Document:

exv10w2

Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

Between

LIBERTY MUTUAL AGENCY CORPORATION

and

LIBERTY INSURANCE HOLDINGS, INC.

DATED AS OF      , 2010

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	Section 1. Definitions
	 	 	1	 
	Section 2. Demand Registration
	 	 	4	 
	Section 3. Piggyback Registration
	 	 	6	 
	Section 4. Expenses
	 	 	7	 
	Section 5. Preparation and Filing
	 	 	8	 
	Section 6. Indemnification
	 	 	10	 
	Section 7. Underwriting Agreement
	 	 	13	 
	Section 8. Agreements of the Selling Holders
	 	 	13	 
	Section 9. Exchange Act Compliance
	 	 	14	 
	Section 10. No Conflicting Registration Rights
	 	 	14	 
	Section 11. Transfer of Registration Rights
	 	 	14	 
	Section 12. Enforcement
	 	 	14	 
	Section 13. Miscellaneous
	 	 	15	 
	 
	 	 	 	 
	 

 

 

          This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of      , 2010,
is entered into by and between Liberty Mutual Agency Corporation, a Delaware corporation (including
its successors, the “Company”), and Liberty Insurance Holdings, Inc., a Delaware
corporation (“LIHI”).

          WHEREAS, pursuant to the Company’s Amended and Restated By-laws the share capital of the
Company consists of Class A Common Shares, par value $0.01 per share (“Class A Common
Shares”) and Class B Common Shares, par value $.01 per share (“Class B Common Shares”
and, together with the Class A Common Shares, the “Common Shares”). Class B Common Shares
may only be owned by LIHI and its affiliates, and any purported sale, transfer or other disposition
of Class B Common Shares to any other Person will result in the automatic conversion of such
transferred shares into the Company’s Class A Common Shares;

          WHEREAS, the Company has filed a Registration Statement (File No. 333-[ ]) with the Securities
and Exchange Commission on Form S-1 (the “IPO Registration Statement”) in connection with
the initial public offering (the “IPO”) of its Class A Common Shares; and

          WHEREAS, the Company has agreed to provide LIHI with the registration rights specified in this
Agreement following the IPO with respect to any Common Shares held by LIHI or any other Holder, on
the terms and subject to the conditions set forth herein.

          NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained
and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

     Section 1. Definitions.

     As used in this Agreement, the following terms shall have the following respective meanings:

     “Affiliate” means with respect to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by or is under common
control with, the Person specified. The term “control” (including the terms “controlling,”
“controlled by,” and “under common control with”) means possession, directly or indirectly, of
power to direct or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract, or otherwise).

     “Agreement” shall have the meaning assigned to it in the introductory paragraph.

     “Business Day” or “business day” means any day other than (a) a Saturday or
Sunday or (b) a day on which banks are authorized or required to be closed in Boston or New York
City; provided, however, that any determination of a Business Day relating to a
securities exchange or

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other securities market means a Business Day on which such exchange or
market is open for trading.

     “Class A Common Shares” shall have the meaning assigned to it in the recitals.

     “Class B Common Shares” shall have the meaning assigned to it in the recitals.

     “Common Shares” shall have the meaning assigned to it in the recitals.

     “Company” shall have the meaning assigned to it in the introductory paragraph.

     “Demand Registration” shall have the meaning assigned to it in Section 2.1(a).

     “Demand Request” shall have the meaning assigned to it in Section 2.1(a).

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Holder” means (i) LIHI and (ii) any direct or indirect transferee of LIHI who shall
become a party to this Agreement in accordance with Section 11 and has agreed in writing to be
bound by the terms of this Agreement.

     “Information” shall have the meaning assigned to it in Section 5.9.

     “Inspectors” shall have the meaning assigned to it in Section 5.9.

     “IPO” shall have the meaning assigned to it in the recitals.

     “IPO Registration Statement” shall have the meaning assigned to it in the recitals.

     “IPO Underwriting Agreement” means the underwriting agreement dated      , 2010 among
[underwriter], the Company and LIHI.

     “LIHI” means Liberty Insurance Holdings, Inc., a Delaware corporation, all successors
to Liberty Insurance Holdings, Inc. by way of merger, consolidation, amalgamation or sale of all or
substantially all of its assets or any comparable transaction or series of related transactions
(including contractual arrangements) having the same effect, any individual, corporation,
partnership, joint venture, limited liability company, or other entity owning more than fifty
percent (50%) of the outstanding voting shares of such successor but, unless expressly stated
otherwise, shall not include the Company and all corporations, partnerships, joint ventures,
limited liability companies, trusts, associations and other entities in which the Company owns
(directly or indirectly) more than fifty percent (50%) of the outstanding voting stock or shares,
voting power, partnership interests or similar ownership interests.

     “LMHC” means Liberty Mutual Holding Company Inc., a Massachusetts mutual holding
company, all successors to Liberty Mutual Holding Company Inc. by way of merger, consolidation,
amalgamation or sale of all or substantially all of its assets or any comparable

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transaction or
series of related transactions (including contractual arrangements) having the same effect, any
individual, corporation, partnership, joint venture, limited liability company, or other
entity owning more than fifty percent (50%) of the outstanding voting shares of such successor
but, unless expressly stated otherwise, shall not include the Company and all corporations,
partnerships, joint ventures, limited liability companies, trusts, associations and other entities
in which the Company owns (directly or indirectly) more than fifty percent (50%) of the outstanding
voting stock or shares, voting power, partnership interests or similar ownership interests.

     “Other Shares” means at any time those Common Shares which do not constitute Primary
Shares or Registrable Shares.

     “Person” shall include all natural persons, corporations, business trusts,
associations, companies, partnerships, joint ventures and other entities and governments and
agencies and political subdivisions thereof.

     “Primary Shares” means at any time the authorized but unissued Common Shares and
treasury shares.

     “Records” shall have the meaning assigned to it in Section 5.9.

     “Registrable Shares” means at any time, with respect to any Holder, the Common Shares
beneficially owned by such Holder. As to any particular Registrable Shares, such Registrable
Shares shall cease to be Registrable Shares when (a) a registration statement with respect to the
sale by a Holder of such securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration statement, (b) such
securities shall have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (c) such securities shall have been otherwise transferred, new
certificates for such securities not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent disposition of such securities shall not require
registration or qualification of such securities under the Securities Act or any state securities
or “blue sky” law then in force, (d) such securities shall have ceased to be outstanding or (e)
such securities are transferred to a Person who is not an Affiliate of LMHC at the time of such
transfer and are eligible to be distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act.

     “SEC” means the Securities and Exchange Commission.

     “Securities Act” or “Act” means the Securities Act of 1933.

     “Selling Holder” means any Holder that sells or proposes to sell Registrable Shares
pursuant to a registration statement hereunder.

     “Selling Holders’ Counsel” means counsel selected by the holders of a majority of the
Registrable Shares to be sold by Holders pursuant to a particular registration statement.

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     “Shelf Registration” shall have the meaning assigned to it in Section 2.1(a).

     “Takedown Offering” shall have the meaning assigned to it in Section 2.1(b).

     “Takedown Request” shall have the meaning assigned to it in Section 2.1(b).

     Section 2. Demand Registration.

     2.1. (a) Upon the written request of a Holder or Holders to effect a registration under the
Securities Act of Registrable Shares in accordance with this Section 2 (a “Demand
Request”), then, subject to Section 2.2, the Company shall promptly use its best efforts to
effect the registration on an appropriate form (which shall be Form S-3, if at such time the
Company is eligible to use such Form) under the Securities Act of the Registrable Shares which the
Company has been so requested to register (a “Demand Registration”). Such Demand Request
shall specify the approximate number of Registrable Shares requested to be registered and the
intended method of distribution. Promptly after receiving a Demand Request, the Company shall give
written notice of such proposed registration to each other Holder, if any, and shall offer to
include (subject to the terms of this Agreement) in the proposed registration any Registrable
Shares requested to be included in such proposed registration by such other Holders who respond in
writing to the Company’s notice within ten (10) days after delivery of such notice (which response
shall specify the number of Registrable Shares proposed to be included in such registration). With
respect to any Demand Registration, the requesting Holders may request the Company to effect a
registration of the Registrable Shares under a registration statement pursuant to Rule 415 under
the Securities Act (or any successor rule) (a “Shelf Registration”).

        (b) Upon the written request of a Holder or Holders to assist them in effecting an offering
pursuant to a shelf registration statement that has previously been filed and declared effective
pursuant to a Demand Registration (a “Takedown Request”), then, subject to Section 2.2, the
Company shall promptly use its best efforts to cooperate with the Holders and any managing
underwriter(s) to effect such an offering (a “Takedown Offering”). Such Takedown Request
shall specify the approximate number of Registrable Shares to be included in such Takedown Offering
and the intended method of distribution. Promptly after receiving a Takedown Request, the Company
shall promptly give written notice of the proposed Takedown Offering to each other Holder, if any,
that is eligible to sell Shares pursuant to such effective Shelf Registration and shall offer to
include, subject to the terms of this Agreement, any Registrable Shares of such other Holder that
are registered in such effective Shelf Registration to the extent so requested by such other Holder
in writing within three (3) Business Days after delivery of such notice (which request shall
specify the number of Registrable Shares proposed to be included by such Holders in such Takedown
Offering).

     2.2. (a) The Company shall not be obligated to file:

     (i) a Demand Registration (A) within 60 days after the effective date of a previous
Demand Registration, or (B) within 180 days (or, if determined to be necessary pursuant to
the IPO Underwriting Agreement within 214 days) after the effective date of the IPO
Registration Statement;

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     (ii) a Demand Registration unless the Demand Request is for (A) a number of
Registrable Shares equal to at least $50 million as of the date of such Demand Request or
(B) all of the remaining Registrable Shares held by the Holders; and

     (iii) more than two (2) Demand Registrations during any calendar year;

        (b) The Company shall not be obligated to file or cause to be declared effective any
registration statement, or assist the Holders in connection with any Takedown Offering pursuant to
a Shelf Registration that has been previously filed and declared effective pursuant to a Demand
Registration, during any period in which:

          (i) any other registration statement (other than on Form S-4 or Form S-8 promulgated under the
Securities Act or any successor forms thereto) (A) pursuant to which Primary Shares are to be sold
has been filed within the prior 90 days and not withdrawn or (B) has been declared effective and
pursuant to which Primary Shares were sold within the prior 90 days, or

          (ii) the Company has determined in good faith that the disclosure requirements of a
registration statement (including in connection with a proposed Takedown Offering) would require
the disclosure of material non-public information that the Company has a bona fide business purpose
for preserving as confidential, such filing to be delayed until the date that is 90 days after the
receipt of such Demand Request; provided, that the Company may only so delay the filing or
effectiveness of a registration statement, or the assistance with respect to a Takedown Offering,
pursuant to this Section 2.1(b)(ii) on one occasion during any twelve month period; and

        (c) With respect to a Demand Registration, the Company may include in such registration any
Primary Shares or Other Shares; provided, that the board of directors of the Company has
determined in writing that the Company needs to raise common equity capital for certain specific
purposes; and provided, however, that if a managing underwriter in respect of any
proposed underwritten offering to be made pursuant to such Demand Registration (including any
Takedown Offering) advises the Company in good faith in writing that in its opinion the inclusion
of all Registrable Shares, Primary Shares and Other Shares proposed to be included in such proposed
underwritten offering would adversely affect the successful marketing (including pricing) of all
such securities, then the number of Registrable Shares, Primary Shares and Other Shares proposed to
be included in such proposed underwritten offering shall be included in the following order:

     (i) First, the Registrable Shares held by all Selling Holders, pro rata based upon the
number of Registrable Shares owned by each such Selling Holder at the time of such
registration;

     (ii) Second, the Primary Shares; and

     (iii) Third, the Other Shares.

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     2.3. The Holder or Holders submitting a Demand Request or Takedown Request may specify in
such Demand Request or Takedown Request that the proposed registration (or that any Takedown
Offering) cover an underwritten offering. Upon such election, such Holder shall select one or more
nationally recognized investment banks to act as the managing underwriters and shall select any
additional investment banks to be used in connection with such offering, provided that such
selection shall be subject to the consent of the Company, which consent shall not be unreasonably
withheld or delayed. The Company shall, together with the Selling Holders, enter into a customary
underwriting agreement with such underwriters.

     2.4. A Demand Registration may be rescinded by written notice to the Company by the Selling
Holders holding a majority of the Registrable Shares to be included in such registration under the
following circumstances:

     (i) If such Demand Registration is rescinded prior to the date of the initial filing
of the related registration statement, such rescinded Demand Registration shall not count as
a Demand Registration initiated pursuant to this Section 2 for purposes of Section 2.2(a);
and

     (ii) If such Demand Registration is rescinded after the date of the initial filing of
the related registration statement but prior to its effective date, such rescinded Demand
Registration shall not count as a registration statement initiated pursuant to this Section
2 for purposes of Section 2.1(a) if the Selling Holders (x) have reimbursed the Company for
all out-of-pocket expenses incurred by the Company in connection with such rescinded Demand
Registration or (y) (1) reasonably believed that the registration statement contained an
untrue statement of material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein not misleading, (2) notified the
Company of such fact and requested that the Company correct such alleged misstatement or
omission and (3) the Company has refused to correct such alleged misstatement or omission.

     Section 3. Piggyback Registration. If at any time the Company proposes for any
reason to register Primary Shares or Other Shares under the Securities Act (other than on Form S-4
or Form S-8 promulgated under the Securities Act or any successor forms thereto and other than with
respect to the IPO Registration Statement), on any form that would also permit the registration of
Registrable Shares, the Company shall promptly give written notice to each Holder of its intention
to so register the Primary Shares or Other Shares and, upon the written request, given within 15
days after delivery of any such notice by the Company, of any Holder to include in such
registration Registrable Shares held by such Holder (which request shall specify the approximate
number of Registrable Shares proposed to be included in such registration), the Company shall use
its best efforts to cause all such Registrable Shares to be included in such registration on the
same terms and conditions as the securities otherwise being sold in such registration;
provided, however, that if at any time after giving written notice of its intention
to register any securities, and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any reason not to proceed

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with
the proposed registration of the securities to be sold by it, the Company may, at its election,
give written notice of such determination to each Holder of Registrable Shares and, thereupon,
shall be relieved of its obligation to register any Registrable Shares in connection with such
registration; and, provided further, however, that if

          (a) the managing underwriter in connection with any proposed underwritten offering initially
proposed for the registration of Primary Shares advises the Company in good faith that in its
opinion the inclusion of all Registrable Shares or Other Shares proposed to be included in such
registration would interfere with the successful marketing (including pricing) of the Primary
Shares proposed to be registered by the Company, then the number of Primary Shares, Registrable
Shares and Other Shares proposed to be included in such registration shall be included in the
following order:

          (i) First, the Primary Shares;

          (ii) Second, the Registrable Shares held by all Selling Holders, pro rata based upon
the number of Registrable Shares owned by each such Selling Holder at the time of such
registration; and

          (iii) Third, the Other Shares;

          (b) the managing underwriter in connection with any proposed underwritten offering initially
proposed for the registration of Other Shares advises the Company in good faith that in its opinion
the inclusion of all Registrable Shares or Primary Shares proposed to be included in such
registration would interfere with the successful marketing (including pricing) of the Other Shares
proposed to be registered by the Company, then the number of Primary Shares, Registrable Shares and
Other Shares proposed to be included in such registration shall be included in the following order:

     (i) First, the Other Shares;

     (ii) Second, the Primary Shares; and

     (iii) Third, the Registrable Shares held by all Selling Holders, pro rata
based upon the number of Registrable Shares owned by each such Selling Holder at the time of
such registration.

In connection with any underwritten offering under this Section 3, the Company shall not be
required to include Registrable Shares in such underwritten offering unless the Holders of such
Registrable Shares accept the terms of the underwriting of such offering that have been agreed upon
between the Company and the underwriters selected by the Company, including without limitation, the
underwriting agreement and the fees and expenses in connection therewith.

     Section 4. Expenses. The Company shall bear the expense of any registrations
effected pursuant to Sections 2 and 3 of this Agreement including all registration and filing fees
(including all expenses incident to filing with the Financial Industry Regulatory Authority), fees

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and expenses of complying with securities and blue sky laws, printing expenses, and fees and
expenses of the Company’s counsel and accountants, and the reasonable and documented fees and
expenses of the Selling Holders’ Counsel, but excluding any underwriters’ or brokers’ discounts or
commissions, transfer taxes (to the extent that such taxes are required by law to be paid by the
Selling Holders) and the fees of any counsel to any Selling Holder, other than the Selling Holders’
Counsel (it being understood that the fees and expenses of any underwriter and such underwriter’s
counsel shall be the responsibility of such underwriter and the Selling Holders).

     Section 5. Preparation and Filing. If and whenever the Company is under an
obligation pursuant to the provisions of this Agreement to use its best efforts to effect the
registration of any Registrable Shares under the Securities Act or to assist in effecting a
Takedown Offering, the Company shall, as expeditiously as practicable and as applicable:

     5.1. with respect to a registration under Sections 2 and 3 of this Agreement, use its best
efforts to cause a registration statement that registers such Registrable Shares to become and
remain effective for a period of 180 days (or for three years, in the case of a Shelf Registration)
or until all of such Registrable Shares have been disposed of (if earlier), provided,
however, that the Company may discontinue any registration of its securities that is being
effected pursuant to Section 3 hereof at any time prior to the effective date of the registration
statement relating thereto;

     5.2. furnish, at least five business days (or one Business Day in connection with a Takedown
Offering) before filing a registration statement that registers such Registrable Shares, a
prospectus relating thereto or to a Takedown Offering or any amendments or supplements relating to
such a registration statement or prospectus, to each Holder of Registrable Shares, to any Selling
Holders and to the Selling Holders’ Counsel, copies of all such documents proposed to be filed with
the SEC (it being understood that such five-business-day period need not apply to successive drafts
of the same document proposed to be filed so long as such successive drafts are supplied to such
counsel in advance of the proposed filing by a period of time that is customary and reasonable
under the circumstances);

     5.3. prepare and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for at least the periods set forth in this Agreement or until all
of such Registrable Shares have been disposed of (if earlier) and to comply with the provisions of
the Securities Act with respect to the registration of the sale or other disposition of such
Registrable Shares;

     5.4. notify in writing the Selling Holders promptly of the receipt by the Company of any
notification with respect to (i) any comments by the SEC with respect to such registration
statement or prospectus or any amendment or supplement thereto or any request by the SEC for the
amending or supplementing thereof or for additional information with respect thereto, (ii) the
issuance by the SEC of any stop order suspending the effectiveness of such registration statement
or prospectus or any amendment or supplement thereto or the initiation or threatening of any
proceeding for that purpose and (iii) the suspension of the qualification of such

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Registrable Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purposes;

     5.5. use its best efforts to register or qualify such Registrable Shares covered by such
registration statement under such other securities or blue sky laws of such jurisdictions as any
Selling Holder reasonably requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Selling Holder to consummate the disposition in such
jurisdictions of the Registrable Shares owned by such Selling Holder; provided,
however, that the Company will not be required to qualify generally to do business, subject
itself to general taxation or consent to general service of process in any jurisdiction where it
would not otherwise be required so to do but for this Section 5.5;

     5.6. furnish to each Selling Holder on a timely basis, such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such Selling Holder may reasonably
request in order to facilitate the public sale or other disposition of such Registrable Shares;

     5.7. use its best efforts to cause such Registrable Shares to be registered with or approved
by such other governmental agencies or authorities as may be necessary by virtue of the business
and operations of the Company to enable the seller or sellers thereof to consummate the disposition
of such Registrable Shares;

     5.8. during any period in which a prospectus relating to such Registrable Shares is required
to be delivered under the Securities Act, notify on a timely basis each Selling Holder within the
appropriate period mentioned in Section 5.1, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then existing and, at the
request of such Selling Holder, prepare and furnish to such Selling Holder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the offerees of such shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the circumstances then
existing;

     5.9. make available for inspection by any counsel to any Selling Holder and the Selling
Holders’ Counsel or any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such underwriter
(collectively, the “Inspectors”), all pertinent financial and other records, pertinent
corporate documents and properties of the Company (collectively, the “Records”), as shall
be reasonably necessary to enable them to conduct their due diligence investigation, and cause the
Company’s officers, directors and employees to supply all information (together with the Records,
the “Information”) reasonably requested by any such Inspector in connection with such
registration statement. Any of the Information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, shall not be disclosed by

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the Inspectors unless (i) the disclosure of such Information is necessary to avoid or correct
a misstatement or omission of a material fact in the registration statement, (ii) the release of
such Information is ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) such Information has otherwise been made generally available to the public.
Each Selling Holder agrees that it will, upon learning that disclosure of such Information is
sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at
the Company’s expense, to undertake appropriate action to prevent disclosure of the Information
deemed confidential;

     5.10. use its best efforts to obtain from its independent certified public accountants
“comfort” letters in customary form and at customary times and covering matters of the type
customarily covered by comfort letters;

     5.11. use its best efforts to obtain from its counsel an opinion or opinions in customary
form;

     5.12. provide a transfer agent and registrar (which may be the same entity and which may not
be the Company) for such Registrable Shares;

     5.13. issue to any underwriter to which any Selling Holder may sell shares in such offering
certificates evidencing such Registrable Shares;

     5.14. list such Registrable Shares on any national securities exchange on which any shares of
the Common Shares are listed or if the Common Shares are not then listed on a national securities
exchange, use its best efforts to qualify such Registrable Shares for listing on such national
securities exchange as the holders of a majority of such Registrable Shares shall request;

     5.15. otherwise use its best efforts to comply with all applicable rules and regulations of
the SEC and, if required under such rules and regulations, make available

to its security holders, as soon as reasonably practicable, earnings statements (which need not be
audited) covering a period of 12 months beginning within three months after the effective date of
the registration statement, which earnings statements shall satisfy the provisions of Section 11(a)
of the Securities Act;

     5.16. use its best efforts to take all other steps necessary to effect the registration of
such Registrable Shares or the Takedown Offering contemplated hereby; and

     5.17. use its best efforts to make available its senior executive and financial officers to
participate at the reasonable request of any underwriter in marketing presentations to potential
investors.

     Section 6. Indemnification.

     6.1. In connection with any registration of any Registrable Shares under the Securities Act
or any Takedown Offering pursuant to this Agreement, the Company shall indemnify and

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hold harmless each Selling Holder, its officers and directors, each underwriter, broker or any
other person acting on behalf of such seller and each other person, if any, who controls any of the
foregoing persons within the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, (or actions in respect thereof) to which any of the foregoing
persons may become subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in the registration statement
under which such Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein or otherwise filed with the SEC, any amendment or
supplement thereto or any document incident to registration or qualification of any Registrable
Shares, or arise out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse such seller, such officer or director, such underwriter, such
broker or such other person acting on behalf of such seller and each such controlling person for
any legal or other expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon (i) an untrue statement or alleged
untrue statement or omission or alleged omission made in said registration statement, preliminary
prospectus, final prospectus, amendment, supplement or document incident to registration or
qualification of any Registrable Shares in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such seller or underwriter
specifically for use in the preparation thereof or (ii) offers or sales by such Selling Holder “by
means of” (as defined in Securities Act Rule 159A) a “free writing prospectus” (as defined in
Securities Act Rule 405) that was not authorized in writing by the Company.

     6.2. In connection with any registration of Registrable Shares under the Securities Act and
each Takedown Offering pursuant to this Agreement, each Selling Holder shall indemnify and hold
harmless (in the same manner and to the same extent as set forth in the preceding paragraph of this
Section) the Company, each director of the Company, each officer of the Company who shall sign such
registration statement, each underwriter, broker or other person acting on behalf of the Company or
such seller, each person who controls any of the foregoing persons within the meaning of the
Securities Act and each other Selling Holder under such registration statement (i) with respect to
any statement or omission from such registration statement, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the SEC, any amendment or supplement thereto
or any document incident to registration or qualification of any Registrable Shares, if such
statement or omission was made in reliance upon and in conformity with written information
furnished to the Company or such underwriter through an instrument duly executed by such seller
specifically for use in connection with the preparation of such registration statement, preliminary
prospectus, final prospectus, amendment, supplement or document and (ii) arises out of or is based
upon offers or sales by such Selling Holder “by means of” (as defined in Securities Act Rule 159A)
a “free writing prospectus” (as defined in Securities Act Rule 405) that was not authorized in
writing by the Company; provided, however, that the obligation to indemnify will be
several, not joint and several, among such Selling Holders, and the maximum amount of liability in
respect of such indemnification shall be in proportion to and limited to, in the case of each
Selling Holder, an amount equal to the net

11

 

proceeds actually received by such seller from the sale of Registrable Shares effected
pursuant to such registration.

     6.3. The Indemnification required by this Section 6 will be made by periodic payments during
the course of the investigation or defense, as and when bills are received or expenses incurred,
subject to prompt refund in the event any such payments are determined not to have been due and
owing hereunder.

     6.4. Promptly after receipt by an indemnified party of notice of the commencement of any
action involving a claim referred to in the preceding paragraphs of this Section 6, such
indemnified party will, if a claim in respect thereof is made against an indemnifying party, give
written notice to the latter of the commencement of such action (it being understood that no delay
in delivering or failure to deliver such notice shall relieve the indemnifying persons from any
liability or obligation hereunder unless (and then solely to the extent that) the indemnifying
person is prejudiced by such delay and/or failure). In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified to the extent that it
may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be responsible for any legal or other expenses subsequently incurred
by the latter in connection with the defense thereof; provided, however, that if
any indemnified party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are additional to or conflict with
those available to the indemnifying party, or that such claim or litigation involves or could have
an effect upon matters beyond the scope of the indemnity agreement provided in this Section 6, the
indemnifying party shall not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified party and any person
controlling such indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters covered by the
indemnity agreement provided in this Section 6.

     6.5. The indemnification provided for under this Agreement will remain in full force and
effect regardless of any investigation made by or on behalf of the indemnified party or any
officer, director or controlling person of such indemnified party and will survive the transfer of
securities.

     6.6. If the indemnification provided for in this Section 6 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage,
liability or action referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions which resulted in
such loss, claim, damage or liability as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement of a material

12

 

fact or the omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such statement or omission.
The Company and each Selling Holder agrees that it would not be just and equitable if contributions
pursuant to this paragraph were determined by pro rata allocation or by any other method of
allocation that did not take into account the equitable considerations referred to herein. The
amount paid or payable to an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to above shall be deemed to include, subject to the limitations
set forth in Sections 6.2 and 6.1, any legal or other expenses reasonably incurred in connection
with investigating or defending the same. Notwithstanding the foregoing, in no event shall the
amount contributed by a Selling Holder exceed the aggregate net offering proceeds received by such
seller from the sale of its Registrable Shares.

     Section 7. Underwriting Agreement. To the extent that the Company and any Selling
Holder shall enter into an underwriting or similar agreement, the Selling Holder or Holders party
thereto may, at their option, require that any or all of the representations and warranties by, and
the agreements on the part of, the Company to and for the benefit of such underwriters be made to
and for the benefit of such Selling Holders and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting or similar agreement shall also be
conditions precedent to the obligations of such Selling Holders. No underwriting or similar
agreement in connection with such offering shall require any such Selling Holder to make any
representations or warranties to or agreement with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such holder’s Registrable Shares
and such holder’s intended method of distribution or any other representations required by
applicable law and agreements regarding indemnification and contribution to the effect provided in
Section 6 hereof. Notwithstanding the provisions of Section 5 and 6, to the extent that the
Company and any Selling Holder or Holders shall enter into an underwriting or similar agreement,
which agreement contains provisions covering one or more issues addressed in such Sections 5 or 6,
the provisions contained in Sections 5 and 6 which address such issue or issues shall be superseded
with respect to such registration by such other underwriting or similar agreement;

     Section 8. Agreements of the Selling Holders. 

     8.1. Each Selling Holder shall furnish to the Company such written information regarding such
Selling Holder and the distribution proposed by such Selling Holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.

     8.2. No Selling Holder shall, nor shall any Selling Holder permit any officer, director,
underwriter, broker or any other person acting on behalf of such Selling Holder to, use any free
writing prospectus (as defined in Rule 405 under the Securities Act) in connection with any
registration statement covering Registrable Shares, without the prior written consent of the
Company.

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     Section 9. Exchange Act Compliance. The Company shall comply with all of the
reporting requirements of the Exchange Act and with all other public information reporting
requirements of the SEC that are conditions to the availability of Rule 144 for the sale of the
Common Shares. The Company shall cooperate with each Holder supplying such information as may be
necessary for such Holder to complete and file any information reporting forms presently or
hereafter required by the SEC as a condition to the availability of Rule 144.

     Section 10. No Conflicting Registration Rights. The Company represents and warrants
to each Holder that the registration rights granted hereby do not conflict with any other
registration rights granted by the Company. The Company shall not, after the date hereof, grant
any registration rights that conflict with the registration rights granted hereby, or agree to any
registration rights that restrict the ability of each Holder to piggy-back on other registration
statements (except pursuant to standard cut-back provisions).

     Section 11. Transfer of Registration Rights. The rights of each Holder under this
agreement may be assigned to any direct or indirect transferee of a Holder who (a) agrees in
writing to be subject to and be bound by all terms and conditions of this Agreement and (b)
provides such contact information as is necessary in order to receive all notices, requests,
consents and other communications required or permitted hereunder.

     Section 12. Enforcement. 

     12.1. Remedies at Law or in Equity. Each Holder, on the one hand, or the Company on
the other hand, may proceed to protect and enforce its rights by suit in equity or action at law,
whether for the specific performance of any term contained in this Agreement or for an injunction
against the breach of any such term or in aid of the exercise of any term contained in this
Agreement, or to enforce any other legal or equitable right of such Holder, on the one hand, or the
Company on the other hand, or to take any one or more of such actions.

     In the event a Holder brings such an action against the Company or the Company brings an
action against a Holder arising under this Agreement, the prevailing party in such dispute shall be
entitled to recover from the losing party all fees, costs and expenses of enforcing any right of
such prevailing party under or with respect to this Agreement, including without limitation such
reasonable fees and expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.

     12.2. Cumulative Remedies. None of the rights, powers or remedies conferred upon a
Holder on the one hand, or the Company on the other hand, shall be mutually exclusive, and each
such right, power or remedy shall be cumulative and in addition to every other right, power or
remedy, now or hereafter available at law, in equity, by statute or otherwise.

     12.3. No Implied Waiver. Except as expressly provided in this Agreement, no course
of dealing between the Company and a Holder and no delay in exercising any such right, power or
remedy conferred hereby now or hereafter existing at law in equity, by statute or otherwise, shall
operate as a waiver of, or otherwise prejudice, any such right, power or remedy.

14

 

     Section 13. Miscellaneous. 

     13.1. Waivers and Amendments. Upon the approval of the Company and the written
consent of the holders of a majority of the Registrable Securities the obligations of the Company
and the rights of each Holder under this Agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively and either for a specified period of
time or indefinitely).

     Upon the effectuation of each such waiver, the Company shall promptly give written notice
thereof to each Holder who has not previously consented thereto in writing.

     Neither this Agreement, nor any provision hereof, may be changed, waived, discharged or
terminated orally or by course of dealing, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is sought, except to the
extent provided in this Section 13.1.

     13.2. Notices. All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be hand delivered or mailed postage prepaid by
registered or certified mail,

          (a) If to LIHI:

c/o Liberty Mutual Insurance Company

175 Berkeley Street

Boston, Massachusetts 02117-0140

Attention: Chief Financial Officer

With a copy to:

Liberty Mutual Insurance Company

175 Berkeley Street

Boston, Massachusetts 02117-0140

Attention: General Counsel

or (b) If to a Holder other than LIHI, to such address as is provided by the Holder
to the Company,

or (c) If to the Company:

Liberty Mutual Agency Corporation

175 Berkeley Street

Boston, Massachusetts 02117-0140

Attention: Chief Financial Officer

With a copy to:

15

 

Liberty Mutual Agency Corporation

175 Berkeley Street

Boston, Massachusetts 02117-0140

Attention: General Counsel

or at such other address as the Company or a Holder each may specify by written notice to the
other, and each such notice, request, consent and other communication shall for all purposes of the
Agreement be treated as being effective or having been given (i) when delivered if delivered
personally, (ii) on the next business day after dispatch, if sent by a nationally recognized
overnight courier guaranteeing next business day delivery, or, (iii) if sent by mail, at the
earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of United States mail, addressed and postage prepaid as aforesaid.

     13.3. Termination of Agreement. This Agreement shall remain in effect until the
later of (i) the date upon which no Registrable Shares shall remain outstanding and (ii) the date
upon which all Registrable Shares eligible to be sold pursuant to a registration statement shall
have been sold; provided, however, that Sections 4 and 6 shall survive the
termination of this Agreement.

     13.4. Severability. Should any one or more of the provisions of this Agreement or of
any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable,
all other provisions of this Agreement and of each other agreement entered into pursuant to this
Agreement shall be given effect separately from the provision or provisions determined to be
illegal or unenforceable and shall not be affected thereby.

     13.5. Parties in Interest. All the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective parties hereto, the
successors and assigns of each Holder and the Company, whether so expressed or not. This Agreement
shall not run to the benefit of or be enforceable by any other Person.

     13.6. Headings. The headings of the Sections and paragraphs of this Agreement have
been inserted for convenience of reference only and do not constitute a part of this Agreement.

     13.7. Choice of Law. It is the intention of the parties that the internal laws, and
not the laws of conflicts, of New York should govern the enforceability and validity of this
Agreement, the construction of its terms and the interpretation of the rights and duties of the
parties.

     13.8. Counterparts. This Agreement may be executed in any number of counterparts and
by different parties hereto in separate counterparts, with the same effect as if all parties had
signed the same document. All such counterparts shall be deemed an original, shall be construed
together and shall constitute one and the same instrument.

     13.9. Entire Agreement. This Agreement contains the entire agreement among the
parties hereto with respect to the subject matter hereof and such Agreement supersedes and replaces
all prior agreements, written or oral, among the parties hereto with respect to the subject matter
hereof.

*   *   *   *   *

16

 

* * * * *

17

 

          IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be
duly executed as of the day and year first above written.

	 	 	 	 	 	 	 

	 	 	LIBERTY MUTUAL AGENCY CORPORATION
	 
	 	 	 	 	 	 
	 

	 	by	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	LIBERTY INSURANCE HOLDINGS, INC.
	 
	 	 	 	 	 	 
	 

	 	by	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 	 	 	 	 	 	 

17exv10w4

Exhibit 10.4

AGGREGATE STOP-LOSS

REINSURANCE AGREEMENT

by and between

LIBERTY MUTUAL INSURANCE COMPANY

and

PEERLESS INSURANCE COMPANY

as of

June 30, 2010

 

 

          This AGGREGATE STOP-LOSS REINSURANCE AGREEMENT (this “Agreement”) is made and entered
into as of June 30, 2010, by and between Liberty Mutual Insurance Company, a Massachusetts stock
insurance company (“LMIC”), and Peerless Insurance Company, a New Hampshire stock insurance
company (“PIC”), a wholly-owned subsidiary of Liberty Mutual Agency Corporation, a Delaware
corporation (“Agency Markets”). PIC together with LMIC, each a “Party” and,
collectively, the “Parties”). This Agreement shall only become effective upon the
Effective Date (as defined below).

          WHEREAS, in connection with the initial public offering of Agency Markets’ Class A Common
Stock, LMIC has agreed to indemnify PIC for certain specified losses, liabilities and expenses that
may be incurred by Agency Markets’ Insurer Subsidiaries (as defined herein), including PIC, arising
out of or relating to the Run-Off Liabilities (as defined herein) to the extent and upon the terms
and conditions set forth herein.

          NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the
Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

          Section 1.1 Definitions. As used herein, the following terms shall have the following respective
meanings:

          “Affiliate” means a Person that, from time to time, directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common control with, the
Person specified; provided that the term Affiliate (i) when used with regard to PIC excludes LMIC
and its Affiliates (other than the Insurer Subsidiaries of Agency Markets), and (ii) when used with
regard to LMIC excludes Agency Markets and its Insurer Subsidiaries. The term “control” (including
the terms “controlling,” “controlled by,” or “under common control with”) means the possession,
direct or indirect, of the power to direct or cause the direction of the management and/or policies
of a Person, whether through the ownership of voting securities, by contract, or otherwise.

          “Agency Markets” shall have the meaning set forth in the preamble to this Agreement.

          “Aggregate Indemnification Amount” shall mean the sum of the Indemnification Amounts
paid or required to be paid pursuant to Section 2.1 hereof by LMIC to PIC as of a particular date,
minus the Aggregate Reimbursement Amount as of that particular date.

1

 

          “Aggregate Reimbusement Amount” shall mean the sum of the Reimbursement Amounts paid
or required to be paid pursuant to Section 2.2 hereof by PIC to LMIC as of a particular date.

          “Agreement” shall have the meaning set forth in the preamble hereof.

          “Allocated Loss Adjustment Expenses” shall mean any and all expenses paid or payable
by Insurer Subsidiaries of Agency Markets (including Reserves) in the investigation, adjustment,
settlement or defense of specific claims arising out of or relating to the Run-Off Liabilities,
including independent adjuster fees, court costs, and interest on any judgment, but excluding
office expenses and salaries of officers or employees of Agency Markets, LMIC or any of their
Affiliates, or any overhead expenses of Agency Markets, LMIC or any of their Affiliates, other than
staff attorney fees which are allocable to a specific claim. Allocated Loss Adjustment Expenses
shall also include expenses, including staff attorney fees, associated with any claim specific
declaratory judgment filed by Insurer Subsidiaries of Agency Markets in connection with the Run-Off
Liabilities.

          “Applicable Law” shall mean any applicable order, law, statute, regulation, rule,
ordinance, writ, injunction, directive, judgment, decree, principle of common law, constitution or
treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity applicable to
the Parties, or any of their respective businesses, properties or assets.

          “Appointed Actuary” shall mean the actuary duly appointed by the Board of Directors of
PIC to provide actuarial opinions to state insurance regulatory authorities.

          “Ceded Reinsurance” shall mean all business ceded pursuant to facultative reinsurance
contracts or treaty reinsurance contracts pertaining to Run-Off Liabilities and ceded by Insurer
Subsidiaries of Agency Markets to reinsurers other than other Insurer Subsidiaries of Agency
Markets.

          “Confidential Information” shall have the meaning set forth in Section 8.1(a) hereof.

          “Development Amount” shall mean for any period covered under a Periodic Report, the
Positive Development Amount or the Negative Development Amount, as the case may be, for such
period.

          “Dispute” shall have the meaning set forth in Section 9.1(a) hereof.

          “Dispute Notice” shall have the meaning set forth in Section 9.1(b) hereof.

2

 

          “Disputed Run-Off Liabilities” shall have the meaning set forth in Section 5.3(a)
hereof.

          “Effective Date” shall mean June 30, 2010.

          “Error Refund Amount” shall have the meaning set forth in Section 2.2(c) hereof.

          “Extra-Contractual Damages” shall mean any actual liabilities not covered under any
provision of a Subject Contract, arising from or relating to any alleged or actual act, error or
omission, or from any alleged or actual negligence, tortious conduct, reckless conduct, violations
of statutes or regulations governing the conduct of insurance companies and/or claims adjusters, or
bad faith but only in connection with the handling of any claim under a Subject Contract, such
liabilities arising because of the following: failure by an Insurer Subsidiary of Agency Markets
to properly investigate a claim under a Subject Contract, settle within the policy limit of a
Subject Contract, or by reason of alleged or actual negligence or bad faith of an Insurer
Subsidiary of Agency Markets in rejecting an offer of settlement, or in defending litigation,
including appeals, arbitration, or any alternative dispute resolution or settlement discussions
involving any claim, but only to the extent indemnification under this Agreement for any such
Extra-Contractual Damages is permitted by Applicable Law.

          “Governmental Entity” shall mean any federal, state, county, local, foreign or other
governmental or public agency, instrumentality, commission, authority, self-regulatory
organization, board or body, including any state insurance regulatory authority.

          “IBNR” shall mean provisions for reserves under Subject Contracts for losses that have
occurred but have not been reported to the Insurer Subsidiaries of Agency Markets.

          “Indemnification Amount” shall have the meaning set forth in Section 2.1(b) hereof.

          “Insurer Subsidiaries” shall mean all corporations, partnerships, joint ventures, and
other entities engaged in the business of underwriting insurance (i) in which a Person owns,
directly or indirectly, fifty percent (50%) or more of the outstanding voting stock, voting power,
partnership interests or similar ownership interests, (ii) of which such Person otherwise directly
or indirectly controls or directs the policies or operations or (iii) which would be considered
subsidiaries of the Person within the meaning of Regulation S-K or Regulation S-X;
provided, however, the term Insurance Subsidiary when used with regard to LMIC
shall not include any of Agency Markets’ Insurer Subsidiaries.

          “LMIC” shall have the meaning set forth in the preamble to this Agreement.

3

 

          “Maximum Payment Amount” shall have the meaning set forth in Section 2.1(c) hereof.

          “Negative Development Amount” shall mean with respect to any Periodic Report in which
the Net Incurrals as of the date reflected in such Periodic Report are greater than the Net
Incurrals as of the date reflected in the preceding Periodic Report, or in the case of the first
Periodic Report, as of June 30, 2010, an amount equal to the difference between (a) the Net
Incurrals as of the date reflected in such Periodic Report and (b) the Net Incurrals as of the date
reflected in the preceding Periodic Report, or in the case of the first Periodic Report, as of June
30, 2010.

          “Net Incurrals” shall have the meaning set forth in Section 3.3 hereof.

          “Overdue Rate” shall mean the U.S. Prime Rate published in the Wall Street Journal on
that day, or if no U.S. Prime Rate is published in the Wall Street Journal on that day, the most
recent U.S. Prime Rate published in the Wall Street Journal, plus 2%.

          “Party” or “Parties” shall have the meaning set forth in the preamble to this
Agreement.

          “Periodic Report” shall have the meaning set forth in Section 4.1 hereof.

          “Person” means any individual, corporation, partnership, joint venture, limited
liability company, association or other business entity and any trust, unincorporated organization
or government or any agency or political subdivision thereof.

          “Positive Development Amount” shall mean with respect to any Periodic Report in which
the Net Incurrals as of the date reflected in such Periodic Report are less than the Net Incurrals
as of the date reflected in the preceding Periodic Report, or in the case of the first Periodic
Report, as of June 30, 2010, an amount equal to the difference between (a) the Net Incurrals as of
the date reflected in such Periodic Report and (b) the Net Incurrals as of the date reflected in
the preceding Periodic Report, or in the case of the first Periodic Report, as of June 30, 2010.

          “Reimbursement Amount” shall have the meaning set forth in Section 2.2(b) hereof.

          “Remittance Dispute Notice” shall have the meaning set forth in Section 5.3 hereof.

4

 

          “Reporting Error” shall have the meaning set forth in Section 2.2(a) hereof.

          “Representatives” shall mean, with respect to any Person, such Person’s officers,
directors, employees, managing directors, agents, financial advisors, accountants, actuaries and
other representatives.

          “Reserves” shall mean the undiscounted aggregate claim reserves (including IBNR
reserves, other bulk reserves and reserves for uncollectible reinsurance), including Allocated
Loss Adjustment Expenses, and Unallocated Loss Adjustment Expenses, of the Insurer Subsidiaries of
Agency Markets for the Run-Off Liabilities, in each case determined in accordance with the
Reserving Methodologies.

          “Reserving Methodologies” shall mean the methodologies, procedures, judgments and
assumptions used by the Insurer Subsidiaries of Agency Markets in calculating and establishing
Reserves with respect to the Run-Off Liabilities prior to and as of the Effective Date, with such
changes as may be agreed to in writing by the Parties.

          “Retention Amount” shall mean an amount equal to the Reserves as of June 30, 2010.

          “Rules” shall have the meaning set forth in Section 9.1(d) hereof.

          “Run-Off Incurrals” shall have the meaning set forth in Section 3.1 hereof.

          “Run-Off Liabilities” shall mean all liabilities, costs, expenses, fees (including
legal, expert, witness or otherwise), losses, damages (including Extra-Contractual Damages),
judgments, obligations, settlements, Reserves for reported claims of the Insurer Subsidiaries of
Agency Markets (hereinafter collectively referred to, for purposes of this definition of Run-Off
Liabilities only, as “Liabilities”) but only to the extent related to the insurance or
reinsurance arising under or out of the Subject Contracts; provided, however, that
in no event shall Run-Off Liabilities include: (i) any Liabilities acquired by Agency Markets or
its Insurer Subsidiaries by virtue of any acquisition, merger, consolidation, or other transaction
(whether effected by portfolio transfer, reinsurance or otherwise) which is consummated on or after
the Effective Date (excluding acquisitions of business otherwise covered under this Agreement from
Persons that are Affiliates prior to the Effective Date); (ii) any Liabilities to the extent
increased by amendments or other modifications to intercompany reinsurance agreements affecting the
Insurer Subsidiaries of Agency Markets on or after the Effective Date, which amendment or
modification functions, directly or indirectly, in any manner, to adversely affect LMIC’s
obligations hereunder; or (iii) the salaries and expenses of employees as well as office and
overhead expenses of any nature of

5

 

Agency Markets or its Affiliates or Insurer Subsidiaries that
are not properly attributable to Run-Off Liabilities.

          “Subject Contracts” shall mean solely those insurance policies and reinsurance
contracts issued, ceded or assumed by an Insurer Subsidiary of Agency Markets as set forth in
Schedule I hereto.

          “Third-Party Indemnification Agreements” shall mean indemnification agreements
provided by Persons not a party to this Agreement which, directly or indirectly, indemnify Agency
Markets, its Affiliates or Insurer Subsidiaries for Run-Off Liabilities.

          “Unallocated Loss Adjustment Expenses” shall mean office expenses and salaries of
officers or employees of Agency Markets, LMIC or any of their Affiliates, and any other general
operating or overhead expenses of Agency Markets, LMIC or any of their Affiliates, not specifically
allocated to a particular claim.

ARTICLE II

REINSURANCE COVER

          Section 2.1 LMIC’s Reinsurance Obligation. (a) Subject to the limitations and other terms and
conditions set forth in this Agreement, PIC agrees to cede, and LMIC agrees to assume, on an
indemnity basis, for the benefit of PIC and the Insurer Subsidiaries of Agency Markets that are
direct or indirect participants in the Amended and Restated Reinsurance Pooling Agreement
originally effective January 1, 1996, and of which PIC is the lead company, Net Incurrals in excess
of the Retention Amount; provided, however, notwithstanding any other provision of
this Agreement to the contrary, LMIC shall only have an indemnification obligation under this
Agreement for a particular period covered under a Periodic Report if (x) the Net Incurrals as of
the end of such period exceed the Retention Amount and (y) there is a Negative Development Amount
for such period; provided, further, that the foregoing amounts shall be subject to
reduction as set forth in subsection (b) of this Section 2.1 and to the Maximum Payment Amount set
forth in subsection (c) of this Section 2.1. In consideration of LMIC’s obligations hereunder, PIC
agrees to pay LMIC the amount of one hundred twenty-five million dollars ($125,000,000.00) (USD),
which payment shall be made no later than one hundred twenty days (120) days after the Effective
Date, with interest from the Effective Date until such amount is paid in full at a rate equal to
2.25% plus the three month British Bankers Association LIBOR rate, as published by Reuters at
approximately 11:00 AM London time, two London banking days prior to the Effective Date.

               (b) In the event LMIC is required to make an indemnification payment to PIC pursuant to
Section 2.1(a) under a Periodic Report, the amount of such payment (the “Indemnification
Amount”) shall equal the amount of the Negative Development

6

 

Amount for the period covered by
the Periodic Report, but only to the extent that the Net Incurrals as of such period exceed the
Retention Amount. Remittances by LMIC of Indemnification Amounts shall be made in accordance with
Article V.

               (c) NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL
THE AGGREGATE INDEMNIFICATION AMOUNT PAYABLE UNDER THIS AGREEMENT BY LMIC EXCEED AN AMOUNT EQUAL
TO FIVE HUNDRED MILLION DOLLARS ($500,000,000) (THE “MAXIMUM PAYMENT AMOUNT”).

          Section 2.2 Reimbursement by PIC. (a) Subject to the limitations and other terms and conditions
set forth in this Agreement, PIC hereby agrees to reimburse LMIC for Indemnification Amounts
previously paid by LMIC in the event of (i) a Positive Development Amount and/or (ii) an error in
the determination or application of the Reserving Methodologies or in the preparation of the most
recent Periodic Report (a “Reporting Error”); provided, however, that the
foregoing amounts shall be subject to the limitations set forth in Section 2.2(d) of this
Agreement.

               (b) In the event that PIC is required to make a reimbursement payment to LMIC for any
Positive Development Amount pursuant to Section 2.2(a)(i), the amount of such payment (the
“Reimbursement Amount”) shall equal the Positive Development Amount for the period covered
by the applicable Periodic Report. Remittances of Reimbursement Amounts by PIC shall be made in
accordance with Article V.

               (c) In the event that PIC is required to make a reimbursement payment to LMIC under Section
2.2 (a)(ii) for a Reporting Error, the amount of such payment (“Error Refund Amount”) shall
be equal to the amount paid by LMIC to PIC pursuant to Section 2.1 attributable to such Reporting
Error. Remittances of Error Refund Amounts shall be made in accordance with Article V.

               (d) NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL PIC’S AGGREGATE REIMBURSEMENT OBLIGATIONS UNDER THIS AGREEMENT AS OF A PARTICULAR DATE BE
SUCH THAT THE AGGREGATE INDEMNIFICATION AMOUNT WILL BE LESS THAN ZERO AS OF SUCH DATE.

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ARTICLE III

RUN-OFF INCURRALS; NET INCURRALS

          Section 3.1 Establishment of Run-Off Incurrals. Paid losses and expenses for all Run-Off
Liabilities incurred in the period reflected in a Periodic Report plus the change in Reserve
balances (either positive or negative, as the case may be) between the date of such Periodic Report
and the date of the preceding Periodic Report, or in the case of the first Periodic Report, as of
June 30, 2010, for all Run-Off Liabilities, commencing on July 1, 2010, shall be known as the
“Run-Off Incurrals” for such period; provided, however, in
no event shall “Run-Off Incurrals” include any liabilities or estimated liabilities under any
insurance or reinsurance contract of any kind whatsoever not set forth on Schedule I or Reserves
excluded by Section 3.2. As soon as practicable following the execution of this Agreement, PIC
will provide in writing to LMIC the aggregate amount of Reserves.

          Section 3.2 Exclusions from Run-Off Incurrals. Notwithstanding any other provision in this Agreement
to the contrary, Run-Off Incurrals shall not include Reserves for any Run-Off Liabilities to the
extent resulting from an amendment or modification to a Subject Contract made on or after the
Effective Date.

          Section 3.3 Calculation of Net Incurrals. “Net Incurrals” shall mean the sum of the Retention
Amount plus all Run-Off Incurrals (either postitive or negative, as the case may be) reduced by:

               (i) reasonably anticipated salvage, subrogation and other recoverables and recoveries
(other than in respect of Ceded Reinsurance), including under Third-Party Indemnification
Agreements; and

               (ii) all amounts recovered or recoverable under Ceded Reinsurance arrangements.

For the avoidance of doubt, PIC’s determinations as to the collectability of recoverables
under Ceded Reinsurance arrangements, and the reasonably anticipated salvage, subrogation
and other recoveries, shall be made in accordance with the Reserving Methodologies.

ARTICLE IV

REPORTS

          Section 4.1 Periodic Reports. From time to time, PIC may deliver to the chief financial officer of
LMIC a report (a “Periodic Report”), in a form reasonably acceptable to LMIC, summarizing
the Run-Off Incurrals, Net Incurrals, any Development Amount, any Indemnification Amount, any
Reimbursement Amount, any Error Refund Amount and any amounts to be offset pursuant to Section 5.5
for the covered period as well as the calculations

8

 

necessary to arrive at the amount due (a) from
LMIC to PIC or (b) from PIC to LMIC, in each case according to this Agreement. Periodic Reports
shall be provided no less frequently than on a quarterly basis, unless there is no activity during
the quarter.

          Section 4.2 Additions to Periodic Reports. In addition to the Periodic Reports, PIC shall provide such additional information and
documentation as LMIC may reasonably request; provided, however, in no event shall
PIC be required to disclose documents or information privileged under the attorney client or work
product privileges or a substantially similar privilege under Applicable Law, if disclosure would
waive such privileges.

          Section 4.3 Certification of Periodic Reports. The chief financial officer of PIC and the Appointed
Actuary shall each certify to LMIC that (i) the Run-Off Incurrals and the Net Incurrals specified
in each Periodic Report have been established in a manner consistent with the Reserving
Methodologies and (ii) the Periodic Report has been prepared in all respects in accordance with the
terms and conditions of this Agreement.

          Section 4.4 Consultations Regarding Periodic Reports. Prior to making any payments under this
Agreement, PIC shall, at the request of LMIC, make the chief financial officer, general counsel,
Appointed Actuary or any other relevant employees of Agency Markets, its Affiliates and the
relevant Insurer Subsidiaries reasonably available to LMIC and its Representatives for consultation
with respect to each Periodic Report; provided, however, in no event shall PIC or
its Affiliates disclose documents or information privileged under the attorney client or work
product privileges or a substantially similar privilege under Applicable Law, if disclosure would
waive such privileges.

          Section 4.5 Confidentiality of Reports. Except as otherwise required by Applicable Law and except as
otherwise contemplated or permitted by this Agreement, all confidential information provided
pursuant to this Article IV shall be treated by the Parties as Confidential Information in
accordance with Article VIII hereof.

ARTICLE V

REMITTANCES

          Section 5.1 Payments. Upon receipt of a Periodic Report, LMIC shall use its reasonable best efforts to
pay to PIC the Indemnification Amount due, if any, shown on such report prior to the close of the
calendar quarter to which the Periodic Report applies; provided that in no event shall such payment
be paid later than ten (10) business days from the date of LMIC’s receipt of the Periodic Report.
With respect to the current balance of any Reimbursement Amount or Error Refund Amount due from PIC
to LMIC, PIC shall use its reasonable best efforts to pay such amount to LMIC before the close of
the calendar quarter to which the Periodic Report, showing such Reimbursement Amount and/or Error
Refund Amount applies; provided that in no event shall such payment be paid later than ten (10)
business days from the date of LMIC’s receipt of the Periodic Report. Any amounts owed by a Party
according to a Periodic Report shall be net of any amounts owed to such Party by the other Party
according to such Periodic Report.

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          Section 5.2 Interest Payments. If and to the extent that LMIC or PIC, as the case may be, does not
make any payment when due hereunder, the non-paying Party shall pay to the other Party interest on
any such unpaid amount, from the date on which such amount is due until such amount is paid in
full, at a rate equal to the Overdue Rate, in addition to all other remedies, at law or in equity,
available to PIC or LMIC, as the case may be, by reason of such non-payment.

          Section 5.3 Remittance Disputes. (a) If within sixty (60) days of its receipt of a Periodic Report
LMIC notifies PIC in writing (a “Remittance Dispute Notice”) that it disputes the amount of
any Run-Off Incurrals, Net Incurrals, Development Amount, Reimbursement Amount, Indemnification
Amount or Error Refund Amount shown on such Periodic Report, the Parties will, to the extent
practicable, confer in good faith to resolve such dispute in accordance with Article IX.
Notwithstanding the issuance of a Remittance Dispute Notice by LMIC, all payments are due as
provided in Section 5.1. The Dispute Notice shall identify the amounts so disputed (the
“Disputed Run-Off Liabilities”). LMIC shall submit the Remittance Dispute Notice, if any,
within sixty (60) days of its receipt of the Periodic Report which gives rise to the Dispute;
provided, however, the failure by LMIC to provide a Remittance Dispute Notice in a
timely manner shall not preclude LMIC’s rights under this Section 5.3 to dispute any amount shown
on any Periodic Report at any time prior to termination of this Agreement pursuant to Article VII.
LMIC understands and acknowledges that in the event of any Dispute or arbitration hereunder, LMIC
will not be given access to or require any documents belonging to PIC, Agency Markets, its
Affiliates or Insurer Subsidiaries which are subject to the attorney client or work product
privileges or a substantially similar privilege under Applicable Law, if disclosure would waive
such privileges.

               (b) In the event that any Disputed Run-Off Liabilities are submitted to an arbitral tribunal
established pursuant to the provisions of Article IX hereof, such arbitral tribunal shall
determine whether PIC calculated the disputed amounts in accordance with this Agreement. If the
arbitral tribunal agrees, in whole or in part, with an objection of LMIC under this Section 5.3,
the amounts determined by the arbitral tribunal to have not been calculated by PIC in accordance
with this Agreement shall be recalculated and PIC shall refund to LMIC any overpayment made by
LMIC as a result of such miscalculations, together with interest thereon from the date on which
they were previously paid in full by LMIC until they are repaid in full to LMIC at a rate equal to
the Overdue Rate. If the arbitral tribunal disagrees, in whole or in part, with an objection of
LMIC under this Section 5.3, PIC shall retain the amounts previously paid to the extent determined
by the arbitral tribunal to have been calculated by PIC in accordance with this Agreement and, if
LMIC shall be required to pay any additional amounts determined by the arbitral tribunal to have
been calculated by PIC in accordance with this Agreement, LMIC shall pay such amounts, together
with interest on such amounts from the date on which such amounts were due hereunder (being sixty
(60) days after delivery of the Periodic Report(s) containing the disputed amounts) until such
amounts are paid to PIC in full at a rate equal to the Overdue Rate.

          Section 5.4 Form of Payments. Any amounts owed under this Agreement may be paid in cash or cash equivalents.

          Section 5.5 Offset. Any debts or credits between LMIC and PIC arising under this Agreement are deemed
mutual debts or credits, as the case may be, and may be netted or set off, as the case may be,
against any other amounts owed by LMIC or PIC arising under this

10

 

Agreement, as applicable, and, if
so netted or set off, only the balance shall be allowed or paid hereunder. In addition, PIC may
net or set off, as the case may be, any debts or credits arising under this Agreement against any
undisputed amounts owed between LMIC and PIC under any other agreement to which they are parties,
and if so netted or set off, only the balance shall be allowed or paid hereunder.

ARTICLE VI

ENFORCEMENT OF RIGHTS

          Section 6.1 Enforcement of Rights. PIC shall and shall cause each of Agency Markets’ Insurer
Subsidiaries to enforce, consistent with its ordinary course of business practices, its rights to
collect (a) any and all amounts recoverable under Ceded Reinsurance arrangements in respect of any
of the Run-Off Liabilities; (b) any and all deductibles, salvage, subrogation and other recoveries
in respect of any of the Run-Off Liabilities; (c) any and all profit-sharing, experience rating,
retro-sharing or other similar premium adjustments recoverable in respect of any of the Run-Off
Liabilities; and (d) any payments due to PIC, its Affiliates and/or Agency Markets’ Insurer
Subsidiaries under the Third-Party Indemnification Agreements, hold harmless or similar agreements
in respect of the Run-Off Liabilities. Unless PIC or its Affiliates or Agency Markets’ Insurer
Subsidiaries, as applicable, agrees to waive such rights in the settlement of a disputed claim, or
PIC and LMIC agree to the contrary, PIC shall, and shall cause its Affiliates and Agency Markets’
Insurer Subsidiaries to, enforce such rights and shall prosecute all claims arising out of such
rights. Should PIC or its Affiliates or Agency Markets’ Insurer Subsidiaries neglect to enforce
these rights, LMIC is hereby empowered and authorized to institute appropriate action in the name
of PIC or its Affiliates or Agency Markets’ Insurer Subsidiaries, as applicable.

ARTICLE VII

COMMENCEMENT AND TERMINATION

          Section 7.1 Commencement and Termination. (a) This Agreement will take effect as of the Effective
Date.

               (b) This Agreement will remain in full force and effect for a period ending on the earliest
of (i) the natural expiry of all of Agency Markets’ Insurer Subsidiaries’ liabilities with respect
to Run-Off Liabilities; provided that the Parties agree there are no amounts in respect of Reimbursement Amounts or Error Refund Amounts that are likely to become
due; and (ii) such other date as may be mutually agreed to in writing by LMIC and PIC.
Notwithstanding the foregoing, this Agreement may not be canceled without the approval of the
insurance commissioner of PIC’s state of domicile.

               (c) In the event of the termination of this Agreement pursuant to the preceding paragraph,
this Agreement shall have no further effect, and there shall be no liability hereunder on the part
of any Party, except that no termination of this Agreement in accordance

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with the preceding
paragraph shall affect the Parties’ obligations to resolve, pursuant to Section 5.3, any dispute
commenced pursuant to a Remittance Dispute Notice under Section 5.3 delivered prior to the
termination of this Agreement, or any arbitration procedure pursuant to Article IX commenced prior
to the termination of this Agreement. Additionally, no termination of this Agreement in
accordance with the preceding paragraph shall affect the Parties’ obligations pursuant to the
confidentiality provisions of Section 8.1.

ARTICLE VIII

CONFIDENTIALITY

          Section 8.1 Confidentiality. (a) Each Party agrees at all times during the term of this Agreement and
thereafter to keep strictly confidential all Confidential Information (as hereinafter defined)
belonging to the other Party. “Confidential Information” shall mean any information made
available to one Party by the other under this Agreement and materials, in oral, demonstrative,
written, electronic, graphic or machine-readable form and any analyses, compilations, studies or
documents containing Confidential Information.

               (b) Each Party shall at all times protect and safeguard the Confidential Information of the
other and agrees not to, in whole or in part, sell, lease, license, assign, transfer, or disclose
the Confidential Information to any third party and shall not copy, reproduce or distribute the
Confidential Information except as expressly permitted in this Agreement. Each Party shall take
every reasonable precaution to prevent the theft, disclosure, and the unauthorized copying,
reproduction or distribution of the Confidential Information. The Parties agree, however, that
either Party may disclose certain Confidential Information on a confidential basis to its
Representatives or its Affiliates and their Representatives in connection with any work being
performed on behalf of the other Party in order to carry out its obligations hereunder.

               (c) Each Party acknowledges that the other Party shall have the right to take all reasonable
steps to protect its Confidential Information, including, but not limited to, injunctive relief
and any other remedies as may be available at law or in equity in the event the other Party does
not fulfill its obligations under this Article VIII.

               (d) Without granting any right or license, the obligations of the Parties shall not apply to
any material or information that: (i) is or becomes a part of the public domain through no act or
omission by the receiving Party or its Affiliates or Representatives; (ii) is independently
developed by the receiving Party using individuals who have had no contact with the disclosing
Party’s Confidential Information; or (iii) was in the receiving Party’s possession prior to
receipt from the disclosing Party. In addition, neither Party shall be liable for disclosure of
Confidential Information if made in response to a valid order of a court or authorized
Governmental Entity, provided that notice is promptly given to the Party whose
Confidential Information is to be so disclosed so that such Party may seek a protective order
and/or engage in other efforts to minimize the required disclosure. The Parties shall cooperate
in seeking the protective order and engaging in such other efforts.

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ARTICLE IX

DISPUTE RESOLUTION

          Section 9.1 Dispute Resolution. (a) Any controversy, claim or dispute arising out of or relating
to this Agreement or the breach, termination or validity thereof (each, a “Dispute”) shall
be resolved as set forth in this Article IX.

               (b) LMIC and PIC shall attempt in good faith to resolve any Dispute promptly by negotiations
between each such Party’s designated representatives. Within ten (10) days after any Party’s
receipt of a notice of Dispute from the other Party setting forth in detail and together with
supporting documentation, if any, the nature and basis of the Dispute (the “Dispute
Notice”), the general counsel and the chief financial officer of LMIC and the general counsel
and the chief financial officer of PIC shall meet in person at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to attempt in good faith to
resolve the Dispute.

               (c) If either the chief financial officer of LMIC or PIC declares an impasse then within
thirty (30) days after receipt of the Dispute Notice or as soon thereafter as practicable, the
respective chief executive officers of LMIC and PIC shall meet in person at a mutually acceptable
time and place, and thereafter as often as they reasonably deem necessary, to attempt in good
faith to resolve the Dispute.

               (d) If either the chief executive officer of LMIC or PIC declares an impasse then within
sixty (60) days after receipt of the Dispute Notice (or such longer period, if the Parties so
agree in writing), then, at the demand of either Party, the Dispute shall be referred to, and
finally settled by, confidential and binding arbitration in accordance with the then-prevailing
JAMS Streamlined Arbitration Rules and Procedures as modified as follows (the “Rules”):

               (i) There shall be three (3) neutral arbitrators of whom each Party shall select one.
The claimant shall select its arbitrator in its demand for arbitration and the respondent
shall select its arbitrator within thirty (30) days after receipt of the demand for
arbitration. The two (2) arbitrators so appointed shall select a third arbitrator to serve
as chairperson within fourteen (14) days of the designation of the second of the two (2)
arbitrators. If any arbitrator is not timely appointed, at the request of any Party such
arbitrator shall be appointed by JAMS pursuant to the listing, striking and ranking
procedure in the Rules.

               (ii) Each arbitrator appointed by a Party shall be either an attorney with substantial
experience with the property and casualty reinsurance and insurance industry and at least
ten (10) years admission to the bar, or a property and casualty reinsurance and insurance
industry professional of at least ten (10) years standing. The

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chair of the arbitral
tribunal shall either be a practicing attorney with no less than ten (10) years of practice
and experience as an arbitrator, with, if possible, experience relating to insurance or
reinsurance disputes, or be a retired judge.

               (iii) The place of arbitration shall be Boston, Massachusetts, unless some other place
is mutually selected by the Parties. The arbitral tribunal shall be required to follow the
law of the Commonwealth of Massachusetts. The decision and award of the arbitral tribunal
shall be final and binding on the Parties and shall be the sole and exclusive remedy between
the Parties regarding the matter presented to the arbitral tribunal, including any claims,
counterclaims, issues or accounting presented to the tribunal. Judgment upon the decision
and award may be entered in any court having jurisdiction. The arbitral tribunal is
empowered to award any remedy provided for under Applicable Law and the terms of this
Agreement, including injunction, specific performance or other forms of equitable relief.
The arbitral tribunal is not empowered to award damages in excess of compensatory damages.
Each Party hereby irrevocably waives any right to recover punitive, exemplary or similar
damages with respect to any Dispute.

               (iv) Any arbitration proceedings, decision or award rendered hereunder and the
validity, effect and interpretation of this arbitration agreement shall be governed by the
Federal Arbitration Act, 9 U.S.C. Section 1, et seq.

               (e) Each Party shall bear its own costs in any negotiations pursuant to Section 9(b) or
Section 9(c) and any arbitration; provided that the Parties shall share the fees and
expenses of the arbitrators equally as well as any JAMS fees and expenses.

               (f) All negotiations conducted pursuant to Section 9(b) or Section 9(c) shall be confidential
and shall be treated as compromise and settlement negotiations and may not be introduced as
evidence of an admission against interest of either Party and shall not be admissible as evidence
in any other proceeding.

               (g) Notwithstanding the foregoing provisions, without first resorting to the negotiation
procedures set forth in Sections 9.1(b) and 9.1(c), either Party may seek the provisional judicial
remedy of a preliminary injunction or any other form of temporary injunctive relief (including the
remedies identified in Section 11.4 of this Agreement), if in its reasonable judgment such action
is necessary to avoid irreparable harm. Without prejudice to such provisional remedies as may be
available under the jurisdiction of such court, the arbitral tribunal shall have full authority to
grant provisional remedies and to direct the Parties to request that any court modify or vacate
any temporary or preliminary relief issued by such court, and to award damages for the failure of
any Party to respect the arbitral tribunal’s orders to that effect.

               (h) The Parties hereby submit to the jurisdiction of the courts of the Commonwealth of
Massachusetts located in Boston, Massachusetts, for the purpose of seeking

14

 

any provisional remedies as contemplated by Section 9(g) or for any action to compel
arbitration or in aid of arbitration or for the enforcement of any arbitral award rendered
thereunder. In any such action, suit or proceeding, each of the Parties irrevocably and
unconditionally waives, and agrees not to assert by way of motion, as a defense or otherwise, any
claim that the Party is not subject to the jurisdiction of the above courts, that such action or
suit is brought in an inconvenient forum or that the venue of such action, suit or other
proceeding is improper. To the fullest extent permitted by Applicable Law, each of the Parties
irrevocably waives all rights to trial by jury in any such action, suit or other proceeding.

ARTICLE X

ACCESS TO BOOKS AND RECORDS

          Section 10.1 Access to Books and Records. (a) PIC shall, and shall cause its Affiliates and Agency
Markets’ Insurer Subsidiaries to, upon reasonable notice, provide LMIC and its Representatives
access, at LMIC’s sole cost and expense, to review, inspect, examine and reproduce the books,
records, accounts, policies and procedures of PIC, its Affiliates and Agency Markets’ Insurer
Subsidiaries, including policy and claims administration guidelines, relating to the Run-Off
Liabilities, including any audits conducted by PIC, its Affiliates and Agency Markets’ Insurer
Subsidiaries as well as any unaudited information provided to Agency Markets in connection with
Agency Markets’ public company reporting requirements, at the place such records are located, and
to discuss such matters with the employees, external auditors and external actuaries of PIC, its
Affiliates and Agency Markets’ Insurer Subsidiaries that are knowledgeable about such records,
without undue disruption of the normal operations of PIC, its Affiliates and Agency Markets’
Insurer Subsidiaries.

               (b) LMIC and its Representatives shall have the right, at its sole cost and expense, to
conduct audits from time to time, upon reasonable notice to PIC, of the relevant books, records,
accounts, policies, practices and procedures, including policy and claims administration
guidelines of PIC, its Affiliates and Agency Markets’ Insurer Subsidiaries related to Run-Off
Liabilities.

               (c) LMIC shall reimburse PIC for any reasonable out-of-pocket costs that PIC, its Affiliates
or Agency Markets’ Insurer Subsidiaries incur in providing assistance to LMIC and its
Representatives in connection with this Section 10.1.

               (d) PIC shall, and shall cause its Affiliates and Agency Markets’ Insurer Subsidiaries to,
use its and their reasonable best efforts to assist and cooperate with LMIC and its
Representatives in providing access to the files, books, records and accounts of PIC, its
Affiliates and Agency Markets’ Insurer Subsidiaries relating to Run-Off Liabilities.

               (e) Notwithstanding any other provision of this Section 10.1, PIC shall not be obligated to
provide such access to any files, books, records, accounts, policies and

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procedures, employees or information if PIC determines, in its reasonable judgment, that doing so
would violate Applicable Law or a contract, agreement or obligation of confidentiality owing to a
third party or waive the protection of an attorney-client privilege;provided,
however, that LMIC shall have the right to require PIC to use its reasonable best efforts
to take steps in order to provide such access without causing such violations.

ARTICLE XI

MISCELLANEOUS

          Section 11.1 Notices. All notices and other communications provided for hereunder shall be dated
and in writing and shall be deemed to have been given (a) when delivered, if delivered personally,
sent by email or sent by registered or certified mail, return receipt requested, postage prepaid,
(b) on the next business day if sent by overnight courier or (c) when received if delivered
otherwise. Such notices shall be delivered to the address set forth below, or to such other
address or email address as a Party shall have furnished to the other Party in accordance with this
Section 11.1.

          If to LMIC:

Liberty Mutual Insurance Company

c/o Liberty Mutual Group, Inc.

175 Berkeley Street

Boston, MA 02117

Attention: Chief Financial Officer

With a copy to:

Liberty Insurance Holdings Inc.

c/o Liberty Mutual Group, Inc.

175 Berkeley Street

Boston, MA 02117

Attention: General Counsel

          If to PIC:

Peerless Insurance Company

62 Maple Avenue

Keene, New Hampshire 03431

Attention: Chief Financial Officer

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With a copy to:

Liberty Mutual Agency Corporation

10 St. James Avenue

Boston, MA 02117

Attention: Chief Financial Officer

Liberty Mutual Agency Corporation

10 St. James Avenue

Boston, MA 02117

Attention: General Counsel

          Section 11.2 Binding Nature of Agreement. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the Parties or their successors in interest, except as expressly
otherwise provided herein.

          Section 11.3 Descriptive Headings. The descriptive headings of the several articles and sections of
this Agreement are inserted for reference only and shall not limit or otherwise affect the meanings
hereof.

          Section 11.4 Specific Performance and Other Remedies.

               (a) The Parties expressly recognize and acknowledge that immediate, extensive and irreparable
damage would result, no adequate remedy at law would exist and damages would be difficult to
determine in the event that any provision of this Agreement is not performed in accordance with
its specific terms or is otherwise breached. Therefore, in addition to, and not in limitation of,
any other remedy available to any Party, except as otherwise expressly provided herein, an
aggrieved Party under this Agreement would be entitled to specific performance of the terms hereof
and immediate injunctive relief, without the necessity of proving the inadequacy of money damages
as a remedy. Neither Party shall be required to obtain or furnish any bond or similar instrument
in connection with or as a condition to obtaining or seeking any such remedy. For the avoidance
of doubt, nothing in this Agreement shall diminish the availability of specific performance of the
obligations under this Agreement or any other injunctive relief.

               (b) Such remedies, and any and all other remedies provided for in this Agreement, shall be
cumulative in nature and not exclusive and shall be in addition to any other remedies whatsoever
which any Party may otherwise have. Each of the Parties acknowledges and agrees that it may be
difficult to prove damages with reasonable certainty, that it may be difficult to procure suitable
substitute performance and that injunctive relief and/or specific performance will not cause an
undue hardship to the Parties. Each Party hereby further agrees that in the event of any action
by the other Party for specific performance or injunctive relief, it
will not assert that a remedy at law or other remedy would be adequate or that specific
performance or injunctive relief in respect of such breach or violation should not be available on
the grounds that money damages are adequate or any other grounds.

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          Section 11.5 Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights and duties of the Parties shall be governed by, the laws of the
Commonwealth of Massachusetts applicable to contracts made and to be performed entirely in such
Commonwealth (without giving effect to conflicts of laws provisions thereof).

          Section 11.6 Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the same
instrument.

          Section 11.7 Severability. In the event that any one or more of the provisions contained herein, or
the application thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Parties shall be
enforceable to the fullest extent permitted by Applicable Law. To the extent that any such
provision is so held to be invalid, illegal or unenforceable, the Parties shall in good faith use
their best efforts to find and effect an alternative means to achieve the same or substantially the
same result as that contemplated by such provision.

          Section 11.8 Amendment and Modification. Subject to Applicable Law, this Agreement may be amended,
modified or supplemented only by written agreement executed by the Parties. Any failure of a Party
to comply with any obligation, covenant or agreement contained in this Agreement may be waived by
the Party entitled to the benefits thereof only by a written instrument duly executed and delivered
by the Party granting such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant or agreement shall not operate as a waiver of, or estoppel with respect
to, any subsequent or other failure of compliance.

          Section 11.9 Entire Agreement. This Agreement, including any schedules or exhibits annexed hereto,
embodies the entire agreement and understanding of the Parties in respect of the transactions
contemplated by this Agreement. There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the Parties with respect to
such subject matter; provided, however, that for the avoidance of doubt, this Agreement shall have
no effect on any reinsurance agreements between LMIC or its Affiliates, on the one hand, and any of
the Insurer Subsidiaries of Agency Markets, on the other hand, whether entered into before, on or
after the Effective Date.

          Section 11.10 No Assignment. Except as otherwise provided for in this Agreement, neither this
Agreement nor any of the rights, interests or obligations of any Party may be assigned by such
Party without the prior written consent of the other Party.

          Section 11.11 Further Actions. Each Party hereto shall, on notice of request from the other Party,
take such further action not specifically required hereby at the expense of the requesting Party,
as the requesting Party may reasonably request for the implementation of the transactions
contemplated hereby.

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          Section 11.12 No Third Party Beneficiaries. Nothing in this Agreement, expressed or implied, is
intended or shall be construed to give any Person, other than the Parties (and their permitted
successors and assigns), any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision contained herein.

          Section 11.13 Survival. Notwithstanding anything herein to the contrary, the provisions of this
Agreement shall survive any direct or indirect sale or exchange of capital stock, merger,
consolidation, sale or transfer of assets, business combination or other change in control of, or
change in the form of business conducted by, LMIC, PIC or Agency Markets.

          Section 11.14 Drafting of Language. Each of the Parties agrees that the drafting of the language
contained in this Agreement was a cooperative effort, that each Party was equally responsible for
such drafting and that it would be inequitable for any of the Parties to be deemed the “drafter” of
any specific language contained herein pursuant to any judicial doctrine or presumption relating
thereto.

          Section 11.15 Interpretation. Whenever the words “include,” “includes” or “including” are used in
this Agreement, they shall be deemed to be followed by the words “without limitation.” Unless the
context requires otherwise, the terms “hereof,” “herein,” “hereby,” “hereto” and derivative or
similar words in this Agreement refer to this entire Agreement. Unless the context requires
otherwise, words in this Agreement using the singular or plural number also include the plural or
singular number, respectively, and the use of any gender herein shall be deemed to include the
other genders. Unless the context requires otherwise, the term “days,” in this Agreement refers to
calendar days.

          Section 11.16 Follow the Fortunes. LMIC’s liability shall attach simultaneously with
that of PIC, the true intent of this Agreement being that LMIC follow the fortunes of PIC in
respect of the Subject Contracts reinsured under this Agreement. However, LMIC’s liability shall
be subject to the exclusions and limitations contained within this Agreement. Nothing shall in any
manner create any obligations or establish any rights against LMIC in favor of any third parties or
any persons not party to this Agreement.

          Section 11.17 Insolvency. In the event of the insolvency of PIC, the reinsurance
under this Agreement shall be payable by LMIC on the basis of reported claims allowed in the
liquidation proceedings, subject to court approval, without diminution because of the insolvency of
PIC. The domiciliary liquidator, receiver or statutory successor of the insolvent PIC shall give
written notice to LMIC of the pendency of the claim against the insolvent PIC on the business
reinsured within a reasonable time after the claim is filed in the liquidation proceeding. During
the pendency of the claim, LMIC shall have the right to investigate the claim and interpose in the
proceeding where the claim is to be adjudicated, at LMIC’s expense, any defenses that LMIC
considers available to PIC, its liquidator, receiver or statutory successor. The expenses incurred
by LMIC in this type of action are payable up to the amount of expenses or the amount of benefit
produced, whichever is less, as expenses of the receivership.

          Section 11.18 Unauthorized Reinsurance. Notwithstanding any other provision of this
Agreement to the contrary, if LMIC becomes unauthorized in any State of the United States of
America or the District of Columbia or any other jurisdiction where authorization is required by

19

 

insurance regulatory authorities in order for PIC to obtain credit on its statutory annual
statements for the reinsurance being provided hereunder, LMIC will establish such escrow accounts,
trust accounts for the benefit of PIC, letters of credit, funds withheld by PIC, or a combination
thereof as required by Applicable Law to permit PIC to obtain credit for such reinsurance upon the
request of PIC if a penalty would accrue to the PIC on its statutory annual statement without such
funding. LMIC shall have the option of determining the method of funding to be utilized. LMIC shall
promptly notify PIC of any loss of license or authorization or other change or condition that may
affect the ability of PIC to obtain credit for such reinsurance.

          Section 11.19 No Profit Guarantee. This Agreement provides no guarantee of profit,
directly or indirectly, from LMIC to PIC or from PIC to LMIC.

Signature Page Follows

20

 

          IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on their behalf by
their respective officers thereunto duly authorized as of the date first written above.

	 	 	 	 	 
	 	LIBERTY MUTUAL INSURANCE COMPANY

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	PEERLESS INSURANCE COMPANY

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

21

 

Schedule I

Subject Contracts

Insurance policies and reinsurance contracts issued, ceded or assumed by an Insurer Subsidiary
prior to the Effective Date if such insurance policies or reinsurance contracts constitute the
run-off liabilities of Agency Markets but only to the extent identified below and as agreed to by
LMIC as a result of related information provided by Agency Markets prior to the Effective Date.

	 	 	 
	Current Run-Off Liability	 	 
	System Codes	 	Description
	ANVO, ANVA, ENVT, SNVO,
SNVA, SNVT, SFRI, SFTO,
SFTA, SFRA

	 	Asbestos and Environmental liability
reserves originating on the former
Safeco, Ohio Casualty and Guardian
Royal Exchange Operations
	 
	 	 
	SCIRO (includes SFNV, SFSC,
SFSL, SCIR)

	 	Reserves originating from the former Safeco
Commercial Insurance business acquired by Agency
Markets in 2008
	 
	 	 
	GAI

	 	Reserves, including assumed run off
liabilities, originating from former
Ohio Casualty business that it
acquired from Great American
Insurance Company
	 
	 	 
	SFRE

	 	Reserves originating from Safeco’s acquisition of
American Union Reinsurance Company’s assumed
reinsurance business
	 
	 	 
	OCLD, OCAH, OPLD, GAIR,
GAMT, MBRO, SFTR, SFAH,
SFIN, SFIS, SFCD , AMLA,
GAHO, GOAM, ACHE, SFAV

	 	Reserves from other run off operations

22

 

     AMENDMENT NO. 1 TO AGGREGATE STOP-LOSS REINSURANCE AGREEMENT

          THIS AMENDMENT NO. 1 TO THE AGGREGATE STOP-LOSS REINSURANCE AGREEMENT (this
“Amendment”), dated as of June 30, 2010, by and between Liberty Mutual Insurance Company, a
Massachusetts stock insurance company (“LMIC”), and Peerless Insurance Company, a New
Hampshire stock insurance company (“PIC”), a wholly-owned subsidiary of Liberty Mutual
Agency Corporation, a Delaware corporation, amends that certain Aggregate Stop-Loss Reinsurance
Agreement by and between the parties (the “Agreement”). PIC together with LMIC, each a
“Party” and, collectively, the “Parties”). Any capitalized term that is not
defined herein shall have the meaning ascribed to such term in the Agreement. All references to
the Agreement, whether in this Amendment, the Agreement or any other document or instrument, shall
thereafter mean the Agreement, as amended by this Amendment.

RECITALS

          WHEREAS, the Parties desire to enter into this Amendment, which shall be effective as of the
Effective Date, to amend certain portions of the Agreement in order to clarify the original intent
of the Parties.

          NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:

     1. Amendment of Section 1.1.

	 	(a)	 	The defined term “Negative Development Amount” shall be deleted in its entirety and
replaced with the following:
	 
	 	 	 	“Negative Development Amount” shall mean with respect to any
Periodic Report in which the Net Incurrals as of the date reflected in such
Periodic Report are greater than the Net Incurrals as of the date reflected
in the preceding Periodic Report, or in the case of the first Periodic
Report as of June 30, 2010, an amount equal to the difference between (a)
the Net Incurrals as of the date reflected in such Periodic Report and (b)
the Net Incurrals as of the date reflected in the preceding Periodic
Report, or in the case of the first Periodic Report as of June 30, 2010.

	 	(b)	 	The defined term “Positive Development Amount” shall be deleted in its entirety and
replaced with the following:
	 
	 	 	 	“Positive Development Amount” shall mean with respect to any Periodic Report in which the
Net Incurrals as of the date reflected in such Periodic Report are less than the Net Incurrals as
of the date reflected in the preceding Periodic Report, or in the case of the first Periodic Report
as of June 30, 2010, an amount equal to the difference between (a) the Net Incurrals as of the date
reflected in such Periodic Report and (b) the Net Incurrals as of the

 

 

	 	 	 	date reflected in the preceding Periodic Report, or in the case of the
first Periodic Report as of June 30, 2010.

	 	(c)	 	The defined term “Reserves” shall be deleted in its entirety and replaced with the
following:
	 
	 	 	 	“Reserves” shall mean the undiscounted aggregate claim reserves
(including IBNR reserves, other bulk reserves and reserves for
uncollectible reinsurance), including Allocated Loss Adjustment Expenses,
and Unallocated Loss Adjustment Expenses, of the Insurer Subsidiaries of
Agency Markets for the Run-Off Liabilities, in each case determined in
accordance with the Reserving Methodologies.

	 	(d)	 	The defined term “Reserving Methodologies” shall be deleted in its entirety and replaced
with the following:
	 
	 	 	 	“Reserving Methodologies” shall mean the methodologies, procedures,
judgments and assumptions used by the Insurer Subsidiaries of Agency
Markets in calculating and establishing Reserves with respect to the
Run-Off Liabilities prior to and as of the Effective Date, with such
changes as may be agreed to in writing by the Parties.

	 	(e)	 	The defined term “Retention Amount” shall be deleted in its entirety and replaced with the
following:
	 
	 	 	 	“Retention Amount” shall mean an amount equal to the Reserves as of
June 30, 2010.

	 	2.	 	Amendment of Section 3.1. Section 3.1 is hereby deleted in its entirety and
replaced with the following:
	 
	 	 	 	Paid losses and expenses for all Run-Off Liabilities incurred in the
period reflected in a Periodic Report plus the change in Reserve balances
(either positive or negative, as the case may be) between the date of such
Periodic Report and the date of the preceding Periodic Report, or in the
case of the first Periodic Report as of June 30, 2010, for all Run-Off
Liabilities, commencing on July 1, 2010, shall be known as the “Run-Off
Incurrals” for such period; provided, however, in no
event shall “Run-Off Incurrals” include any liabilities or estimated
liabilities under any insurance or reinsurance contract of any kind
whatsoever not set forth on Schedule I or Reserves excluded by Section 3.2.
As soon as practicable following the execution of this Agreement, PIC will
provide in writing to LMIC the aggregate amount of Reserves as of June 30,
2010.

	 	3.	 	Amendment of Section 3.3. The first part of the first sentence of Section 3.3
is hereby amended as follows:
	 
	 	 	 	“Net Incurrals” shall mean the sum of the Retention Amount plus all Run-Off Incurrals
(either positive or negative, as the case may be) reduced by:”

 

 

	4.	 	Amendment of Section 4.3. Section 4.3 is hereby deleted in its entirety and
replaced with the following:
	 
	 	 	The chief financial officer of PIC and the Appointed Actuary shall each
certify to LMIC that (i) the Run-Off Incurrals and the Net Incurrals
specified in each Periodic Report have been established in a manner
consistent with the Reserving Methodologies and (ii) the Periodic Report
has been prepared in all respects in accordance with the terms and
conditions of this Agreement.

	5.	 	Typographical Corrections.

	 
	 	(a)	 	Section 1.1. In the first line of the defined term “Aggregate
Reimbursement Amount,” “Reimbusement” shall be changed to “Reimbursement.”
	 
	 	(b)	 	Section 1.1. In the second to last line of the defined term “Allocated
Loss Adjustment Expenses,” “Subsidiaires” shall be changed to “Subsidiaries.”
	 
	 	(c)	 	Section 2.1(b). In the third line, “Determination” shall be changed to
“Development.”
	 
	 	(d)	 	Section 4.1. In the third line, “Developmnent” shall be changed to
“Development.”

[remainder of this page left intentionally blank]

 

 

          IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed and delivered by
their duly authorized officers, as of August ___, 2010.

	 	 	 	 	 
	 	LIBERTY MUTUAL INSURANCE COMPANY

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	PEERLESS INSURANCE COMPANY

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:

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