, FL, GA, MD,

MS, NC, SC, VA, WV
	 

	 	Peerless Insurance Co.
	 	AL, DC, DE, FL, GA, MD,

MS, NC, SC, VA, WV
	 

	 	The Midwestern Indemnity Co.
	 	AL, DC, DE, FL, GA, MD,

MS, NC, SC, VA, WV
	 
	 	 	 	 
	 

	 	Wausau/Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)
	 
	 	 	 	 
	Peerless Insurance:

	 	Peerless Insurance Co.
	 	CT, MA, ME, NH, NJ, NY,

PA, RI, VT
	 

	 	Excelsior Insurance Co.
	 	CT, MA, ME, NH, NJ, NY,

PA, RI, VT
	 

	 	Indiana Insurance Co.
	 	CT, MA, ME, NH, NJ, NY,

PA, RI, VT
	 

	 	One Beacon Insurance Co. Cessions to
Peerless Insurance Co.
	 	CT, MA, ME, NH, NJ, NY,

PA, RI, VT
	 
	 	 	 	 
	 

	 	Liberty Mutual Mid-Atlantic Insurance Co.
	 	For business classified as LMAM
and produced by this Profit Center
only

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
$1,400,000,000 xs $550,000,000

Page 34 of 48

 

Definition of Profit Centers Continued;

	 	 	 	 	 
	 	 	 	 	Business Produced
	 	 	 	 	By Agents Resident
	Profit Center	 	Legal Entities Used By Profit Center	 	in the Following States
	Peerless Insurance Continued:
	 	 	 	 
	 
	 	 	 	 
	 

	 	Wausau/Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)

 

			
	*	 	Wausau/Business Solutions Group consists of the legal entities of: Liberty
Mutual Insurance Co., Liberty Mutual Fire Insurance Co., LM Insurance Corp., Liberty
Insurance Corp., The First Liberty Insurance Corp., Liberty County Mutual Insurance Co.,
Employers Insurance Company of Wausau, Wausau General Insurance Co., Wausau Underwriters
Insurance Co. and Wausau Business Insurance Co.
	 
	**	 	Agent responsible for the risk resides in the Profit Center but the risk is located in
multiple states both in and outside of states assigned to the Profit Center.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
 $1,400,000,000 xs $550,000,000

Page 35 of 48

 

Pools, Associations and Syndicates Exclusion Clause

Section A:

Excluding:

	 	(a)	 	All business derived directly or indirectly from any Pool, Association or Syndicate which
maintains its own reinsurance facilities.
	 
	 	(b)	 	Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968 for the
purpose of insuring property whether on a country-wide basis or in respect of designated areas.
This exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to
provide coverage for Automobile Physical Damage.

Section B:

It is agreed that business written by the Company for the same perils, which is known at the
time to be insured by, or in excess of underlying amounts placed in the following Pools,
Associations or Syndicates, whether by way of insurance or reinsurance, is excluded hereunder:

	 	 	 	Industrial Risk Insurers,

Associated Factory Mutuals,

Improved Risk Mutuals,

Any Pool, Association or Syndicate formed for the purpose of writing

Oil, Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs,

United States Aircraft Insurance Group,

Canadian Aircraft Insurance Group,

Associated Aviation Underwriters,

American Aviation Underwriters.

Section B does not apply:

	 	(a)	 	Where the Total Insured Value over all interests of the risk in question is less than
$250,000,000.
	 
	 	(b)	 	To interests traditionally underwritten as Inland Marine or stock and/or contents written on
a blanket basis.
	 
	 	(c)	 	To Contingent Business Interruption, except when the Company is aware that the key location is
known at the time to be insured in any Pool, Association or Syndicate named above, other than as
provided for under Section B(a).
	 
	 	(d)	 	To risks as follows:
	 
	 	 	 	Offices, Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities (other than
railroad schedules) and builder’s risks on the classes of risks specified in this subsection (d)
only.

Where this clause attaches to Catastrophe Excesses, the following Section C is added:

Section C:

Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its
participation in residual market mechanisms including but not limited to:

	 	(1)	 	The following so-called “Coastal Pools”:
	 
	 	 	 	Alabama Insurance Underwriting Association

Louisiana Citizens Property Insurance Corporation

Mississippi Windstorm Underwriting Association

North Carolina Insurance Underwriting Association

South Carolina Windstorm and Hail Underwriting Association

Texas Windstorm Insurance Association

AND

	 	(2)	 	All “Fair Plan” and “Rural Risk Plan” business

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
$1,400,000,000 xs $550,000,000

Page 36 of 48

 

AND

	 	(3)	 	Citizens Property Insurance Corporation (“CPIC”) and the California Earthquake Authority
(“CEA”)

for all perils otherwise protected hereunder shall not be excluded, except, however, that this
reinsurance does not include any increase in such liability resulting from:

	 	(i)	 	The inability of any other participant in such “Coastal Pool” and/or “Fair
Plan” and/or “Rural Risk Plan” and/or Residual Market Mechanisms to meet its liability.
	 
	 	(ii)	 	Any claim against such “Coastal Pool” and/or “Fair Plan” and/or “Rural Risk Plan”
and/or Residual Market Mechanisms, or any participant therein, including the Company, whether by
way of subrogation or otherwise, brought by or on behalf of any insolvency fund (as defined in
the Insolvency Fund Exclusion Clause incorporated in this Contract).

Section D:

	 	(1)	 	Notwithstanding Section C above, in respect of the CEA, where an assessment is made against
the Company by the CEA, the Company may include in its Ultimate Net Loss only that assessment
directly attributable to each separate loss occurrence covered hereunder. The Company’s initial
capital contribution to the CEA shall not be included in the Ultimate Net Loss.
	 
	 	(2)	 	Notwithstanding Section C above, in respect of CPIC, where an assessment is made against the
Company by CPIC, the maximum loss that the Company may include in the Ultimate Net Loss in
respect of any loss occurrence hereunder shall not exceed the lesser of:

	 	(a)	 	The Company’s assessment from CPIC for the accounting year in which the loss occurrence
commenced, or
	 
	 	(b)	 	The product of the following:

	 	(i)	 	The Company’s percentage participation in CPIC for the accounting year in which the loss
occurrence commenced; and
	 
	 	(ii)	 	CPIC’s total losses in such loss occurrence.

Any assessments for accounting years subsequent to that in which the loss occurrence commenced
may not be included in the Ultimate Net Loss hereunder. Moreover, notwithstanding Section C
above, in respect of CPIC, the Ultimate Net Loss hereunder shall not include any monies expended
to purchase or retire bonds as a consequence of being a member of CPIC. For the purposes of this
Contract, the Company may not include in the Ultimate Net Loss any assessment or any percentage
assessment levied by CPIC to meet the obligations of an insolvent insurer member or other party,
or to meet any obligations arising from the deferment by CPIC of the collection of monies.

NOTES: Wherever used herein the terms:

	 	 	 

	“Company”

	 	shall be understood to mean “Company,” “Reinsured,” “Reassured” or whatever
other term is used in the attached reinsurance document to designate the reinsured company or companies.
	 
	 	 
	“Agreement”

	 	shall be understood to mean “Agreement,” “Contract,” “Policy” or whatever other term is used to designate the attached reinsurance document.
	 
	 	 
	“Reinsurers”

	 	shall be understood to mean “Reinsurers,” “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
$1,400,000,000 xs $550,000,000

Page 37 of 48

 

War Risk Exclusion Clause

The Reinsurers shall not be liable for loss or damage caused directly or indirectly by (1)
hostile or warlike action in time of peace or war, including action hindering, combating or
defending against an actual, impending or expected attack, (a) by any government or sovereign
power (de jure or de facto) or by any authority maintaining or using military, naval or air
forces; or (b) by military, naval or air forces, it being understood that any discharge,
explosion or use of any weapon of war employing atomic fission or radioactive force shall be
conclusively presumed to be such a hostile or warlike action by such government power, authority
or forces; (2) insurrection, rebellion, revolution, civil war, usurped power, or action taken by
governmental authority in hindering, combating or defending against such an occurrence.

The War Risk Exclusion Clause shall not apply to interest insured under Policies, endorsements
or binders containing a standard war or hostilities or warlike operations exclusion clause.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
 $1,400,000,000 xs $550,000,000

Page 38 of 48

 

Nuclear Incident Exclusion Clause — Physical Damage — Reinsurance (U.S.A.)

	1.	 	This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or
indirectly and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed
for the purpose of covering Atomic or Nuclear Energy risks.
	 
	2.	 	Without in any way restricting the operation of paragraph (1) of this Clause, this
Reinsurance does not cover any loss or liability accruing to the Reassured, directly or
indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage
(including business interruption or consequential loss arising out of such Physical Damage) to:

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

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

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

	4.	 	Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this
Reinsurance does not cover any loss or liability by radioactive contamination accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive
contamination is a named hazard specifically insured against.
	 
	5.	 	It is understood and agreed that this Clause shall not extend to risks using radioactive
isotopes in any form where the nuclear exposure is not considered by the Reassured to be the
primary hazard.
	 
	6.	 	The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act
of 1954 or by any law amendatory thereof.
	 
	7.	 	Reassured to be sole judge of what constitutes:

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

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

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

12/12/57

N.M.A. 1119     BRMA 35B

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
 $1,400,000,000 xs $550,000,000

Page 39 of 48

 

Nuclear Incident Exclusion Clause — Physical Damage — Reinsurance (Canada)

	1.	 	This Agreement does not cover any loss or liability accruing to the Reinsured, directly or
indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed
for the purpose of covering Atomic or Nuclear Energy risks.
	 
	2.	 	Without in any way restricting the operation of paragraph 1 of this clause, this Agreement
does not cover any loss or liability accruing to the Reinsured, directly or indirectly, and
whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business
interruption or consequential loss arising out of such Physical Damage) to:

	 	(a)	 	nuclear reactor power plants including all auxiliary property on the site, or
	 
	 	(b)	 	any other nuclear reactor installation, including laboratories handling radioactive
materials in connection with reactor installations, and critical facilities as such, or
	 
	 	(c)	 	installations for fabricating complete fuel elements or for processing substantial quantities
of radioactive materials, and for reprocessing, salvaging, chemically separating, storing or
disposing of spent nuclear fuel or waste materials, or
	 
	 	(d)	 	installations other than those listed in (c) above using substantial quantities of radioactive
isotopes or other products of nuclear fission.

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

	 	(a)	 	where the Reinsured does not have knowledge of such nuclear reactor power plant or nuclear
installation, or
	 
	 	(b)	 	where the said insurance contains a provision excluding coverage for damage to property
caused by or resulting from radioactive contamination, however caused.

	4.	 	Without in any way restricting the operation of paragraphs 1, 2 and 3 of this clause, this
Agreement does not cover any loss or liability by radioactive contamination accruing to the
Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive
contamination is a named hazard specifically insured against.
	 
	5.	 	This clause shall not extend to risks using radioactive isotopes in any form where the
nuclear exposure is not considered by the Reinsured to be the primary hazard.
	 
	6.	 	The term “radioactive material” means uranium, thorium, plutonium, neptunium, their
respective derivatives and compounds, radioactive isotopes of other elements and any other
substances which may be designated by or pursuant to any law, act or statute, or any law
amendatory thereof as being prescribed substances capable of releasing atomic energy, or as
being requisite for the production, use or application of atomic energy.
	 
	7.	 	Reinsured to be sole judge of what constitutes:

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

	8.	 	Without in any way restricting the operation of paragraphs 1, 2, 3 and 4 of this clause, this
Agreement does not cover any loss or liability accruing to the Reinsured, directly or
indirectly, and whether as Insurer or Reinsurer, caused:

	 	(1)	 	by any nuclear incident, as defined in or pursuant to the Nuclear Liability Act or any other
nuclear liability act, law or statute, or any law amendatory thereof or nuclear explosion,
except for ensuing loss or damage which results directly from fire, lightning or explosion of
natural, coal or manufactured gas;
	 
	 	(2)	 	by contamination by radioactive material.

	NOTE:  	 	Without in any way restricting the operation of paragraphs 1, 2, 3 and 4 of this clause,
paragraph 8 of this clause shall only apply to all original contracts of the Reinsured, whether
new, renewal or replacement, which become effective on or after December 31, 1992.

N.M.A. 1980a (1/4/96)

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
 $1,400,000,000 xs $550,000,000

Page 40 of 48

 

Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994)

(Worldwide Excluding U.S.A. & Canada)

This agreement shall exclude Nuclear Energy Risks whether such risks are written directly and/or
by way of reinsurance and/or via Pools and/or Associations.

For all purposes of this agreement Nuclear Energy Risks shall mean all first party and/or
third party insurances or reinsurances (other than Workers’ Compensation and Employers’
Liability) in respect of:-

	 	(I)	 	All Property on the site of a nuclear power station.
	 
	 	 	 	Nuclear Reactors, reactor buildings and plant and equipment therein on any site other than a
nuclear power station.
	 
	 	(II)	 	All Property, on any site (including but not limited to the sites referred to in (I) above)
used or having been used for:-

	 	(a)	 	The generation of nuclear energy; or
	 
	 	(b)	 	The Production, Use or Storage of Nuclear Material.

	 	(III)	 	Any other Property eligible for insurance by the relevant local Nuclear Insurance Pool
and/or Association but only to the extent of the requirements of that local Pool and/or
Association.
	 
	 	(IV)	 	The supply of goods and services to any of the sites, described in (I) to (III) above,
unless such insurances or reinsurances shall exclude the perils of irradiation and contamination
by Nuclear Material.

Except as undernoted, Nuclear Energy Risks shall not include:-

	 	(i)	 	Any insurance or reinsurance in respect of the construction or erection or installation
or replacement or repair or maintenance or decommissioning of Property as described in (I) to
(III) above (including contractors’ plant and equipment);
	 
	 	(ii)	 	Any Machinery Breakdown or other Engineering insurance or reinsurance not coming within
the scope of (i) above;

Provided always that such insurance or reinsurance shall exclude the perils of irradiation and
contamination by Nuclear Material.

However, the above exemption shall not extend to:-

	 	(1)	 	The provision of any insurance or reinsurance whatsoever in respect of:-

	 	(a)	 	Nuclear Material;
	 
	 	(b)	 	Any Property in the High Radioactivity Zone or Area of any Nuclear Installation as from the
introduction of Nuclear Material or — for reactor installations — as from fuel loading or first
criticality where so agreed with the relevant local Nuclear Insurance Pool and/or Association.

	 	(2)	 	The provision of any insurance or reinsurance for the undernoted perils:-

	 	•	 	Fire, lightning, explosion;
	 
	 	•	 	Earthquake;
	 
	 	•	 	Aircraft and other aerial devices or articles dropped therefrom;
	 
	 	•	 	Irradiation and radioactive contamination;
	 
	 	•	 	Any other peril insured by the relevant local Nuclear Insurance Pool and/or Association;

	 	 	 	in respect of any other Property not specified in (1) above which directly involves the
Production, Use or Storage of Nuclear Material as from the introduction of Nuclear Material into
such Property.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
$1,400,000,000 xs $550,000,000

Page 41 of 48

 

Definitions:

“Nuclear Material” means:-

	 	(i)	 	Nuclear fuel, other than natural uranium and depleted uranium, capable of producing
energy by a self-sustaining chain process of nuclear fission outside a Nuclear Reactor, either
alone or in combination with some other material; and
	 
	 	(ii)	 	Radioactive Products or Waste.

“Radioactive Products or Waste” means any radioactive material produced in, or any material made
radioactive by exposure to the radiation incidental to the production or utilization of nuclear
fuel, but does not include radioisotopes which have reached the final stage of fabrication so as
to be usable for any scientific, medical, agricultural, commercial or industrial purpose.

“Nuclear Installation” means:-

	 	(i)	 	Any Nuclear Reactor;
	 
	 	(ii)	 	Any factory using nuclear fuel for the production of Nuclear Material, or any factory
for the processing of Nuclear Material, including any factory for the reprocessing of irradiated
nuclear fuel; and
	 
	 	(iii)	 	Any facility where Nuclear Material is stored, other than storage incidental to the
carriage of such material.

“Nuclear Reactor” means any structure containing nuclear fuel in such an arrangement that a
self-sustaining chain process of nuclear fission can occur therein without an additional source
of neutrons.

“Production, Use or Storage of Nuclear Material” means the production, manufacture, enrichment,
conditioning, processing, reprocessing, use, storage, handling and disposal of Nuclear Material.

“Property” shall mean all land, buildings, structures, plant, equipment, vehicles, contents
(including but not limited to liquids and gases) and all materials of whatever description
whether fixed or not.

“High Radioactivity Zone or Area” means:-

	 	(i)	 	For nuclear power stations and Nuclear Reactors, the vessel or structure which
immediately contains the core (including its supports and shrouding) and all the contents
thereof, the fuel elements, the control rods and the irradiated fuel store; and
	 
	 	(ii)	 	For non-reactor Nuclear Installations, any area where the level of radioactivity
requires the provision of a biological shield.

N.M.A. 1975(a)

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
$1,400,000,000 xs $550,000,000

Page 42 of 48

 

Insolvency Funds Exclusion Clause

This Contract excludes all liability of the Company arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or involuntary, in any
insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool,
association, fund or other arrangement, howsoever denominated, established or governed; which
provides for any assessment of or payment or assumption by the Company of part or all of any
claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, which
has been declared by any competent authority to be insolvent, or which is otherwise deemed
unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
 $1,400,000,000 xs $550,000,000

Page 43 of 48

 

TERRORISM EXCLUSION CLAUSE

This Contract does not apply to and specifically excludes terrorism-related losses as follows:

	A.	 	For risks located in the United States of America, its territories and possessions, and at
the premises of any United States mission as such terms are intended to apply under the terms of
the Terrorism Risk Insurance Act of 2002, as it may be amended from time-to-time:

	 	1.	 	“Insured Losses” resulting, directly or indirectly, from a “Certified Act of Terrorism” under
the terms of the Terrorism Risk Insurance Act of 2002 as it may be amended from time-to-time.
	 
	 	2.	 	Loss or damage, directly or indirectly, arising out of or in connection with nuclear,
chemical, biological, or radiological explosion, pollution, or contamination resulting from any
Other Act of Terrorism. Notwithstanding the foregoing, this Contract shall extend to cover
insured physical loss or damage, excluding all time-element coverages and extensions, incurred
as a direct and immediate consequence of an Other Act of Terrorism employing any non-nuclear
weapon or device designed to disperse chemical, biological, or radiological contaminants; but,
no coverage shall be afforded for any ensuing chemical, biological, or radiological
contamination or pollution resulting from an Other Act of Terrorism employing such weapon or
device.
	 
	 	 	 	“Other Act of Terrorism” as used in this subparagraph A.2. above shall mean any violent act or
act that is dangerous to human life, property, or infrastructure that results in physical loss
or damage that is committed by an individual or individuals acting on behalf of any person or
interest as part of an effort to coerce the civilian population of the United States or to
influence the policy or affect the conduct of the United States government by coercion, which is
not a “Certified Act of Terrorism” under the terms of TRIA.

	B.	 	For risks located within the United Kingdom, this Contract shall not cover:

	 	1.	 	Loss, destruction, or damage in Great Britain (being England, Wales, and Scotland) occasioned
by or happening through or as a direct or indirect consequence of an Act of Terrorism.
	 
	 	2.	 	Loss, destruction, or damage in Northern Ireland within the meaning of the Northern Ireland
(Emergency Provisions) Act 1973 or successors thereof.

	 	 	In the event of an occurrence giving rise to a loss or losses payable by the Company not being
certified by Her Majesty’s government or Her Majesty’s Treasury or any successor relevant
Authority to have been an Act of Terrorism and solely by reason thereof the Company is unable to
recover such loss or losses in whole or in part from Pool Reinsurance Company Limited, the
Reinsurers accept that this subparagraph B.1. above does not apply to such loss or losses.

	 	 	 

	 

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 $1,400,000,000 xs $550,000,000

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	 	 	For the purpose of this paragraph B:
	 
	 	 	“Act of Terrorism” means an act of persons acting on behalf of or in connection with any
organization that carries out activities directed towards the overthrowing or influencing by
force or violence of Her Majesty’s government in the United Kingdom.
	 
	 	 	This paragraph B shall not, however, apply to goods in transit or goods in temporary storage
while in transit.
	 
	 	 	Notwithstanding the foregoing, this paragraph B excludes loss or damage directly or indirectly
arising out of or in connection with nuclear, chemical, biological, or radiological explosion,
pollution, or contamination resulting from any Act of Terrorism. This Contract shall extend,
however, to cover insured physical loss or damage, excluding all time-element coverages and
extensions, incurred as a direct and immediate consequence of an Act of Terrorism employing any
non-nuclear weapon or device designed to disperse chemical, biological, or radiological
contaminants; but, no coverage shall be afforded for any ensuing chemical, biological, or
radiological contamination or pollution resulting from an Act of Terrorism employing such weapon
or device.
	 
	C.	 	For risks located in all other sovereignties not subject to paragraphs A or B above:
	 
	 	 	Loss or damage, directly or indirectly, caused by, contributed to by, resulting from, or arising
out of or in connection with any Act of Terrorism, as defined in this paragraph C, regardless of
any other cause or event contributing concurrently or in any other sequence to the loss.
	 
	 	 	For the purpose of this paragraph C:
	 
	 	 	“Act of Terrorism” shall mean any violent act or act that is dangerous to human life, property,
or infrastructure that results in physical loss or damage that is committed by an individual or
individuals acting on behalf of any person or interest as part of an effort to coerce the
civilian population of any nation or to influence the policy or affect the conduct of the
government of any such sovereign nation by coercion.
	 
	 	 	Where an occurrence falling within the definition of Act of Terrorism in this paragraph C,
involving risks insured or reinsured in Consorcio, Gareat, Extremus, the Australian Terrorism
Pool (or any similar scheme formed during the term of this Contract) gives rise to a loss or
losses payable by the Company and such occurrence is not certified by the individual authority
acting respectively for Consorcio, Gareat, Extremus, the Australian Terrorism Pool (or any
similar scheme formed during the term of this Contract) having responsibility to make such
judgment, or any successor authority, as an Act of Terrorism, the Reinsurers accept that this
exclusion does not apply to such loss(es).
	 
	 	 	Notwithstanding the foregoing, this paragraph C excludes loss or damage, directly or indirectly,
arising out of or in connection with nuclear, chemical, biological, or radiological explosion,
pollution, or contamination resulting from any Act of Terrorism. This Contract shall extend,
however, to cover insured physical loss or damage, excluding all time-element coverages and
extensions, incurred as a direct and immediate consequence of an Act of Terrorism employing any
non-nuclear weapon or device designed to disperse chemical, biological, or radiological
contaminants; but, no coverage shall be afforded for any ensuing chemical, biological, or
radiological contamination or pollution resulting from an Act of Terrorism employing such weapon
or device.

	 	 	 

	 

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 $1,400,000,000 xs $550,000,000

Page 45 of 48

 

Terrorism Exclusion Clause

(APPLICABLE TO LOSSES OCCURRING AFTER 31 DECEMBER 2005 FOR RISKS LOCATED IN THE UNITED STATES OF
AMERICA, ITS TERRITORIES AND POSSESSIONS, AND AT THE PREMISES OF ANY UNITED STATES MISSION.)

	A.	 	In the event that the Terrorism Risk Insurance Act of 2002 (“TRIA”) is extended, renewed, or
succeeded without interruption beyond 31 December 2005, and without revision or adaptation
beyond 31 December 2005 to the definitions set forth in subsections 102 (1)(A), (14), and (15)
of TRIA, this Contract shall not cover:

	 	1.	 	“Insured Losses” resulting directly or indirectly from a “Certified Act of Terrorism” under
the terms of TRIA, as it may be amended from time-to-time.
	 
	 	2.	 	Loss or damage, directly or indirectly, arising out of or in connection with nuclear,
chemical, biological, or radiological explosion, pollution, or contamination resulting from any
Other Act of Terrorism. Notwithstanding the foregoing, this Contract shall extend to cover
insured physical loss or damage, excluding all time-element coverages and extensions, incurred
as a direct and immediate consequence of an Other Act of Terrorism employing any non-nuclear
weapon or device designed to disperse chemical, biological, or radiological contaminants;
however, no coverage shall be afforded for any ensuing chemical, biological, or radiological
contamination or pollution resulting from an Other Act of Terrorism employing such weapon or
device.
	 
	 	 	 	“Other Act of Terrorism” as used in this subparagraph A.2. shall mean any violent act or act
that is dangerous to human life, property, or infrastructure; that results in physical loss or
damage; that is committed by an individual or individuals acting on behalf of any person or
interest as part of an effort to coerce the civilian population of the United States or to
influence the policy or affect the conduct of the United States government by coercion, which is
not a “Certified Act of Terrorism” under the terms of TRIA.

	B.	 	If TRIA is: (a) not extended, renewed, or succeeded without interruption beyond
31 December 2005, or (b) extended, renewed, or succeeded beyond 31 December 2005, but with
revision or adaptation to one or more of the definitions set forth in subsections 102 (1) (A),
(14), and (15) of TRIA, then, in respect of any losses occurring after 31 December 2005, this
contract shall not cover:

	 	1.	 	Losses resulting directly or indirectly from an Act of Terrorism.
	 
	 	2.	 	Loss or damage directly or indirectly arising out of or in connection with nuclear, chemical,
biological, or radiological explosion, pollution, or contamination resulting from any Other Act
of Terrorism. Notwithstanding the foregoing, this Contract shall extend to cover insured
physical loss or damage, excluding all time-element coverages and extensions, incurred as a
direct and immediate consequence of an Other Act of Terrorism employing any non-nuclear weapon
or device designed to disperse chemical, biological, or radiological contaminants; however, no
coverage shall be afforded for any ensuing chemical, biological, or radiological contamination
or pollution resulting from employing such weapon or device.

	 	 	“Act of Terrorism” as used in subparagraph B.1. shall mean any violent act or act that is
dangerous to human life, property, or infrastructure; that results in physical loss or damage

	 	 	 

	 

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Page 46 of 48

 

	 	 	within the United States; and that is committed by an individual or individuals acting on
behalf of any foreign person or foreign interest as part of an effort to coerce or put in fear
the civilian population of the United States or to influence the policy or affect the conduct
of the United States government by coercion.
	 
	 	 	“Other Act of Terrorism” as used in subparagraph B (2) above shall mean any violent act or act
that is dangerous to human life, property, or infrastructure that results in physical loss or
damage that is committed by an individual or individuals acting on behalf of any person or
interest as part of an effort to coerce the civilian population of the United States or to
influence the policy or affect the conduct of the United States government by coercion, which
is not an “Act of Terrorism.”

	 	 	 

	 

	 	Peerless 2007 Property Catastrophe 
Excess of Loss Reinsurance Contract
 $1,400,000,000 xs $550,000,000

Page 47 of 48

 

Mold Exclusion

This Contract does not apply to loss or liability in any way or to any extent arising out of the
actual or alleged presence or actual, alleged or threatened presence of fungi including, but not
limited to, mold, mildew, mycotoxins, microbial volatile organic compounds or other “microbial
contamination.” This includes:

	 	1)	 	Any supervision, instruction, recommendations, warnings, or advice given or which should have
been given in connection with the above; and
	 
	 	2)	 	Any obligation to share damages with or repay someone else that must pay damages because of
such injury or damage.

For purposes of this exclusion, “microbial contamination” means any contamination, either
airborne or surface, which arises out of or is related to the presence of fungi, mold, mildew,
mycotoxins, microbial volatile organic compounds or spores, including, without limitation,
Penicillium, Aspergillus, Fusarium, Aspergillus Flavus and Stachybotrys chartarum.

Losses resulting from the above causes do not in and of themselves constitute an event unless
arising out of one or more of the following perils, in which case this exclusion does not apply:

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

	 	 	 

	 

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 $1,400,000,000 xs $550,000,000

Page 48 of 48

 

INTERESTS AND LIABILITIES AGREEMENT

(hereinafter referred to as the “Agreement”)

to the

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE

CONTRACT No. 2000250

$1,400,000,000 XS $550,000,000

(hereinafter referred to as the “Contract”)

between

PEERLESS INSURANCE COMPANY

(hereinafter referred to as the “Company”)

and

LIBERTY MUTUAL INSURANCE COMPANY

(hereinafter referred to as the “Subscribing Reinsurer”)

It is hereby mutually agreed by and between the Company of the one part and the Subscribing
Reinsurer of the other part, that the Subscribing Reinsurer shall have a 90% share in the
interests and liabilities of the Subscribing Reinsurer as set forth in the Contract attached
hereto.

This Agreement shall be effective for the period commencing 12:01 a.m., Local Standard Time,
January 1, 2007 and ending 12:01 a.m., Local Standard Time, January 1, 2008.

Property Catastrophe Excess Of Loss Reinsurance Contract

Effective: 01/01/2007

Contract No. 2000250

CAT07PRO04

Page 1 of 2

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement and the attached Property
Catastrophe Excess of Loss Reinsurance Contract $1,400,000,000 xs $550,000,000 to be executed in
duplicate by their respective duly authorized officers;

In Keene, New Hampshire,
this 12th
day of June, 2007, for and on behalf of:

	 	 	 	 	 	 	 

	ATTEST:

	 	 
	 	PEERLESS INSURANCE COMPANY
	 	 
	 
	 	 	 	 	 	 
	/s/ William M. Finn
 

	 	 	 	/s/ Nancy C. Callender
 
	 	 
	Signature

	 	 	 	Signature

	 	 
	 
	 	 	 	 	 	 
	William M. Finn

	 	 	 	Nancy C. Callender	 	 
	Name

	 	 	 	Name

	 	 
	 
	 	 	 	 	 	 
	VP. Chief Actuary

	 	 	 	Ass’t. Vice President, Reinsurance Mgmt.	 	 
	Title

	 	 	 	Title	 	 

And in Boston, Massachusetts, this 30th day of August, 2007, for and on behalf of:

	 	 	 	 	 	 	 

	ATTEST:

	 	 
	 	LIBERTY MUTUAL INSURANCE COMPANY
	 	 
	 
	 	 	 	 	 	 
	/s/ John C. MacLean Jr.
 

	 	 	 	/s/ Elaine Caprio Brady

 
	 	 
	Signature

	 	 	 	Signature

	 	 
	 
	 	 	 	 	 	 
	John C. MacLean Jr.

	 	 	 	Elaine Caprio Brady	 	 
	Name

	 	 	 	Name

	 	 
	 
	 	 	 	 	 	 
	Director of Ceded Reins.

	 	 	 	Vice President	 	 
	Title

	 	 	 	Title	 	 

Property Catastrophe Excess Of Loss Reinsurance Contract

Effective: 01/01/2007

Contract No. 2000250

Page 2 of 2exv10w165

Exhibit 10.165

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE AGREEMENT

EFFECTIVE JANUARY 1, 2005 AT 12:01 A.M. LOCAL STANDARD TIME

INDEX

	 	 	 	 	 	 	 	 	 
	ARTICLE	 	 	SUBJECT	 	PAGE	 
	 
	 	1.	 	 	COMMENCEMENT AND TERMINATION
	 	 	1	 
	 	2.	 	 	BUSINESS COVERED
	 	 	1	 
	 	3.	 	 	RETENTION AND LIMIT
	 	 	2	 
	 	4.	 	 	TERRITORY
	 	 	3	 
	 	5.	 	 	WARRANTIES
	 	 	3	 
	 	6.	 	 	EXCLUSIONS
	 	 	3	 
	 	7.	 	 	REINSTATEMENT
	 	 	6	 
	 	8.	 	 	RATES AND PREMIUMS
	 	 	6	 
	 	9.	 	 	REPORTS AND REMITTANCES
	 	 	7	 
	 	10.	 	 	DEFINITION OF LOSS OCCURRENCE
	 	 	7	 
	 	11.	 	 	NET RETAINED LINES
	 	 	9	 
	 	12.	 	 	ULTIMATE NET LOSS
	 	 	9	 
	 	13.	 	 	NOTICE OF LOSS AND LOSS SETTLEMENT
	 	 	10	 
	 	14.	 	 	SEVERABILITY PROVISION
	 	 	10	 
	 	15.	 	 	ERRORS AND OMISSIONS
	 	 	10	 
	 	16.	 	 	TAXES
	 	 	11	 
	 	17.	 	 	ACCESS TO RECORDS
	 	 	11	 
	 	18.	 	 	ARBITRATION
	 	 	11	 
	 	19.	 	 	SERVICE OF SUIT
	 	 	12	 
	 	20.	 	 	SPECIAL CONDITIIONS
	 	 	13	 
	 	21.	 	 	INSOLVENCY
	 	 	14	 
	 	22.	 	 	OFFSET
	 	 	15	 
	 	23.	 	 	INTERPRETATION
	 	 	15	 
	 	24.	 	 	ENTIRE AGREEMENT
	 	 	15	 
	 	25.	 	 	CONFIDENTIALITY CLAUSE
	 	 	15	 

ATTACHMENTS:

	 	 	 

	EXHIBIT A

	 	DEFINITION OF PROFIT CENTER
	 
	 	 
	EXHIBIT B:

	 	NUCLEAR INCIDENT EXCLUSION CLAUSE
— PHYSICAL DAMAGE -REINSURANCE (BRMA 35B)
	 
	 	 
	EXHIBIT C:

	 	NUCLEAR INCIDENT EXCLUSION CLAUSE
— PHYSICAL DAMAGE AND LIABILITY (BOILER AND MACHINERY POLICIES) — REINSURANCE (BRMA 35E)
	 
	 	 
	EXHIBIT D:

	 	POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION
	 

	 	CLAUSE (BRMA 40B)
	 
	 	 
	EXHIBIT E:

	 	TERRORISM EXCLUSION CLAUSE

 

 

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE AGREEMENT

Between

LIBERTY MUTUAL INSURANCE COMPANY, Boston, MA, Reinsurer

And

PEERLESS INSURANCE COMPANY, Keene, NH, Reassured

EFFECTIVE JANUARY 1, 2005

1. COMMENCEMENT AND TERMINATION

This Agreement shall incept at 12:01 a.m., Local Standard Time, January 1, 2005, shall apply
to losses occurring during the term of this Agreement and shall remain in force until 12:01
a.m., Local Standard Time, January 1, 2005. This Agreement may be terminated at the close of
any calendar quarter by any party giving to the other 90 days prior written notice by
certified mail, of its intention to do so. Should this Agreement terminate while a Loss
Occurrence is in progress, the entire loss arising out of the Loss Occurrence shall be
subject to this Agreement.

2. BUSINESS COVERED

	 	A.	 	Applicable to Layers 1 and Layer 2; Section A
	 
	 	 	 	All in force, new and renewal business classified by the Reassured as Property
business including but not limited to;

	 	•	 	Automobile Physical Damage (including Specialty Automobile and Garagekeepers’
Legal Liability but excluding Collision),
	 
	 	•	 	Homeowners and Farmowners (Property and/or Section 1 only),
	 
	 	•	 	Commercial Multiple Peril (Property and/or Section 1 only),
	 
	 	•	 	Fire,
	 
	 	•	 	Extended Coverage and Allied Lines,
	 
	 	•	 	Inland Marine (including Yachts),
	 
	 	•	 	Boiler and Machinery,
	 
	 	•	 	Burglary and Theft,
	 
	 	•	 	Earthquake and Flood (when added to a Fire policy by endorsement or when part
of an Inland Marine or Multiple Peril policy),
	 
	 	•	 	Glass,
	 
	 	•	 	Miscellaneous Property Insurance,
	 
	 	•	 	Ocean Marine (Yacht business only),
	 
	 	•	 	Water Damage Insurance

	 	 	Layer 2, Section A is only available for business in the Peerless Profit Center, as
defined in Exhibit A – Definition of Profit Center.

1

 

	 	B.	 	Applicable to Layer 2 — Section B

	 	 	Earthquake and ensuing losses for all in force, new and renewal business classified by
the Reassured as Property business including but not limited to;

	 	•	 	Homeowners and Farmowners (Property and/or Section 1 only),
	 
	 	•	 	Commercial Multiple Peril (Property and/or Section 1 only),
	 
	 	•	 	Fire,
	 
	 	•	 	Extended Coverage and Allied Lines,
	 
	 	•	 	Inland Marine (including Yachts),
	 
	 	•	 	Boiler and Machinery,
	 
	 	•	 	Burglary and Theft,
	 
	 	•	 	Earthquake and Flood (when added to a Fire policy by endorsement or when part
of an Inland Marine or Multiple Peril policy),
	 
	 	•	 	Glass,
	 
	 	•	 	Miscellaneous Property Insurance,
	 
	 	•	 	Ocean Marine (Yacht business only),
	 
	 	•	 	Water Damage Insurance

	 	 	Layer 2, Section B is only available to Reassured for business in the Profit Centers
of Indiana Insurance and Hawkeye-Security Insurance, as defined in Exhibit A
–Definition of Profit Center.

	 	C.	 	Under this Agreement, the indemnity for reinsured loss applies only to business
written by the Profit Centers, as defined in Exhibit A – Definition of Profit Center.
	 
	 	D.	 	The term “Policy”, whenever used herein, shall mean all binders, policies,
contracts, agreements, certificates, endorsements and other obligations, whether oral or
written, of insurance or reinsurance issued by the Profit Center.

3. RETENTION AND LIMIT

	 	A.	 	First Layer Catastrophe Excess of Loss Reinsurance

	 	 	The Reinsurer shall be liable in each and every Loss Occurrence, irrespective of the
number and kinds of Policies involved, for 100% of the excess Ultimate Net Loss
above an initial net loss to the Reassured of $50,000,000 provided, however, that the
Reinsurer shall not be liable for more than $100,000,000 of each and every such Loss
Occurrence, nor more than $200,000,000 in the aggregate during the term of this
Agreement.

	 	B.	 	Second Layer Catastrophe Excess of Loss Reinsurance – Section A

	 	 	The Reinsurer shall be liable in each and every Loss Occurrence, irrespective of the
number and kinds of Policies involved, for 100% of the excess Ultimate Net Loss above
an initial net loss to the Reassured of $150,000,000 provided, however, that the
Reinsurer shall not be liable for more than $100,000,000 of each and every such

2

 

	 	 	Loss Occurrence, nor more than $200,000,000 in the aggregate during the term of this
Agreement. Layer 2, Section A is only available for business in the Peerless Profit
Center, as defined in Exhibit A – Definition of Profit Center.

	 	C.	 	Second Layer Catastrophe Excess of Loss Reinsurance – Section B
	 
	 	 	 	The Reinsurer shall be liable in each and every Loss Occurrence, irrespective of the
number and kinds of Policies involved, for 100% of the excess Ultimate Net Loss above
an initial net loss to the Reassured of $150,000,000 provided, however, that the
Reinsurer shall not be liable for more than $100,000,000 of each and every such Loss
Occurrence, nor more than $200,000,000 in the aggregate during the term of this
Agreement. Layer 2, Section B is only available to the Reassured for business in the
Profit Centers of Indiana Insurance and Hawkeye-Security Insurance, as defined in
Exhibit A – Definition of Profit Center.
	 
	 	D.	 	Recoveries under this Agreement, when combined with recoveries from inuring
reinsurance, cannot exceed the Reassured’s actual loss, less its respective retentions.
	 
	 	E.	 	The loss recovery will be allocated to each individual Profit Center based on
their respective contribution to the total loss occurrence.

4. TERRITORY

	 	 	The territorial limits of this Agreement shall be identical with those of the
Reassured’s
policies.

5. WARRANTIES

	 	 	The Reassured warrants that the premium and losses on all policies which are ceded to
OneBeacon Insurance Company under the Rewritten Indemnity Reinsurance Agreement by and
between Peerless Insurance Company and OneBeacon Insurance Company shall inure to the benefit
of this Agreement.

6. EXCLUSIONS

	A.	 	It is expressly understood and agreed that this Agreement does not apply to
the following:

	 	1.	 	All forms of Third Party Liability business, however not to exclude Bailee
coverage of Inland Marine Policies which are covered in accordance with the
Business Covered section of this Agreement;
	 
	 	2.	 	Fidelity and Surety
	 
	 	3.	 	Financial Guarantee and/or Insolvency;

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	 	4.	 	Life, Accident and Health Insurance;
	 
	 	5.	 	Aircraft insurance, but not to exclude aircraft hulls insured under regular Fire
policies (other than Aircraft Hull policies) and not to exclude Aircraft Property
Damage;
	 
	 	6.	 	Loss or damage occasioned by war, invasion, hostilities, acts of foreign enemies,
civil war, rebellion, insurrection, military or usurped power, martial law or
confiscation by order of any government or public authority, but not excluding
loss or damage which would be covered under a standard policy form containing a
standard war exclusion clause;
	 
	 	7.	 	Nuclear Incidents as per Nuclear Incident Exclusion Clause Physical Damage –
Reinsurance and Nuclear Incident Exclusion Clause – Physical Damage and Liability
(Boiler and Machinery) – Reinsurance attached, as Exhibits B and C which are made
a part hereof;
	 
	 	8.	 	Treaty reinsurance assumed, except for any agency reinsurance or business
written by affiliates of the Reassured and reinsured internally within the
Companies comprised of the Regional Agency Markets strategic business unit of
Liberty Mutual Insurance Company, and specifically any reinsurance transacted
among or between members of Regional Agency Markets (shown in Exhibit A) or any
reinsurance between OneBeacon Insurance Company, its affiliates and Peerless
Insurance Company;
	 
	 	9.	 	All liability of the Reassured arising, by agreement, operation of law, or
otherwise,
from its participation or membership, whether voluntary or involuntary, in any
insolvency fund. “Insolvency Fund”, includes any guaranty fund, insolvency fund,
plan, pool, association, fund or other arrangement, howsoever denominated,
established or governed, which provides for any assessment of or payment or
assumption by the Reassured of part or all of any claim, debt, charge, fee, or
other obligation of an insurer, or its successors or assigns, which has been
declared by any competent authority to be insolvent, or which is otherwise deemed
unable to meet any claim, debt, charge, fee or other obligation in whole or in
part;
	 
	 	10.	 	Pollution and Seepage as per the Reassured’s original Policies;
	 
	 	11.	 	All losses in respect of overhead transmission and distribution lines and their
supporting structures other than those on or within 1,000 feet of the insured
suppliers’ extension and / or contingent business interruption coverages are not
subject to this exclusion, provided that these are not part of a transmitters’ or
distributors’ policy;
	 
	 	12.	 	Terrorism as per the attached Terrorism Exclusion clause;
	 
	 	13.	 	Mold:
	 
	 	 	 	This Agreement does not apply to loss or liability in any way or to any extent
arising out of the actual or alleged presence or actual, alleged or threatened

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	 	 	 	presence of fungi including, but not limited to, mold, mildew, mycotoxins,
microbial volatile organic compounds or other “microbial contamination”. This
includes:

	 	a.	 	Any supervision, instruction, recommendations, warnings, or advice given or
which should have been given in connection with the above; and
	 
	 	b.	 	Any obligation to share damages with or repay someone else who must pay
damages because of such injury or damage.
	 
	 	 	 	For purposes of this exclusion, “microbial contamination” means any contamination,
either airborne or surface, which arises out of or is related to the presence of
fungi, mold, mildew, mycotoxins, microbial volatile organic compounds or spores,
including, without limitation, Penicillium, Aspergillus, Fusarium, Aspergillus
Flavus and Stachybotrys chartarum.
	 
	 	 	 	Losses resulting from the above causes do not in and of themselves constitute an
event unless arising out of one or more of the following perils, in which case this
exclusion does not apply:
	 
	 	 	 	Fire, lightning, explosion, aircraft or vehicle impact, falling objects,
windstorm, hail, tornado, cyclone, hurricane, earthquake, volcano, tsunami,
flood, freeze or weight of snow.

	 	14.	 	Losses arising out of “extra contractual obligations” or “loss in excess of
policy
limits.”

	 	a.	 	The term “extra contractual obligations” shall mean any punitive, exemplary,
compensatory, or consequential damages paid or payable by the Reassured
as a result of an action against it by their insureds or
their insured’s assignee
or a third party claimant.
	 
	 	b.	 	The term “loss in excess of policy limits” shall mean any
amount paid or
Payable by the Reassured in excess of its policy limits, but otherwise within
the terms of its policy, as a result of an action against individual Profit
Centers by an insured or the insured’s assignee to recover damages the insured
is legally obligated to pay to a third party claimant because of the
Reassured’s alleged or actual negligence or bad faith in rejecting a settlement
within policy limits, or in discharging its duty to defend or prepare the
defense in the trial of an action against its insured, or in discharging its
duty to prepare or prosecute an appeal consequent upon such action.

	 	B.	 	In respect of business classified by the Reassured as “Property,” the coverage
afforded hereunder shall not apply to the following:

	 	1.	 	Flood, except when written in conjunction with other perils reinsured by this
Agreement, whether under the same policy or a separate policy covering the same
risk;
	 
	 	2.	 	All liability on standing or growing crops;
	 
	 	3.	 	Pools, Associations and Syndicates business as per the attached Exhibit D which
is made part thereof.

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7. REINSTATEMENT

	 	A.	 	Each claim hereunder shall reduce the amount of the Reinsurer’s liability from
the time of the occurrence of the loss by the sum paid, but the sum so exhausted shall
be reinstated immediately from the time of the occurrence of the loss.
	 
	 	B.	 	For all layers each amount so reinstated, the Reassured agrees to pay an
additional premium calculated by multiplying 100% of the annual reinsurance premium therein by
the percentage that the amount reinstated bears to the limit of this Agreement.
	 
	 	C.	 	A provisional reinstatement premium shall be paid by the
Reassured at the time the Reinsurer pays the loss giving rise to the reinstatement premium through an offset of
the provisional reinstatement premium due the Reinsurer against the loss payment due
the Reassured, with only the net amount due to be remitted by the debtor party. The
amount of this provisional reinstatement premium shall be based on 100% of the
estimated annual reinsurance premium of each Layer, whichever may be reinstated.
	 
	 	D.	 	As promptly as possible after the loss has been paid by the Reinsurer and the annual Reinsurance premium
hereunder has been finally determined, the Reassured shall prepare and submit to the Reinsurer a final statement of
reinstatement premium due. Any reinstatement premium shown to be due the Reinsurer (less prior payments, if any)
shall be remitted by the Reassured with its statement. Any return reinstatement premium shown to be due the Reassured
shall be remitted by the Reinsurer as promptly as possible after receipt of the Reassured’s final statement.
	 
	 	E.	 	As respects Layers 1 & 2, if one or more Profit Centers contribute to one or more
losses, reinstatement premium will allocated to the Profit Center based on its
contribution to the total loss.

8. RATES AND PREMIUM

	 	A.	 	Layer 1

	 	 	 	The premium paid to the Reinsurer shall be calculated at a rate of .26697% of the Subject Earned Premium
of the Reassured during the term of the Agreement for all classes of Business Covered hereunder, as stated
in Paragraph A. of Article I – Business Covered.

Layer 2 – Section A

The premium paid to the Reinsurer shall be calculated at a rate of .19617% of the Subject Earned Premium
of the Reassured during the term of the Agreement for all classes of Business Covered hereunder, as stated
in Paragraph A. of Article I – Business Covered.
	 
	 	 	 	Layer 2 – Section B

The premium paid to the Reinsurer shall be calculated at a rate of .02226% of the
Subject Earned Premium of the Reassured during the term of the Agreement for all

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	 	 	 	classes of Business Covered hereunder, as stated in
Paragraph B. of Article I – Business Covered.
	 
	 	B.	 	The term “Subject Earned Premium” as used herein is equal to the sum of the Net Premiums Written on the
business covered hereunder during the period under consideration, plus the unearned premium reserve as
respects premiums in force at the beginning of such period, less the unearned premium reserve as respects
premiums in force at the end of the period, said unearned premium is to be calculated on a daily pro rata
basis. For purposes of this agreement 90 percent of the Homeowner and Farmowner lines of business and 35
percent of the automobile physical damage lines of business shall be included, all other lines will be
included at 100 percent.
	 
	 	C.	 	The term “Net Premiums Written” shall mean gross premiums written less returns,
allowances and reinsurance which inure to the benefit of the Reinsurer.

9. REPORTS AND REMITTANCES

	 	 	The annual minimum reinsurance premium shall be remitted in four equal quarterly
installments due on January 15, May 15, August 15 and November 15, 2005. The
Reassured shall submit finalized accounts to the Reinsurer on February 15, 2006
summarizing the actual Subject Earned Premium for the January 1, 2005 through December 31,
2005 coverage period. The difference between the deposit premium and actual subject earned
premium will be settled to/from the Reassured within 15 days of February 15, 2006.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Layer	 	Deposit	 	 	Minimum	 	 	Quarterly	 
	 
	Layer 1
	 	$	2,824,300	 	 	$	2,824,300	 	 	$	706,075	 
	Layer 2A
	 	$	2,075,260	 	 	$	2,075,260	 	 	$	518,815	 
	Layer 2B
	 	$	235,531	 	 	$	235,531	 	 	$	58,883	 

10. DEFINITION OF LOSS OCCURRENCE

	 	A.	 	The term “Loss Occurrence” shall mean the sum of all individual losses directly occasioned by any one
disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs
within the area of one state of the United States and states contiguous thereto and to one another. However,
the duration and extent of any one “Loss Occurrence” shall be limited to all individual losses sustained by the
Reassured occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same
event except that the term “Loss Occurrence” shall be further defined as follows:

	 	1.	 	As regards windstorm, hail, tornado, cyclone, including ensuing
collapse and water damage, all individual losses sustained by the Reassured
occurring during any period of 72 consecutive hours arising out of and directly
occasioned by the same event. However, as respects named hurricanes or tropical
storms within the 48 contiguous states, all individual losses sustained by the
Reassured occurring
during any period of 168 consecutive hours arising out of, and directly occasioned

7

 

	 	 	 	by the same event; the event need not be limited to one state or states contiguous
thereto.
	 
	 	2.	 	As regards riot, riot attending a strike, civil commotion, vandalism and malicious
mischief, all individual losses sustaineds by the Reinsured occurring during any
period of 72 consecutive hours within the area of one municipality or county and
the municipalities or counties contiguous thereto arising out of and directly
occasioned by the same event. The maximum duration of 72 consecutive hours may be
extended in respect of individual losses which occur beyond such 72 consecutive
hours during the continued occupation of an assured’s premises by strikers,
provided such occupation commenced during the aforesaid period.
	 
	 	3.	 	As regards earthquake (the epicenter of which need not necessarily be within the
territorial confines referred to in the opening paragraph of this article) and
fire following directly occasioned by the earthquake, only those individual fire
losses which commence during the period of 168 consecutive hours may be included
in the Reassured’s “Loss Occurrence”.
	 
	 	4.	 	As regards freeze, only individual losses directly occasioned by collapse,
breakage of glass and water damage (caused by bursting of frozen pipes and tanks) may be included in the Reassured’s “Loss Occurrence”.

	 	B.	 	For all “Loss Occurrences”, the Reassured may choose the date and time when any
such period of consecutive hours commences, provided that it is not earlier than the
date and time of the occurrence of the first recorded individual loss sustained by the
Reassured arising out of that disaster, accident or loss, and provided that only one
such period of 168 consecutive hours shall apply with respect to one event, except for
those “Loss Occurrences” referred to in subparagraphs (1) and (2) of Paragraph A. above,
where only one such period of 72 consecutive hours shall apply with respect to one
event, regardless of the duration of the event.
	 
	 	C.	 	As respects to those “Loss Occurrences” referred to in sub-paragraphs (1) and (2)
of Paragraph A above, if the disaster, accident, or loss occasioned by the event is of
greater duration than 72 consecutive hours, then the Reassured may divide that disaster
or loss into two or more “Loss Occurrences,” provided no two periods overlap and no
individual loss is included in more than one such period, and provided that no period
commence earlier than the date and time of the occurrence of the first recorded
individual loss sustained by the Reassured arising out of that disaster, accident, or
loss.
	 
	 	D.	 	No individual losses occasioned by an event that would be covered by 72 hours
clauses may be included in any “Loss Occurrence” claimed under the 168 hours provisions.
	 
	 	E.	 	A date change, including leap year calculations, shall not in and of itself
be regarded as a loss occurrence for purposes of this reinsurance.
	 
	 	F.	 	The following, in and of themselves do not constitute a loss occurrence unless
they
arise out of one or more of the following perils:

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	 	 	fire, lightning, explosion, aircraft or vehicle impact, falling objects, windstorm,
hail, tornado, cyclone, hurricane, earthquake, volcano, tsunami, flood, freeze or
weight of snow, including losses directly or indirectly occasioned by loss of,
alteration of, damage to, or a reduction in the functionality, availability or
operation of a computer system, hardware, program, software, data, information
repository, microchip, integrated circuit or similar device in computer equipment or
non-computer equipment, whether the property of the policyholder or not.

11. NET RETAINED LINES

	 	A.	 	This Agreement applies only to that portion of any Policy which a Reassured
retains net for its own respective account, and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in excess of which this Agreement
attaches, only loss or losses in respect of that portion of any Policy which the
Reassured retains net for their own respective account shall be included.
	 
	 	B.	 	The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall
not be increased by reason of the inability of a Reassured to collect from any other
reinsurers, whether specific or general, any amounts which may have become due from
such reinsurers, whether such inability arises from the insolvency of such other
reinsurers or otherwise.
	 
	 	C.	 	Inter-company reinsurance among the Legal Entities used by the Profit Centers
shall be entirely disregarded for all purposes of this Agreement.

12. ULTIMATE NET LOSS

	 	A.	 	The term “Ultimate Net Loss” shall mean:

	 	1.	 	the amount actually paid or payable by a Reassured, (and also
including but not limited to all allocated loss adjustment expenses, [attorney’s
fees, subrogation expenses and other costs of investigation or litigation], and
unallocated loss adjustment expenses calculated at 7% of any loss) in settlement
or payment of claims or judgements arising from loss occurrences for which a
Reassured is or may be found liable under their respective policies.
	 
	 	2.	 	any salvage and subrogation recoveries, including any amounts
recoverable under reinsurances which inure to the benefit of this Agreement,
shall be first deducted from such loss to arrive at the amount of liability, if
any, attaching hereunder.
	 
	 	3.	 	any loss reimbursement a Reassured receive under the Florida
Hurricane Catastrophe Fund (FHCF) shall apply as follows:

	 	a.	 	Except as provided in subparagraph 2 below, any such loss
reimbursement shall inure solely to the benefit of the Reassured and shall be
entirely disregarded in applying all of the provisions of this Agreement.
	 
	 	b.	 	If one or more Loss Occurrences commencing during the term
of this Agreement result(s) in recoveries made by the Reassured under this

9

 

	 	 	 	Agreement and the FHFC, and such recoveries, together with any other
reinsurance recoveries made by the Reassured applicable to said Loss
Occurrence(s), exceed the amount permitted by Florida law, any amount in
excess thereof shall reduce the Ultimate Net Loss subject to this Agreement
for the Loss Occurrence(s) to which the recoveries apply.

	 	 	 	For purposes hereof, if a loss reimbursement received by the Reassured under the FHCF
is based on the Reassured’s losses in more than one Loss Occurrence and the FHCF does
not designate the amount allocable to each such Loss Occurrence, the reimbursement
shall be prorated in the proportion that the Reassured’s losses in each such Loss
Occurrence bear to the Reassured’s total losses arising out of all Loss Occurrences to
which the recovery applies.
	 
	 	B.	 	Recoveries under any other property catastrophe excess of loss reinsurance
agreements or aggregate property catastrophe excess of loss reinsurance agreement,
shall be disregarded in arriving at the Ultimate Net Loss under this Agreement.
	 
	 	C.	 	Whenever the Reassured issues a lost instrument bond or a lost instrument
letter of indemnity for salvage purposes or in lieu of loss payment under its policy,
the Reinsurer agrees to accept liability under such bond or letter of indemnity in
accordance with the terms of this Agreement.
	 
	 	D.	 	Nothing however in this definition shall be construed as meaning that losses are
not recoverable hereunder until the Ultimate Net Loss to the Reassured have been
ascertained.

13. NOTICE OF LOSS AND LOSS SETTLEMENT

	 	A.	 	The Reassured shall advise the Reinsurer promptly, but in no event later than
30 days, of all losses which, in the opinion of the Reassured, may result in a claim
hereunder and of all subsequent developments thereto which, in the opinion of the
Reassured, may materially affect the position of the Reinsurer. Notwithstanding the
foregoing, the Reassured shall give notice to the Reinsurer once a claim exceeds or has
the potential to exceed the retention.
	 
	 	B.	 	All loss settlements made by the Reassured, provided they are within the terms
of this Agreement, shall be unconditionally binding upon the Reinsurer, who agrees to
pay all amounts for which it may be liable immediately, but in no event later than 30
days, upon being furnished by the Reassured with reasonable evidence of the amount due.

14. SEVERABILITY PROVISION

	 	 	If any provision of this Agreement shall be rendered illegal or unenforceable by the
laws,
regulations or public policy of any state, such provision shall be considered void in such
state, but this shall not affect the validity or enforceability of any other provision of
this

10

 

	 	 	Agreement or the enforceability of such provision in any other jurisdiction.

15. ERRORS AND OMISSIONS

	 	 	Inadvertent delays, errors or omissions made by the Reassured in connection with this
Agreement shall not relieve the Reinsurer from any liability which would have attached had
such delay, error or omission not occurred, provided always that such delay, error or
omission shall be rectified as soon as possible after discovery by the Reassured.

16. TAXES

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

	 	 	The Reinsurer shall allow for the purpose of paying Federal Excise Tax the applicable
percentage of the premium payable hereon (as imposed under Section 4371 of the Internal
Revenue Code) to the extent such premium is subject to such tax. In the event of any return
premium, the Reinsurer shall deduct the aforesaid percentage from the return premium payable
hereon and the Reassured or its agent shall recover such tax from the United Stated
Government.

17. ACCESS TO RECORDS

	 	 	The Reassured shall place at the disposal of the Reinsurer at all reasonable times, and the
Reinsurer shall have the right to inspect through its designated representatives, during the
term of this Agreement and thereafter, all books, records and papers of the Reassured in
connection with any reinsurance hereunder, or the subject matter hereof.

18. ARBITRATION

	 	A.	 	Any dispute or other matter in question between the Reassured and the Reinsurer
arising out of, or relating to, the formation, interpretation, performance or breach of
this Agreement, whether such dispute arises before or after termination of this
Agreement, shall be settled by arbitration. Arbitration shall be initiated by the
delivery of a written notice of demand for arbitration by one party to the other within
a reasonable time after the dispute has arisen.
	 
	 	B.	 	If more than one reinsurer is involved in the same dispute, all such reinsurers
shall constitute and act as one party for the purposes of this Article, provided,
however, that nothing herein shall impair the rights of such reinsurers to assert
several, rather than joint, defenses or claims, nor be construed as changing the
liability of the Reinsurers under the terms of this Agreement from several to joint.
	 
	 	C.	 	Each party shall appoint an individual as arbitrator and the two so appointed
shall

11

 

	 	 	 	then appoint a third arbitrator. If either party refuses or neglects to appoint an
arbitrator within sixty (60) days, the other party may appoint the second arbitrator. If
the two arbitrators do not agree on a third arbitrator within sixty (60) days of their
appointment, each of the arbitrators shall nominate three individuals. Each arbitrator
shall then decline two of the nominations presented by the other arbitrator. The third
arbitrator shall then be chosen from the remaining two nominations by drawing lots. The
arbitrators shall be active or retired officers of insurance or reinsurance companies;
the arbitrators shall not have a personal or financial interest in the result of the
arbitration.
	 
	 	D.	 	The arbitration hearings shall be held in Boston, Massachusetts, or such other
place as may be mutually agreed. Each party shall submit its case to the arbitrators
within sixty (60) days of the selection of the third arbitrator or within such longer
period as may be agreed by the arbitrators. The arbitrators shall not be obliged to
follow judicial formalities or the rules of evidence except to the extent required by
governing law, that is, the state law of the situs of the arbitration as herein agreed;
they shall make their decisions according to the practice of the reinsurance business.
The decision rendered by a majority of the arbitrators shall be final and binding on
both parties. Such decision shall be a condition precedent to any right of legal action
arising out of the arbitrated dispute which either party may have against the other.
Judgment upon the award rendered may be entered in any court having jurisdiction
thereof.
	 
	 	E.	 	Each party shall pay the fee and expenses of its own arbitrator and one-half of the
fee and expenses of the third arbitrator. All other expenses of the arbitration shall be
equally divided between the parties.
	 
	 	F.	 	Except as provided above, arbitration shall be based, insofar as applicable,
upon the procedures of the American Arbitration Association.

19. SERVICE OF SUIT

	 	 	(This article applies to other than authorized Reinsurers and to Reinsurers who are domiciled
outside the United States of America.)
	 
	 	 	This Service of Suit Article will not be read to conflict with or override the obligations of
the parties to arbitrate their disputes as provided for in the Arbitration Article. This
Article is intended as an aid to compelling arbitration or enforcing such arbitration or
arbitral award, not as an alternative to the Arbitration Article for resolving disputes
arising out of this Agreement.
	 
	 	 	In the event of the failure of the Reinsurer to pay any amount claimed to be due hereunder,
the Reinsurer, at the request of the Reassured, will submit to the jurisdiction of a Court of
competent jurisdiction within the United States. Nothing in this Article constitutes or
should be understood to constitute a waiver of the Reinsurers’ rights to commence an action
in any Court of competent jurisdiction in the United States, to remove an action to a United
States District Court, or to seek a transfer of a case to another Court as permitted by the
laws of
the United States or of any state in the United States. The Reinsurer, once the appropriate
Court is selected, whether such court is the one originally chosen by the Reassured and

12

 

	 	 	accepted by Reinsurer or is determined by removal, transfer, or otherwise, as provided for
above, will comply with all requirements necessary to give said Court jurisdiction and, in
any suit instituted against any of them upon this Agreement, will abide by the final decision
of such Court or of any Appellate Court in the event of an appeal.
	 
	 	 	Service of process in such suit may be made upon Mendes & Mount, LLP, 750 7th
Avenue, New York, NY 10019-6829.
	 
	 	 	The above-named are authorized and directed to accept service of process on behalf of the
Reinsurer in any such suit.
	 
	 	 	Further, pursuant to any statute of any state, territory or district of the United States
that makes provision therefor, the Reinsurer hereby designate the Superintendent,
Commissioner or Director of Insurance, or other officer specified for that purpose in the
statute, or his successor or successors in office, as their true and lawful attorney upon
whom may be served any lawful process in any action, suit or proceedings instituted by or on
behalf of the Reassured or any beneficiary hereunder arising out of this Agreement, and
hereby designate the above-named as the person to whom the said officer is authorized to mail
such process or a true copy thereof.

20. SPECIAL CONDITIONS

	 	 	The Reassured may terminate this Agreement at any time by the giving of 30 days notice in
writing to the Reinsurer upon the happening of any one of the following circumstances:

	 	A.	 	A State Insurance Department or other legal authority orders the Reinsurer to
cease writing business; or
	 
	 	B.	 	The Reinsurer has become insolvent or has been placed into liquidation or
receivership (whether voluntary or involuntary), or there have been instituted against
it proceedings for the appointment of a receiver, liquidator, rehabilitator,
conservator, trustee in bankruptcy or other agent known by whatever name, to take
possession of its assets or control of its operations; or
	 
	 	C.	 	The Reinsurer’s policyholders’ surplus has been reduced by 25% of the amount of
surplus at the inception of this Agreement; or
	 
	 	D.	 	The Reinsurer has become merged with, acquired or controlled by any company,
corporation or individual(s) not controlling the Reinsurer’s operations at the inception
of this Agreement.
	 
	 	E.	 	The Reinsurer’s A.M. Best Rating has been assigned or downgraded below A- or
Standard and Poor’s rating has been assigned or downgraded below A-.

	 	 	The coverage afforded by this Agreement shall cease as of the date of termination and the
Reinsurer shall return the unearned premium net of ceding commission, if any. If coverage
hereunder terminates while a claim covered by this Agreement is in progress, the Reinsurer
shall be liable subject to all other conditions hereof for its proportion of the entire
claim, provided that the event giving rise to the claim started before such termination.

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	 	 	If the Reassured chooses to effect termination, it shall have the option to commute the
Reinsurer’s liability for loss(es), whether reported or unreported, on policies covered by
this Agreement as of the effective date of termination. The Reassured shall submit a
statement of valuation of the outstanding claim or claims showing the elements considered
reasonable to establish the “ultimate net loss,” and the Reinsurer shall pay the amount
requested. In the event the Reassured and the Reinsurer cannot agree on the statement of
valuation of the Reinsurer’s liability under such policies, either party may request in
writing that the differences be settled by a panel of three actuaries. Each party shall
appoint an actuary to assess such liability within 15 days after receipt of the written
request for commutation. Upon such appointment, the two actuaries shall appoint a third
actuary. If the two actuaries fail to agree on the third actuary within 30 days of their
appointment, each of them shall nominate three individuals, of whom the other shall decline
two, and the final decision shall be made by drawing lots. The actuaries shall then
investigate and capitalize such loss(es) within 30 days. As used herein, capitalize shall
mean to determine the present value of ultimate net losses, without regard to the Reinsurer’s
ability to pay such losses. The panel shall meet in Boston, Massachusetts, unless the
Reassured and Reinsurer agree otherwise.

	 	 	All actuaries shall be disinterested in the outcome of the commutation and shall be Fellows
of the Society of Actuaries/Fellows of the Casualty Actuarial Society. Except as stated
below, the expense of the actuaries and of the commutation shall be equally divided between
the parties of the commutation.

	 	 	The decision in writing of the actuaries, when filed with the parties hereto, shall be final
and binding, except that if the Reassured does not agree with the capitalized value of the
loss(es), the Reassured shall have no obligation to commute. In the event the Reassured does
not agree with the capitalized value of the loss(es) and does not move forward with
commutation, the expense of the actuaries [including reasonable expense of the actuary
appointed by the Reinsurer will be paid by the Reassured. If the Agreement is commuted,
payment by the Reinsurer to the Reassured or any other third party mutually agreed upon by
the Reinsurer and the Reassured shall constitute a complete and final release of the
Reinsurer in respect to its liability under this Agreement.

21. INSOLVENCY

	 	 	In the event of the insolvency and the appointment of a conservator, liquidator, or statutory
successor of any individual Profit Center the portion of any risk or obligation assumed by
the Reinsurer shall be payable to the conservator, liquidator, or statutory successor on the
basis of claims allowed against the insolvent Reassured by any court of competent
jurisdiction or by any conservator, liquidator, or statutory successor of such Reassured
having authority to allow such claims, without diminution because of that insolvency, or
because the conservator, liquidator, or statutory successor has failed to pay all or a
portion of any claims. Payments by the Reinsurer shall be made directly to such Reassured or
to its conservator, liquidator, or statutory successor, except where the contract of
insurance or reinsurance specifically provides another payee of such reinsurance in the event
of the insolvency of such Reassured. The conservator, liquidator, or statutory successor of
such Reassured
shall give written notice of the pendency of a claim against the Reassured indicating the
policy or bond reinsured, within a reasonable time after such claim is filed and the
Reinsurer

14

 

	 	 	may interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses which it may deem available to the Reassured or its
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 Reassured as
part of the expense of conservation or liquidation to the extent of a proportionate share of
the benefit which may accrue to the Reassured in conservation or liquidation, solely as a
result of the defense undertaken by the Reinsurer.

22. OFFSET

	 	 	Each party hereto shall have the right to offset any balance or balances, whether on
account of premiums or on account of losses, due from one party to any other party under
this Agreement against any balance or balances currently due and payable to the one
party from the other party under this Agreement.

23. INTERPRETATION

	 	 	The validity and interpretation of this Agreement and of each Article and part thereof shall
be governed by the laws of the Commonwealth of Massachusetts.

	24.	 	ENTIRE AGREEMENT

	 	 	This Agreement represents the entire agreement and understanding among the parties, and may
not be changed except in writing, signed by the parties. No other oral or written agreements
or contracts relating to the risks reinsured hereunder currently exist and / or are
contemplated between the parties.

25. CONFIDENTIALITY CLAUSE

	 	 	All terms and conditions of this Agreement and any materials provided in the course of
inspection shall be kept confidential by the Reinsurer as against third parties, unless the
disclosure is required pursuant to process of law or unless the disclosure is to Reinsurer’s
retrocessionaires, financial auditors or governing regulatory bodies. Disclosing or using
this information for any purpose beyond the scope of this Agreement, or beyond the
expectations set forth above, is expressly forbidden without the prior consent of the
Reassured.

15

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their
duly authorized representative.

	 	 	 

	In Keene, New Hampshire, this

	 	day of      2005
	 
	 	 
	ATTEST:

	 	PEERLESS INSURANCE COMPANY
	 
	 /s/
	 	 /s/
	 

	 	 
	 
	 	 
	And in Boston, Massachusetts, this

	 	day of      , 2005
	 
	 	 
	ATTEST:

	 	LIBERTY MUTUAL INSURANCE COMPANY
	 
	 /s/
	 	 /s/
	 

	 	 

 

 

EXHIBIT A

Section 1 — Definition of Profit Center:

For purposes of this Treaty, the Regional Agency Markets strategic business unit of LMIC is defined
to include the following Profit Centers:

	 	 	 	 	 
	 	 	 	 	Business Produced
	 	 	 	 	By Agents Resident
	Profit Center	 	Legal Entities Used By Profit Center	 	in the Following States
	America First Insurance:

	 	America First Insurance Co.
	 	AK, LA, OK, TX
	 

	 	America First Lloyd’s Insurance Co.
	 	AK, LA, OK, TX
	 

	 	Peerless Insurance Co.
	 	AK, LA, OK, TX
	 
	 	 	 	 
	 

	 	Liberty County Mutual Insurance Co.
	 	For business classified as RAM only
	 
	 	 	 	 
	 

	 	Business Solutions Group*
	 	(Multi-State Business **)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business **)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business **)
	 
	 	 	 	 
	Colorado Casualty Insurance:

	 	Colorado Casualty Insurance Co.
	 	AZ, CO, NM, NV, WY, UT
	 

	 	Golden Eagle Insurance Corp.
	 	AZ, CO, NM, NV, WY, UT
	 

	 	One Beacon Insurance Co. Cession to Peerless
	 	AZ, CO, NM, NV, WY, UT
	 
	 	 	 	 
	 

	 	Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)
	 
	 	 	 	 
	Golden Eagle Insurance:

	 	Golden Eagle Insurance Corp.
	 	CA
	 

	 	One Beacon Insurance Co. Cession to Peerless
	 	CA
	 

	 	Peerless Insurance Co.
	 	CA
	 
	 	 	 	 
	 

	 	Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)
	 
	 	 	 	 
	Hawkeye-Security Insurance:

	 	Hawkeye-Security Insurance Co.
	 	IA, KS, MN, MO, NE, ND, SD, WI
	 

	 	Consolidated Insurance Co.
	 	IA, KS, MN, MO, NE, ND, SD, WI
	 

	 	Indiana Insurance Co.
	 	IA, KS, MN, MO, NE, ND, SD, WI
	 

	 	One Beacon Insurance Co. Cession to Peerless
	 	IA, KS, MN, MO, NE, ND, SD, WI
	 

	 	Peerless Insurance Co.
	 	IA, KS, MN, MO, NE, ND, SD, WI
	 

	 	The Midwestern Indemnity Co.
	 	IA, KS, MN, MO, NE, ND, SD, WI
	 
	 	 	 	 
	 

	 	Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)

 

 

	 	 	 	 	 
	 	 	 	 	Business Produced
	 	 	 	 	By Agents Resident
	Profit Center	 	Legal Entities Used By Profit Center	 	in the Following States
	Indiana Insurance:

	 	Indiana Insurance Co.
	 	IL, IN, KY, MI, OH, TN
	 

	 	Consolidated Insurance Co.
	 	IL, IN, KY, MI, OH, TN
	 

	 	Mid-American Fire and Casualty Co.
	 	IL, IN, KY, MI, OH, TN
	 

	 	One Beacon Insurance Co. Cession to Peerless
	 	IL, IN, KY, MI, OH, TN
	 

	 	Peerless Insurance Co.
	 	IL, IN, KY, MI, OH, TN
	 

	 	The Midwestern Indemnity Co.
	 	IL, IN, KY, MI, OH, TN
	 
	 	 	 	 
	 

	 	Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)
	 
	 	 	 	 
	Business Solutions Group:

	 	Liberty Mutual Insurance Co.
	 	All states other than multi-
	 

	 	Liberty Mutual Fire Insurance Co.
	 	state business in the other
	 

	 	LM Insurance Corp.
	 	Profit Centers
	 

	 	Liberty Insurance Corp.	 	 
	 

	 	The First Liberty Insurance Corp.	 	 
	 

	 	Liberty County Mutual Insurance Co.	 	 
	 
	 	 	 	 
	Montgomery Insurance:

	 	Montgomery Mutual Insurance Co.
	 	AL, DC, DE, FL, GA, MD,
	 

	 	 	 	MS, NC, SC, VA, WV
	 

	 	Colorado Casualty Insurance Co.
	 	AL, DC, DE, FL, GA, MD,
	 

	 	 	 	MS, NC, SC, VA, WV
	 

	 	Excelsior Insurance Co.
	 	AL, DC, DE, FL, GA, MD,
	 

	 	 	 	MS, NC, SC, VA, WV
	 

	 	One Beacon Insurance Co. Cession to Peerless
	 	AL, DC, DE, FL, GA, MD,
	 

	 	 	 	MS, NC, SC, VA, WV
	 

	 	Peerless Insurance Co.
	 	AL, DC, DE, FL, GA, MD,
	 

	 	 	 	MS, NC, SC, VA, WV
	 

	 	The Midwestern Indemnity Co.
	 	AL, DC, DE, FL, GA, MD,
	 

	 	 	 	MS, NC, SC, VA, WV
	 
	 	 	 	 
	 

	 	Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-State Business**)
	 
	 	 	 	 
	Peerless Insurance:

	 	Peerless Insurance Co.
	 	CT, MA, ME, NH, NJ, NY,
	 

	 	 	 	PA, RI, VT
	:

	 	Excelsior Insurance Co.
	 	CT, MA, ME, NH, NJ, NY,
	 

	 	 	 	PA, RI, VT
	 

	 	Indiana Insurance Co.
	 	CT, MA, ME, NH, NJ, NY,
	 

	 	 	 	PA, RI, VT
	 

	 	One Beacon Insurance Co. Cessions to Peerless
	 	CT, MA, ME, NH, NJ, NY, PA, RI, VT
	 

	 	Merchants and Business Men’s Mutual Insurance Co.
	 	CT, MA, ME, NH, NJ, NY,
	 

	 	 	 	PA, RI, VT
	 
	 	 	 	 
	 

	 	Business Solutions Group*
	 	(Multi-State Business**)
	 

	 	Peerless Indemnity Insurance Co.
	 	(Multi-State Business**)
	 

	 	The Netherlands Insurance Co.
	 	(Multi-state Business**)

 

 

 

			
	*	 	Business Solutions Group consists of; Liberty Mutual Insurance Co., Liberty Mutual Fire
Insurance Co.,
LM Insurance Corp., Liberty Insurance Corp., The First Liberty Insurance Corp. and Liberty
County Mutual
Insurance Co.
	 
	**	 	Agent responsible for the risk resides in the Profit Center but the risk is located in
multiple states both in and
outside states assigned to the Profit Center.

 

 

EXHIBIT B

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

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

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

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

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

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

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

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

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

	7.	 	Reassured to be sole judge of what constitutes:

 

 

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

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

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

 

 

EXHIBIT C

NUCLEAR INCIDENT EXCLUSION CLAUSE — PHYSICAL DAMAGE AND

LIABILITY (BOILER AND MACHINERY) — REINSURANCE (BRMA 35E)

        .

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

	2.	 	Without in any way restricting the operation of paragraph (1) of this Clause, it is
understood and agreed that for all purposes of this reinsurance all original Boiler and
Machinery Insurance or Reinsurance agreements of the Reassured shall be deemed to include the
following provisions of this paragraph:

     This Policy does not apply to “loss”, whether it be direct or indirect,
proximate or remote;

	 	(a)	 	from an Accident caused directly or indirectly by nuclear reaction,~nuclear
radiation or radioactive contamination, all whether controlled or uncontrolled; or
	 
	 	(b)	 	from nuclear reaction, nuclear radiation or radioactive contamination, all
whether controlled or uncontrolled, caused directly or indirectly by, contributed to or
aggravated by an Accident.

3. However, it is agreed that loss arising out of the use of radioactive isotopes in any
form is not hereby excluded from reinsurance protection.

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

	 	(a)	 	all policies issued by the Reassured effective on or before 30th April 1958,
shall be free from the application of the other provisions of this Clause until
expiry date or 30th April 1961, whichever first occurs, whereupon all the
provisions of this Clause shall apply.
	 
	 	(b)	 	with respect to any risk located in Canada policies issued by the Reassured
effective on or before 30th June 1958 shall be free from the application of
the other provisions of this Clause until expiry date or 30th June 1961,
whichever first occurs, whereupon all the provisions of this Clause
shall apply

 

 

EXHIBIT D

POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE

Section A:

Excluding:

	 	(1)	 	All business derived directly or indirectly from any Pool, Association or
Syndicate which maintains its own reinsurance facilities.
	 
	 	(2)	 	Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968
for the purpose of insuring property whether on a country-wide basis or in respect of
designated areas. This exclusion shall not apply to so-called Automobile Insurance
Plans or other Pools formed to provide coverage for Automobile Physical Damage.

Section B:

It is agreed that business written by the Reassured for the same perils, which is known at the time
to be insured by, or in excess of underlying amounts placed in the following Pools, Associations or
Syndicates, whether by way of insurance or reinsurance, is excluded hereunder:

	 	 	 	Any Pool, Association or Syndicate formed for the purpose of writing Oil, Gas or
Petro-Chemical Plants and/or Oil or Gas Drilling Rigs, United States Aircraft
Insurance Group,

Canadian Aircraft Insurance Group, Global Aerospace.

Section B does not apply:

	 	(1)	 	Where the Total Insured Value over all interests of the risk in question is less
than $250,000,000.
	 
	 	(2)	 	To interests traditionally underwritten as Inland Marine and/or Stock and/or
Contents written on a Blanket basis.
	 
	 	(3)	 	To Contingent Business Interruption, except when the Reassured is aware that the
key location is known at the time to be insured in any Pool, Association or Syndicate
named above, other than as provided for under Section B(1).
	 
	 	(4)	 	To risks as follows:

	 	 	 	Offices, Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities
(other than Railroad Schedules) and Builder’s Risks on the classes of risks specified
in this subsection (4) only.

Where this clause attaches to Catastrophe Excesses, the following Sections C and D are added:

Section C:

Nevertheless the Reinsurer specifically agrees that liability accruing to the Reassured from its
participation in Residual Market Mechanisms including but not limited to:

	 	(1)	 	The following so-called “Coastal Pools”:
	 
	 	 	 	Alabama Insurance Underwriting Association
Citizens Property Insurance Corporation (CPIC)
Louisiana Citizens Coastal Plan
Mississippi Windstorm Underwriting Association
North Carolina Insurance Underwriting Association

 

 

	 	 	 	South Carolina Wind and Hail Underwriting Association 

Texas Windstorm Insurance Association
	 
	 	 	 	AND
	 
	 	(2)	 	All “Fair Plan” and “Rural Risk Plan” business,
	 
	 	 	 	AND
	 
	 	(3)	 	California Earthquake Authority (CEA),

for all perils otherwise protected hereunder shall not be excluded herefrom, except however, that
this reinsurance does not include any increase in such liability resulting from:

	 	(a)	 	The inability of any other participant in such Residual Market
Mechanisms to meet its liability.
	 
	 	(b)	 	Any claim against such Residual Market Mechanisms or any
participant therein, including the Reassured, whether by way of subrogation or
otherwise, brought by or on behalf of any insolvency fund (as defined in the
Insolvency Funds Exclusion Clause incorporated in this Agreement).

Section D:

	(1)	 	Notwithstanding Section C above, in respect of the CEA, where an assessment is
made against the Reassured by the CEA, the Reassured may include in its ultimate net
loss only that assessment directly attributable to each separate loss occurrence covered
hereunder. The Reassured’s initial capital contribution to the CEA shall not be
included in the ultimate net loss.

	(2)	 	Notwithstanding Section C above, in respect of CPIC, where an assessment is made
against the Reassured by CPIC, the maximum loss that the Reassured may include in the
ultimate net loss in respect of any loss occurrence hereunder shall not exceed the
lesser of:

	 	(a)	 	The Reassured’s assessment from CPIC for the accounting year in
which the loss occurrence commenced, or
	 
	 	(b)	 	The product of the following:

	 	(i)	 	The Reassured’s percentage participation in CPIC for
the accounting year in which the loss occurrence commenced; and
	 
	 	(ii)	 	CPIC’s total losses in such loss occurrence.

	 	 	Any assessments for accounting years subsequent to that in which the loss occurrence
commenced may not be included in the ultimate net loss hereunder. Moreover,
notwithstanding Section C above, in respect of CPIC, the ultimate net loss hereunder
shall not include any monies expended to purchase or retire bonds as a consequence of
being a member of CPIC.
	 
	 	 	For the purposes of this Agreement, the Reassured may not include in the ultimate net
loss any assessment or any percentage assessment levied by CPIC to meet the
obligations of an insolvent insurer, member or other party, or to meet any obligations
arising from the deferment by CPIC of the collection of monies.

 

 

EXHIBIT E

TERRORISM EXCLUSION CLAUSE

This Agreement does not apply to and specifically excludes terrorism-related losses as
follows:

	A.	 	For risks located in the United States of America and its territories and
possessions, and at the premises of any United States mission as such terms are intended
to apply under the terms of the Terrorism Risk Insurance Act of 2002 as it may be
amended from time to time:

	 	1.	 	“Insured Losses” resulting directly or indirectly from a “Certified
Act of Terrorism” under the terms of the Terrorism Risk Insurance Act of 2002 as
it may be amended from time to time.
	 
	 	2.	 	Loss or damage directly or indirectly arising out of or in
connection with nuclear, chemical, biological, or radiological explosion,
pollution, or contamination resulting from any other act of terrorism.
Notwithstanding the foregoing, this Agreement shall extend to cover insured
physical loss or damage, excluding all time element coverages and extensions,
incurred as a direct and immediate consequence of an “other act of terrorism”
employing any non-nuclear weapon or device designed to disperse chemical,
biological, or radiological contaminants; but, no coverage shall be afforded for
any ensuing chemical, biological or radiological contamination or pollution
resulting from an “other act of terrorism” employing such weapon or device.

	 	 	“Other act of terrorism” as used in subparagraph A.2. above shall mean any violent act or act
that is dangerous to human life, property, or infrastructure that results in physical loss or
damage that is committed by an individual or individuals acting on behalf of any person or
interest as part of an effort to coerce the civilian population of the United States or to
influence the policy or affect the conduct of the United States government by coercion, that
is not a “Certified Act of Terrorism”.

 (Revised
12/16/2003)

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