PENN MILLERS INSURANCECOMPANY AMERICAN MILLERS INSURANCECOMPANY UMBRELLA QUOTA SHAREREINSURANCE CONTRACT EFFECTIVE JANUARY 1,2010 INDEX

A.           This Contract applies to all Loss Occurrences that occur with a date of loss during the term of this Contract and arising from those Policies, except as hereinafter excluded, classified by the Company as excess/commercial umbrella liability that are in force at the inception of, and written with a Policy period (new or renewal) effective during the term of this Contract, including renewals (“Business Covered”).

B.           As respects all Business Covered hereof, where the coverage has been agreed upon between the Company and the Reinsurer, this Contract shall cover self-insured obligations of the Company assumed by it as a self-insurer including self-insured obligations in excess of any valid and collectible insurance available to the Company to the same extent as if all types of insurance covered by this Contract were afforded under the broadest forms of Policies issued by the Company provided, such self-insured obligations are within the scope of underwriting criteria furnished by the Company to the Reinsurer.

C.           The term “Policies”, whenever used herein, shall mean all binders, policies, contracts, certificates and other obligations, whether oral or written, of insurance or reinsurance that are Business Covered, underwritten and bound by the Company in accordance with the Company’s current Commercial Umbrella Underwriting and Rating guidelines (including amendments as agreed to by the Reinsurer) as part of their Corporate Information Catalogue, except as excluded under the Article entitled EXCLUSIONS.

D.           The reinsurance of all Business Covered hereunder shall be subject in all respects to the same risks, terms, clauses, conditions, interpretations, alterations, modifications, cancellations and waivers as the respective insurances (or reinsurances) of the Company’s Policies and the Reinsurer shall pay losses as may be paid thereon, subject to the liability of the Company and the terms and conditions of this Contract.

A.           This Contract shall incept at 12:01 a.m., Eastern Standard Time, January 1, 2010, and shall remain in force until 12:01 a.m., Eastern Standard Time, January 1, 2011.

B.           At termination, at the Company’s option:

1.           The Reinsurers shall remain liable for all Policies in force at termination of this Contract; however, the liability of the Reinsurers shall cease with respect to losses occurring subsequent to the first anniversary, natural expiration or cancellation of each Policy ceded, whichever first occurs, but in no event for any losses occurring more than eighteen (18) months after each such termination; (“Run-Off”) or

2.           The Reinsurers shall be relieved of all liability hereunder for any losses occurring with a date of loss subsequent to termination of this Contract (“Cut-Off”).

The Company shall notify the Reinsurer not more than thirty (30) days after termination whether such termination shall be on a Cut-Off or Run-Off basis.

C.           The Company shall pay reinsurance premium for any Run-Off period in accordance with the Article entitled PREMIUM AND COMMISSION of this Contract. If the Company elects the Cut-Off option, the Reinsurers shall refund to the Company any unearned reinsurance premium applicable to the unexpired liability (calculated on a pro rata basis) less any commission allowed by the Reinsurers thereon at conclusion of the Run-Off if B(1) above is elected, or at termination if option B(2) above is elected. The Reinsurers shall continue to be liable for their proportionate share of the outstanding losses (reported or unreported) on Policies ceded hereunder with a date of loss prior to the conclusion of the Run-Off, or termination, as the case may be.

D.           Should any subject Policy be extended, continued, or renewed due to regulatory or other legal restrictions, this Contract shall automatically provide extended coverage at the request of the Company until those Policies are actually terminated by the Company. The Reinsurer shall be entitled to reinsurance premium on such Policies as calculated by the Company in accordance with the terms of this Contract. This provision shall not apply and the Reinsurer will not be liable for longer than the Run-Off period elected above, in the event that the Company has secured reinsurance for the Business Covered that reinsures inforce Policies on substantially similar terms as to risk retained and ceded, or has advised the Reinsurer that the Company intends to hold the business net and for its own account.

E.           Should this Contract terminate while a Loss Occurrence is in progress, the entire loss arising out of the Loss Occurrence shall be subject to this Contract and its terms and conditions.

A.           If agreed by the Company and the Reinsurer, at the end of each underwriting year (i.e. January 1) all unexpired liability in respect of the business ceded hereunder and the unearned premium applicable thereto shall be transferred to the following underwriting year.

B.           Furthermore, if agreed by the Company and the Reinsurer, the Reinsurer will accept a portfolio transfer from previous underwriting years on the basis described in the preceding paragraph.

A.           The Company or the Reinsurer may terminate, or commute Obligations arising under this Contract in accordance with Paragraph C. below, upon the happening of any one of the following circumstances at any time by the giving of thirty (30) days prior written notice to the other party:

1.           A party ceases active underwriting operations or a State Insurance Department or other legal authority orders the Reinsurer to cease writing business in all jurisdictions; or

2.           The Reinsurer has filed a plan to enter into a Scheme of Arrangement or similar procedure. “Scheme of Arrangement” is defined as a legislative or regulatory process that provides a solvent Reinsurer the opportunity to settle its obligations with the Company either (i) without the Company’s unrestrained consent or (ii) prior to the Company having the ability to determine, with exact certainty, the actual amount of the obligations still outstanding and ultimately due to the Company. or

3.           A party has: (a) become insolvent, (b) been placed under supervision (voluntarily or involuntarily), (c) been placed into liquidation or receivership, or (d) had instituted against it proceedings for the appointment of a supervisor, receiver, liquidator, rehabilitator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

4.           A reduction in the Reinsurer’s surplus, risk-based capital or financial strength rating occurs:

a.           As respects Reinsurers domiciled in the United States of America, (i) the Reinsurer’s policyholders’ surplus (“PHS”) has been reduced by, whichever is greater, thirty percent (30%) of the amount of PHS at the inception of this Contract or thirty percent (30%) of the amount of PHS stated in its last filed quarterly or annual statutory statement with its state of domicile; or (ii) the Reinsurer’s total adjusted capital is less than two hundred percent (200%) of its authorized control level risk-based capital; or (iii) the Reinsurer’s A.M. Best’s insurer financial strength rating becomes less than “A-”.

b.           As respects Reinsurers domiciled outside the United States of America, other than Lloyd’s Syndicates (i) the Reinsurer’s Capital & Surplus (“C&S”) has been involuntarily reduced by, whichever is greater, thirty percent (30%) of the published currency amount of C&S at the inception of this Contract or thirty percent (30%) of the published currency amount of C&S stated in its last filed financial statement with its local regulatory authority; or (ii) as respects Lloyd’s Syndicates, the Reinsurer’s total stamp capacity has been reduced by more than thirty percent (30%) of the amount of total stamp capacity which stood at the inception of this Contract. (This provision does not apply to any Lloyd’s Syndicate that voluntarily reduces its total stamp capacity.) or (iii) the Reinsurer’s A.M. Best’s insurer financial strength rating becomes less than “A-” or the Reinsurer’s Standard & Poor’s Insurance Rating becomes less than “BBB”. or

5.           A party has entered into a definitive agreement to (a) become merged with, acquired or controlled by any company, corporation or individual(s) not controlling or affiliated with the party’s operations previously; or (b) directly or indirectly assign all or essentially all of its entire liability for obligations under this Contract to another party without the other party’s prior written consent; or

6.           There is either:

a.           a severance or obstruction of free and unfettered communication and/or normal commercial or financial intercourse between the United States of America and the country in which the Reinsurer is incorporated or has its principal office as a result of war, currency regulations or any circumstances arising out of political, financial or economic uncertainty; or

b.           a severance (of any kind) of any two (2) or more of the following executives of the Reinsurer from active employment of the Reinsurer during the most recent forty five (45) day period: chief underwriting officer, chief actuary, chief executive officer or chief financial officer. This condition does not apply whenever the severance in employment is for the publicly announced purpose of the individual’s assuming within thirty (30) days a known position with another identified firm in the (re)insurance industry or related field.

B.           In the event the Company elects termination, the Company shall with the notice of termination specify that termination will be on a Run-Off basis or a Cut-Off basis. In the event that the Company elects to Cut-Off and thus relieve the Reinsurer for losses occurring subsequent to the Reinsurer’s specified termination date, the Reinsurer shall within thirty (30) days of the termination date return the liability for the unearned portion of any ceded premium paid hereunder, calculated as of the termination date, and cash in that amount (less any applicable ceding commission allowed thereon) and the minimum premium provisions, if any, shall be waived. If the Company elects “Run-Off”, the Reinsurer shall remain liable to the Company under this Contract with respect to losses arising from Policies placed into effect and ceded hereunder with effective dates (new or renewal Policy period) prior to the termination date until those Policies naturally expire, are cancelled or non-renewed or their next annual anniversary, provided such period shall not exceed eighteen (18) months from the date of termination elected under this Article.

C.           If both parties agree to commute, then within sixty (60) days after such agreement, the Company shall submit a statement of valuation of the total of the net present value (“capitalized”) of the ceded (1) Net Loss Reserves, (2) Loss Adjustment Expense Reserves, and (3) unearned premium reserve, after deduction for any ceding commission allowed thereon, (the “Valuation Statement”). If agreement cannot be reached, the effort can be abandoned or alternately the Company and the Reinsurers may mutually appoint an actuary or appraiser to investigate, determine the capitalized value of the reserves to be returned to the Company. Such actuary shall be an independent and neutral actuary, Casualty Actuarial Society, experienced in such matters and the mutually agreed actuary shall render a decision. In the event that the Company and the Reinsurer are unable to agree upon a single actuary within thirty (30) days, the parties shall ask the then current President of the Casualty Actuarial Society to appoint an actuary with those qualifications within another thirty (30) days. The decision of the actuary will be final and binding on both parties. The Company and the Reinsurer shall share equally the fees and expenses of the actuary. Upon payment of the amount so agreed or determined by the actuary to the Company, the Reinsurer and the Company shall each be completely released from all liability to each other under this Contract.

This Contract shall not cover:

A.           The following General Categories:

1.           War, as excluded by the provisions of the Company’s original Policy(ies).

2.           Liability as a member or subscriber of any Pool, Association or Syndicate.

3.           Insolvency Funds as per the attached Insolvency Funds Exclusion Clause.

4.           Nuclear Incident Exclusion Clauses which are attached and made part of this Contract:

a.           Nuclear Incident Exclusion Clause - Liability - Reinsurance - U.S.A (BRMA 35A).

  b.           Nuclear Incident Exclusion Clause - Liability - Reinsurance - Canada (BRMA 35D).

5.           Business accepted by the Company as reinsurance; except business accepted from intra-company transactions.

B.           The following Insurance Coverages:

1.           Terrorism as provided in the Company’s Umbrella Underwriting and Rating Guidelines as of January 1, 2003 and as revised by mutual agreement between the Company and Reinsurer, or as referred to and approved by the Reinsurer.

This Contract shall not cover loss resulting from an act of Certified or Non-Certified terrorism, as defined in the Article entitled REINSURANCE COVERAGE of this Contract, that involves the use, release, or escape of nuclear materials, or directly or indirectly results in nuclear reaction or radiation or radioactive contamination; or that is carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials that are released.

2.           Loss or liability, whether direct or indirect, arising from the hazard of asbestos including the manufacturing, mining, storage, distribution, transportation, fabrication, installation or removal of asbestos or products containing asbestos.

3.           Loss or liability excluded by the Standard Pollution Exclusion(s) promulgated by the Insured Services Office for both Commercial General Liability and Commercial Automobile Liability Policies;

Notwithstanding the above, the Reinsurers agree that this exclusion shall not apply to original Policies written in any state where the Standard ISO Pollution Exclusion(s) have not been approved or are not permitted to be included in or attached to original Policies.

Further, the Reinsurers agree that this exclusion shall not apply in any case where the Company has attached the Standard ISO Pollution Exclusion(s) to an original Policy but has sustained a Loss as a result of that exclusion being deemed invalid or inapplicable by a court of law.

Notwithstanding all of the foregoing, Reinsurers agree that this exclusion does not apply to environmental restoration coverage provided under an MCS-90 Endorsement attached to a commercial automobile Policy written in accordance with the Motor Carrier Act of 1980.

Furthermore, Reinsurers agree that this exclusion does not apply to over spraying of anhydrous ammonia, fertilizers and agricultural chemicals, nor shall this exclusion apply to operations involving anhydrous ammonia, liquefied petroleum gas (LPG), or propane (including the transportation thereof) where the Company has attached the Solutions 2000 Liability PMAG-16 (01 05) Pollution Exclusion Amendment to an original Policy.  Furthermore, this exclusion does not apply to pollutants from mobile equipment where the Company has attached the Solutions 2000 Liability PMAG-16 (01 05) Pollution Exclusion Amendment to an original Policy.

Furthermore, Reinsurers agree that this exclusion does not apply to over spraying of anhydrous ammonia, fertilizers and agricultural chemicals, nor shall this exclusion apply to operations involving anhydrous ammonia, liquefied petroleum gas (LPG), or propane (including the transportation thereof) where the Company has attached the Solutions 2000 Liability PMAG-18 (01 05) Pollution Exclusion Amendment to an original Policy.  Furthermore, this exclusion does not apply to pollutants from a covered auto where the Company has attached the Solutions 2000 Liability PMAG-18 (01 05) Pollution Exclusion Amendment to an original Policy.

Furthermore, Reinsurers agree that this exclusion does not apply to operations meeting all standards of any statute, ordinance, regulation or license requirement of any federal, state or local government which apply to those operations, where the Company has attached the Solutions 2000 Liability PMAG - 04 (07 98) “Pesticide or Fertilizer Applicator Amended Exclusions with Amendment of Limits of Insurance” to an original Policy.  Furthermore, this exclusion does not apply to fields on which the insured, or any contractor or subcontractor working on the behalf of the insured, is performing operations, where the Company has attached the Solutions 2000 Liability PMAG - 04 (07 98) “Pesticide or Fertilizer Applicator Amended Exclusions with Amendment of Limits of Insurance” to an original Policy.

4.           tobacco manufacturers/companies

5.           pharmaceutical and medical device manufacturers

C.           If the Company is bound without knowledge of and contrary to the instructions of the Company’s supervisory underwriting personnel, on any business falling within the scope of one or more of the exclusions set forth in this Article these exclusions, except paragraphs A(1), A(2), A(3), A(4), A(5), B(1), B(2) and B(5) shall be suspended with respect to such business until sixty (60) days after any Home Office underwriting supervisor of the Company acquires knowledge of such business.

D.           Upon receipt of such knowledge, the Company shall promptly advise the Reinsurer of the scope of the Insured’s activities and the Reinsurer shall have the right to:

Reinstate the exclusion involved upon expiration of the aforementioned sixty (60) days waiting period, or waive such exclusion by Special Acceptance.

The Reinsurer shall promptly advise the Company as to which of the above options set forth in this Paragraph shall apply.

Any exclusion listed above (except B(2), B(5) and loss described in the second Paragraph of Paragraph B(1)) shall be automatically waived as respects a Policy issued by the Company on a risk with respect to which only a minor or incidental part of the operations covered involves the exclusion. An incidental part of an insured’s regular operations shall mean not greater than ten percent (10%) of the insured’s regular operations.

A.           The Company shall cede and the Reinsurer shall accept and be liable to, indemnify and reinsure the Company for a quota share participation of the Company’s Net Loss for in force, new and renewal excess/commercial umbrella Policies:

For the first one million dollars ($1,000,000) of the Company’s Net Loss as respects each Policy, each Loss Occurrence:

The Reinsurers shall participate for seventy five percent (75%) of the Company’s Net Loss as respects each Policy, each Loss Occurrence.

For the next four million dollars ($4,000,000) of the Company’s Net Loss as respects each Policy, each Loss Occurrence:

The Reinsurers shall participate for one hundred percent (100%) of the Company’s Net Loss as respects each Policy, each Loss Occurrence.

B.           Terrorism:

1.           Notwithstanding the foregoing Paragraph A. in this Article, the Reinsurers’ liability for a loss involving any Act of Terrorism, irrespective of the number and kinds of perils involved, shall be limited to one million dollars ($1,000,000) of Net Loss in the aggregate for all Loss Occurrences taking place during the term of this Contract.

2.           An “Act of Terrorism” shall mean any act, including both Certified Acts of Terrorism in accordance with the Terrorism Risk Insurance Act of 2002, the Terrorism Risk Insurance Extension Act of 2005 and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) and any subsequent extension and those not so certified, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of any political, religious, ideological, or similar purpose to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which:

a.             involves violence against one or more persons; or

b.             involves damage to property; or

c.             endangers life other than that of the person committing the action; or

d.             creates a risk to health or safety of the public or a section of the public; or

e.             is designed to interfere with or to disrupt an electronic system; or

f.             involves loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any act of terrorism.

Loss or damage occasioned by riot, strikes, civil commotion, vandalism or malicious mischief as those terms have been interpreted by United States Courts to apply to insurance Policies shall not be construed to be an “Act of Terrorism”.

A.           As premium for the Reinsurance Coverage provided hereunder, the Company shall cede and pay to the Reinsurers their proportionate share of the unearned premium on the business in force at the inception of this Contract for the business described herein. Additionally, the Company shall cede to the Reinsurers their proportionate share of the net subject written premium on all Policies written or renewed with an effective date on or after the inception of this Contract.

B.           The Reinsurers shall allow the Company a thirty two percent (32%) ceding commission on all premiums ceded to the Reinsurers hereunder. The Company shall allow the Reinsurers return commission on return premiums at the same rate.

C.           “Net Subject Written Premium” as used in this Contract shall mean the gross written premium of the Company for the Business Covered, plus additions, less return premium for cancellations and reductions, and less premium for reinsurance that inures to the benefit of this Contract.

A.           The Company shall furnish the Reinsurers with bordereaux due at the end of each ninety (90) day period, summarizing the ceded premium, net of any applicable return premium and ceding commission, such reports to include the following items:

1.           Name of Insured

2.           Policy Number

3.           Policy Limits

4.           Effective/expiration dates

5.           Premium written for the first one million dollars ($1,000,000) of limits

6.           Premium written for limits excess of one million dollars ($1,000,000) up to four million dollars ($4,000,000)

7.           Ceding commission on premium written

8.           Premium due Reinsurer

B.           The Company shall promptly notify the Reinsurer of each claim which may involve the reinsurance provided hereunder and of all subsequent developments relating thereto, stating the amount claimed and estimate of the Company’s Net Loss and Loss Adjustment Expenses.

C.           The Company shall advise the Reinsurer of all claims which:

1.           Are reserved by the Company for an amount in excess of fifty percent (50%) of the underlying Policy limit, or

2.           Any loss involving the following injuries (regardless of incurred loss or reserve amount);

a.            Originate from fatal injuries;

b.            Originate from the following kinds of bodily injury:

i.            Brain injuries resulting in impairment of physical function;

ii.            Spinal injuries resulting in a partial or total paralysis of upper or lower extremities;

iii.          Amputation or permanent loss of use of upper or lower extremities;

iv.          Severe burn injuries;

v.           Loss of sight in one or both eyes;

vi.          Sexual molestation and/or rape.

c.            Claims involving Extra-Contractual Obligations or Loss in Excess of Policy Limits;

d.            Any Declaratory Judgment Action.

D.           The Company shall have the responsibility to investigate, defend or negotiate settlements of all claims and lawsuits related to Policies written by the Company and reinsured under this Contract. The Reinsurer, at its own expense, may associate with the Company in the defense of any claim, suit or other proceeding which involves or is likely to involve the reinsurance provided under this Contract, and the Company shall cooperate in every respect in the defense of any such claim, suit or proceeding.

E.           The Company shall report at the end of each ninety (90) day period, Net Losses paid, Loss Adjustment Expense paid, monies recovered and net balance due either party. The net balance shall be paid within sixty (60) days after the close of the respective reporting period. Should payment due from the Reinsurers exceed one hundred thousand dollars ($100,000) as respects any one Net Loss, the Company may give the Reinsurers notice of payment made or its intention to make payment on a certain date. If the Company has paid the loss, payment shall be made by the Reinsurers immediately. If the Company intends to pay the loss by a certain date and has submitted a reasonably satisfactory proof of loss or similar document, payment shall be due from the Reinsurers twenty four (24) hours prior to that date, provided the Reinsurers have a period of five (5) working days after receipt of said notice to dispatch the payment. Cash loss amounts specifically remitted by the Reinsurers as set forth herein shall be credited to their next statement of account.

F.           The Company shall have the right to settle all claims under its Policies. All loss settlements made by the Company, whether under strict Policy conditions or by way of compromise, that are the Business Covered and that are not an Ex-gratia Settlement shall be final and binding subject to the liability of the Company and the terms and conditions of this Contract. The Reinsurer shall follow the liability of the Company (to the extent provided in this Contract) and shall pay or allow, as the case may be, its share of each such settlement in accordance with this Contract all amounts for which it is obligated as soon as possible, but not later than ten (10) business days, of being furnished by the Company with reasonable evidence of the amount due. Reasonable evidence of the amount due shall consist of a certification by the Company, accompanied by proof of loss documentation the Company customarily presents with its claims payment requests, that the amount requested to be paid and submitted by the certification, is, upon information and belief, due and payable to the Company by the Reinsurers under the terms and conditions of this Contract.

G.           In addition, the Company shall furnish the Reinsurers a periodic statement showing the unearned premium, the total reserves for outstanding Net Losses including Loss Adjustment Expense, and such other information as may be required by the Reinsurers for completion of their NAIC annual statements.

A.           The term “Net Loss” shall mean the actual loss incurred by the Company from Business Covered hereunder including (i) sums paid in settlement of claims and suits and in satisfaction of judgments, (ii) prejudgment interest when added to a judgment, (iii) ninety percent (90%) of any Extra-Contractual Obligations (iv) ninety percent (90%) of any Losses Excess of Policy Limits, and (v) any interest on judgments other than prejudgment interest when added to a judgment. In the event that the Company’s original Policies and/or specific coverage parts of their original Policies are issued on a cost inclusive basis, such loss adjustment expenses shall be included within the Company’s Net Loss for the purposes of recovery hereunder.

B.           All salvages, recoveries, payments and reversals or reductions of verdicts or judgments whether recovered, received or obtained prior or subsequent to loss settlement under this Contract, including amounts recoverable under other reinsurance whether collected or not, shall be applied as if recovered, received or obtained prior to the aforesaid settlement and shall be deducted from the actual losses sustained to arrive at the amount of the Net Loss. Nothing in this Article shall be construed to mean losses are not recoverable until the Net Loss to the Company finally has been ascertained.

C.           All Loss Adjustment Expenses paid by the Company as a result of Net Losses covered hereunder shall be divided between the Company and the Reinsurers, without regard to the limit of this Contract, in proportion to their share of the Net Loss. “Loss Adjustment Expenses” shall mean and include but not be limited to: (i) expenses sustained in connection with adjustment, defense, settlement and litigation of claims and suits, satisfaction of judgments, resistance to or negotiations concerning a loss (which shall include the expenses and the pro rata share of the salaries of the Company’s field employees according to the time occupied in adjusting such loss and the expenses of the Company’s employees while diverted from their normal duties to the service of field adjustment but shall not include any salaries of officers or normal overhead expenses of the Company), (ii) legal expenses and costs incurred in connection with coverage questions regarding specific claims and legal actions, including Declaratory Judgment Expenses, connected thereto, (iii) all interest on judgments other than prejudgment interest when added to a judgment, and (iv) expenses sustained to obtain recoveries, salvages or other reimbursements, or to secure the reversal or reduction of a verdict or judgment.

D.           “Declaratory Judgment Expenses” as used in this Contract shall mean legal expenses paid by the Company in the investigation, analysis, evaluation, resolution or litigation of coverage issues between the Company and its insured(s), under Policies reinsured hereunder, for a specific loss or losses tendered under such Policies, which loss or losses are not excluded under this Contract.

E.           In the event there are any recoveries, salvages, or reimbursements recovered subsequent to a loss settlement, or in the event a verdict or judgment is reversed or reduced, the allocated Loss Adjustment Expenses incurred in obtaining the recovery, salvage or reimbursement or in securing the reduction or reversal shall be divided between the Company and the Reinsurers in proportion to their share of the benefit therefrom, with the expenses incurred up to the time of the loss settlement or the original verdict or judgment being divided in proportion to the share of the Company and the Reinsurers in the original loss settlement or verdict or judgment.

A.           “Extra-Contractual Obligations” means those liabilities not covered under any other provision of this Contract, other than Loss Excess of Policy Limits, including but not limited to compensatory, consequential, punitive, or exemplary damages together with any legal costs and expenses incurred in connection therewith, paid as damages or in settlement by the Company arising from an allegation or claim of its insured, its insured’s assignee, or other third party, which alleges negligence, gross negligence, bad faith or other tortious conduct on the part of the Company in the handling, adjustment, rejection, defense or settlement of a claim under a Policy that is the Business Covered.

B.           “Loss Excess of Policy Limits” means any amount of loss, together with any legal costs and expenses incurred in connection therewith, paid as damages or in settlement by the Company in excess of its Policy Limits, but otherwise within the coverage terms of the Policy, arising from an allegation or claim of its insured, its insured’s assignee, or other third party, which alleges negligence, gross negligence, bad faith or other tortious conduct on the part of the Company in the handling of a claim under a Policy or bond that is the Business Covered, in rejecting a settlement within the Policy Limits, in discharging a duty to defend or prepare the defense in the trial of an action against its insured, or in discharging its duty to prepare or prosecute an appeal consequent upon such an action. For the avoidance of doubt, the decision by the Company to settle a claim for an amount within the coverage of the Policy but not within the Policy Limit when the Company has reasonable basis to believe that it may have legal liability to its insured or assignee or other third party on the claim will be deemed a Loss Excess of Policy Limits. The Company will provide Reinsurers an explanation relating to the Company’s motivation for settlement and use its best efforts to obtain the Reinsurers’ prior counsel and concurrence in the Company’s action. A reasonable basis shall mean it is more likely than not a trial would result in a verdict excess of the Policy Limits, in the opinion of counsel assigned to defend the insured or otherwise retained by the Company.

C.           An Extra-Contractual Obligation or a Loss Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Company’s original Policy and shall be considered part of the original loss (subject to other terms of this Contract).

D.           Neither an Extra-Contractual Obligation nor a Loss Excess of Policy Limits shall include a loss incurred by the Company as the result of any fraudulent or criminal act directed against the Company by any officer or director of the Company acting individually or collectively or in collusion with any other organization or party involved in the presentation, defense, or settlement of any claim under this Contract.

E.           Recoveries, whether collectible or not, including any retentions and/or deductibles, from any other form of insurance or reinsurance which protect the Company against any loss or liability covered under this Article shall inure to the benefit of the Reinsurers and shall be deducted from the total amount of any Extra-Contractual Obligation and/or Loss Excess of Policy Limits in determining the amount of Extra-Contractual Obligation and/or Loss Excess of Policy Limits that shall be indemnified under this Article.

F.           The Company shall be indemnified in accordance with this Article to the extent permitted by applicable law.

A.           As respects the Insured Losses of the Company for each Program Year, to the extent the Company’s total reinsurance recoverables for Insured Losses, whether collected or not, when combined with the financial assistance available to the Company under the Act exceeds the aggregate amount of Insured Losses paid by the Company, less any other recoveries or reimbursements, (the “Excess Recovery”), a share of the Excess Recovery shall be allocated to the Company and the Reinsurer. The Company’s share of the Excess Recovery shall be deemed to be an amount equal to the proportion that the Company’s Insured Losses bear to the Insurer’s total Insured Losses for each Program equal to the proportion that the Reinsurer’s payment of Insured Losses under this Contract bears to the Company’s total collected reinsurance recoverables for Insured Losses. The Company shall provide the Reinsurer with all necessary data respecting the transactions covered under this Article.

B.           The method set forth herein for determining an Excess Recovery is intended to be consistent with the United States Treasury Department’s construction and application of Section 103 (g)(2) of the Act. To the extent it is inconsistent, it shall be amended to conform with such construction and application, nevertheless the Company shall be the sole judge as to the allocation of TRIA Recoveries to this or to other reinsurance Contracts.

C.            “Act” as used herein shall mean the Terrorism Risk Insurance Act of 2002, the Terrorism Risk Insurance Extension Act of 2005, and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) and any subsequent amendment thereof or any regulations promulgated thereunder. “Company” shall have the same meaning as “Insurer” under the Act and “Insured Losses”, and “Program Year” shall follow the definitions as provided in the Act.

A.           This Contract applies only to that portion of any Policy which the Company retains net for its own account, and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any Policy which the Company retains net for its own account shall be included.

B.           The amount of the Reinsurers’ liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other Reinsurers, whether specific or general, any amounts which may have become due from such Reinsurers, whether such inability arises from the insolvency of such other Reinsurers or otherwise.

C.           Inter-company reinsurance among the companies collectively called the “Company” shall be entirely disregarded for all purposes of this Contract.

D.           Permission is hereby granted the Company to carry (i) underlying reinsurance and (ii) layers of catastrophe reinsurance both below and above this layer of coverage and recoveries made on the latter shall be disregarded for all purposes of this Contract and shall inure to the sole benefit of the Company.

Inadvertent delays, errors or omissions made by the Company in connection with this Contract shall not relieve the Reinsurer from any liability which would have attached had such error or omission not occurred, provided always that such error or omission shall be rectified as soon as possible, provided that the liability of the Reinsurer shall not extend beyond the coverage provided by this Contract nor to extend coverage to Policies that are not the Business Covered hereunder. This Article shall not apply to a sunset provision, if any in this Contract, nor to a commutation made in connection with this Contract.

The Company and the Reinsurer shall have the right to offset any balance or amounts due from one party to the other under the terms of this Contract. The party asserting the right of offset may exercise such right any time whether the balances due are on account of premiums or losses or otherwise and immediately inform the Intermediary accordingly. In the event of the insolvency of any party, offset shall be as permitted by applicable law.

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

B.           Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

A.           To the extent that any portion of the reinsurance premium for this Contract is subject to the Federal Excise Tax (as imposed under Section 4371 of the Internal Revenue Code) and the Reinsurer is not exempt therefrom, the Reinsurers shall allow for the purpose of paying the Federal Excise Tax, a deduction by the Company of the applicable percentage of the premium payable hereon. In the event of any return of premium becoming due hereunder, the Reinsurers shall deduct the applicable same percentage from the return premium payable hereon and the Company or its agent shall take steps to recover the tax from the United States Government. In the event of any uncertainty, upon the written request of the Company, the Reinsurer will immediately file a certificate signed by a senior corporate officer of the Reinsurer certifying to its entitlement to the exemption from the Federal Excise Tax with respect to one or more transactions.

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

A.           The Company shall place at the disposal of the Reinsurer at all reasonable times, and the Reinsurer shall have the right to inspect (and make reasonable copies) through its designated representatives during the term of this Contract and thereafter, all non-privileged books, records and papers of the Company directly related to any reinsurance hereunder, or the subject matter hereof, provided that if the Reinsurer has ceased active market operations, this right of access shall be subject to that Reinsurer being current in all payments owed the Company that are not currently the subject of a formal dispute (such as the initiation of an Arbitration or Mediation). For the purposes of this Article, “non-privileged” refers to books, records and papers that are not subject to the Attorney-client privilege and Attorney-work product doctrine.

B.           “Attorney-client privilege” and “Attorney-work product” shall have the meanings ascribed to each by statute and/or the court of final adjudication in the jurisdiction whose laws govern the substantive law of a claim arising under a Policy reinsured under this Contract.

C.           Notwithstanding anything to the contrary in this Contract, for any claim or loss under a Policy reinsured under this Contract, should the Reinsurer assert, pursuant to the Common Interest Doctrine (“Doctrine”), that it has the right to examine any document that the Company alleges is subject to the Attorney-client privilege or the Attorney-work product privilege, upon the Reinsurer providing to the Company substantiation of any law which reasonably supports the basis for the Reinsurer’s conclusion that the Doctrine applies and the Doctrine will be upheld as applying between the Company and the Reinsurer as against third parties pursuant to the substantive law(s) which govern the claim or loss, the Company shall give the Reinsurer access to such document.

D.           Notwithstanding any other provision to the contrary, once a claim and all directly related claims are finally settled by the Company, the Reinsurer shall be entitled to review all reasonable and applicable claims records that support a Company request for payment of a claim hereunder for Net Loss for Business Covered hereunder. In the event that the Reinsurer shall have paid an amount for Net Loss to the Company and the records do not support the obligation of the Reinsurer to have paid the claim, the Company shall promptly return any payment made in error.

(This Article shall be deemed to read as required to meet the statutory insolvency clause requirements of the Company.)

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

B.           Payments by the Reinsurer as above set forth shall be made directly to the Company or to its conservator, liquidator, or statutory successor, except where this Contract specifically provides another payee of such reinsurance or except as provided by applicable law and regulation (such as subsection (a) of section 4118 of the New York Insurance Laws) in the event of the insolvency of the Company.

C.           In the event of the insolvency of the Company, the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the insolvent Company on the Policy or Policies reinsured within a reasonable time after such claim is filed in the insolvency proceeding and during the pendency of such claim any Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses which it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable subject to court approval against the insolvent Company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

D.           Where two (2) or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company.

A.           Any and all disputes between the Company and the Reinsurer arising out of, relating to, or concerning this Contract, whether sounding in contract or tort and whether arising during or after termination of this Contract, shall be submitted to the decision of a board of arbitration composed of two (2) arbitrators and an umpire (“Board”) meeting at a site in the city in which the principal headquarters of the Company are located. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below.

B.           A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant’s notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator.

C.           The members of the Board shall be impartial, disinterested and not currently representing any party participating in the arbitration, and shall be current or former senior officers of insurance or reinsurance concerns, experienced in the line(s) of business that are the subject of this Contract. The Company and the Reinsurer as aforesaid shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. As time is of the essence, if the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant’s written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two (2) arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request ARIAS U.S. (“ARIAS”) to apply its procedures to appoint an umpire for the arbitration with the qualifications set forth above in this Article. If the use of ARIAS procedures fails to name an umpire, either party may apply to a court of competent jurisdiction to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed.

D.           The claimant and respondent shall each submit initial briefs to the Board outlining the facts, the issues in dispute and the basis, authority, and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit a reply brief to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to.

E.           The Board shall make a decision and award with regard to the terms expressed in this Contract, the original intentions of the parties to the extent reasonably ascertainable, and the custom and usage of the insurance and reinsurance business that is the subject of this Contract. Notwithstanding any other provision of this Contract, the Board shall have the right and obligation to consider underwriting and submission-related documents in any dispute between the parties.

F.           The Board shall be relieved of all judicial formalities and the decision and award shall be based upon a hearing in which evidence shall be allowed though the formal rules of evidence shall not strictly apply. Cross examination and rebuttal shall be allowed. The Board may request a post-hearing brief to be submitted within twenty (20) days of the close of the hearing.

G.           The Board shall render its decision and award in writing within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. Such decision shall be a condition precedent to any right of legal action arising out of the arbitrated dispute which either party may have against the other. However, the Board is not authorized to award punitive, exemplary or enhanced compensatory damages.

H.           The Board may award (i) interest at a rate not in excess of that set forth in the Article entitled LATE PAYMENTS, calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party, and (ii) applicable Attorneys’ fees and costs.

I.           Either party may apply to a court of competent jurisdiction for an order confirming any decision and the award; a judgment of that Court shall thereupon be entered on any decision or award. If such an order is issued, the Attorneys’ fees of the party so applying and court costs will be paid by the party against whom confirmation is sought.

J.           Except in the event of a consolidated arbitration, each party shall bear the expense of the one arbitrator appointed by or for it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. The remaining costs of the arbitration proceedings shall be finally allocated by the Board.

K.           Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses at the arbitration those of its employees, and those of its affiliates as any other participating party reasonably requests, providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive in the opinion of the Board.

L.           The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board.

M.           The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege, discovery and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board.

N.           Upon request made to the Board not later than ten (10) days after the umpire’s appointment, the Board may order a consolidated hearing as respects common issues between the Company and all affected Reinsurers participating in this Contract if the Board is satisfied in its discretion that the issues in dispute affect more than one Reinsurer and a consolidated hearing would be in the interest of fairness, and a prompt and cost effective resolution of the issues in dispute.

O.           If the parties mutually agree to or the Board orders a consolidated hearing, all other affected participating Reinsurers shall join and participate in the arbitration under time frames established by the Board and will be bound by the Board’s decision and award unless excused by the Board in its discretion. A consolidated hearing shall not result in any change or modification of any Reinsurer’s liability for its participation, that is several, but not joint shall remain the same.

P.           Any Reinsurer may decline to actively participate in a consolidated arbitration if in advance of the hearing, that Reinsurer shall file with the Board a written agreement in form satisfactory to the Board to be bound by the decision and award of the Board in the same fashion and to the same degree as if it actively participated in the arbitration.

Q.           In the event of an order of consolidation by the Board, the arbitrator appointed by the original Reinsurer shall be subject to being, and may be, replaced within thirty (30) days of the decision to have a consolidated arbitration by an arbitrator named collectively by the Reinsurers or in the absence of agreement, by the Lead Reinsurer, or if there is no Lead Reinsurer involved in the dispute, the Reinsurer with the largest participation in this Contract affected by the dispute. In the event two (2) or more Reinsurers affected by the dispute each have the same largest participation, they shall agree among themselves as to the replacement arbitrator, if any, to be appointed. The umpire shall be the final determiner in the event of any dispute over replacement of that arbitrator. All other aspects of the arbitration shall be conducted as provided for in this Article provided that (1) each party actively participating in the consolidated arbitration will have the right to its own attorney, position, and related claims and defenses; (2) each party will not, in presenting its position, be prevented from presenting its position by the position set forth by any other party; and (3) the cost and expense of the arbitration, exclusive of Attorneys’ fees (which will be borne exclusively by the respective retaining party unless otherwise determined by the Board) but including the expense of any stenographer which shall be borne by each party actively participating in the consolidated arbitration or as the Board shall determine to be fair and appropriate under the circumstances.

 

A.           This Article only applies to a Reinsurer domiciled outside of the United States and/or unauthorized in any state, territory or district of the United States having jurisdiction over the Company. Furthermore, this Article will not be read to conflict with or override any obligations of the parties to arbitrate their disputes under this Contract. This Article is intended as an aid to compelling arbitration if called for by this Contract or enforcing any such arbitration or arbitral award, not as an alternative to any Arbitration provision in this Contract that is applicable for resolving disputes arising out of this Contract.

B.           In the event of any dispute, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of any obligation to arbitrate disputes arising from this Contract or the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.

C.           The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided above, will comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against any of them upon this Contract, will abide by the final decision of such court or any appellate court in the event of an appeal.

D.           Service of process in any such suit against the Reinsurer may be made upon Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, - or in substitution therefore, the Firm identified by the Reinsurer on the Reinsurer’s signature page to this Contract, - (“Firm”) and in any suit instituted, the Reinsurer shall abide by the final decision of such court or of any appellate court in the event of an appeal.

E.           The Firm is authorized and directed to accept service of process on behalf of the Reinsurer in any such suit and/or upon the request of the Company to give a written undertaking to the Company that they shall enter a general appearance upon the Reinsurer’s behalf in the event such a suit shall be instituted.

F.           Further, as required by and pursuant to any statute of any state, territory or district of the United States which makes provision therefore, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as their true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof.

A.           The information, data, statements, representations and other materials provided by the Company or the Reinsurer to the other arising from consideration and participation in this Contract whether contained in the reinsurance submission, this Contract, or in materials or discussions arising from or related to this Contract, may contain confidential or proprietary information as expressly indicated by the Disclosing Party (“Disclosing Party”) in writing from time to time to the other party of the respective parties (“Confidential Information”). This Confidential Information is intended for the sole use of the parties to this Contract (and their affiliates involved in management or operation of assumed reinsurance business, retrocessionaires, prospective retrocessionaires, intermediaries involved in such placements, respective auditors and legal counsel) as may be necessary in analyzing and/or accepting a participation in and/or executing their respective responsibilities under or related to this Contract. Disclosing or using Confidential Information relating to this Contract, without the prior written consent of the Disclosing Party, for any purpose beyond (i) the scope of this Contract, (ii) the reasonable extent necessary to perform rights and responsibilities expressly provided for under this Contract, (iii) the reasonable extent necessary to administer, report to and effect recoveries from retrocessional Reinsurers, (iv) the reporting to regulatory or other governmental authorities as may be legally required or (v) persons with a need to know the information, (all of the preceding persons or entities who are legally obligated by either written agreement or otherwise to maintain the confidentiality of the Confidential Information) is expressly forbidden. Copying, duplicating, disclosing, or using Confidential Information for any purpose beyond this expressed purpose is forbidden without the prior written consent of the Disclosing Party.

B.           Should a party (“Receiving Party”) receive a third party demand pursuant to subpoena, summons, or court or governmental order, to disclose Confidential Information that has been provided by another party to this Contract, the Receiving Party shall make commercially reasonable efforts to provide the Disclosing Party with written notice of any subpoena, summons, or court or governmental order, at least ten (10) days prior to such release or disclosure. Unless the Disclosing Party has given its prior permission to release or disclose the Confidential Information, the Receiving Party shall not comply with the subpoena prior to the actual date required by the subpoena. If a protective order or appropriate remedy is not obtained, the Receiving Party may disclose only that portion of the Confidential Information that it is legally obligated to disclose. However, notwithstanding anything to the contrary in this Contract, in no event, to the extent permitted by law, shall this Article require the Receiving Party not to comply with the subpoena, summons, or court or governmental order.

A.           Privacy Awareness. The Company and the Reinsurer are aware of and in compliance with their responsibilities and obligations under:

1.           The Gramm-Leach-Bliley Act of 1999 (the “Act”) and applicable Federal and State laws and regulations implementing the Act. The Company and the Reinsurer will only use non-public personal information as permitted by law; and

2.           The applicable provisions of the Health Insurance Portability and Accountability Act (“HIPAA”) and the related requirements of any regulations promulgated thereunder including without limitation the Federal Privacy Regulations as contained in 45 CFR Part 160 and 164 (the “Federal Privacy Regulations”). The Company and the Reinsurer will only use protected health information as permitted by law.

B.           Non-Disclosure. To the extent required or prohibited by applicable law or regulation, the Reinsurer shall not disclose any (a) Non-Public Personal Information or (b) protected health information (as defined in 45 CFR 164.501) it receives from the Company to anyone other than:

1.           The Reinsurer, the Reinsurer’s affiliates, legal counsel, auditors, consultants, regulators, rating agencies and any other persons or entities to whom such disclosure is required to effect, administer, or enforce a reinsurance contract; or any retrocessional reinsurance contract applicable to the losses that are the subject of this Contract, or

2.           Persons or entities to whom disclosure is required by applicable law or regulation.

C.           Non-Public Personal Information. “Non-Public Personal Information” shall for the purpose of this Contract mean financial or health information that personally identifies an individual, including claimants under Policies reinsured under this Contract, and which information is not otherwise available to the public.

A.           If, at any time during the period of this Contract and thereafter the reinsurance provided by a Reinsurer participating in this Contract does not qualify for full statutory accounting credit for reinsurance by regulatory authorities having jurisdiction over the Company (whether by reason of lack of license, accreditation or otherwise) such that a financial penalty to the Company would result on any statutory statement or report the Company is required to make or file with insurance regulatory authorities (or a court of law in the event of insolvency), the Reinsurer shall secure the Reinsurer’s share of Obligations for which such full statutory credit is not granted by those authorities in a manner, form, and amount acceptable to the Company and to all applicable insurance regulatory authorities in accordance with this Article.

B.           The Reinsurer shall secure such Obligations, within thirty (30) days after the receipt of the Company’s written request regarding the Reinsurer’s share of Obligations under this Contract (but not later than December 31) of each year by either:

1.           Clean, irrevocable, and unconditional evergreen letter(s) of credit issued and confirmed, if confirmation is required by the applicable insurance regulatory authorities, by a qualified United States financial institution as defined under the Insurance Law of the Company’s domiciliary state and acceptable to the Company and to insurance regulatory authorities;

2.           A trust account meeting at least the standards of New York’s Insurance Regulation 114 and the Insurance Law of the Company’s domiciliary state; or

3.           Cash advances or funds withheld or a combination of both, which will be under the exclusive control of the Company (“Funds Deposit”).

C.           The “Obligations” referred to herein means, subject to the preceding paragraphs, the then current (as of the end of each calendar quarter) sum of any:

1.           amount of the ceded unearned premium reserve for which the Reinsurer is responsible to the Company;

2.           amount of Net Losses and Loss Adjustment Expenses and other amounts paid by the Company for which the Reinsurer is responsible to the Company but has not yet paid;

3.           amount of ceded reserves for Net Losses and Loss Adjustment Expenses for which the Reinsurer is responsible to the Company;

4.           amount of return and refund premiums paid by the Company for which the Reinsurer is responsible to the Company but has not yet paid.

D.           The Company, or its successors in interest, may draw, at any time and from time to time, upon the:

1.           Established letter of credit (or subsequent cash deposit);

2.           Established trust account (or subsequent cash deposit); or

3.           Funds Deposit;

without diminution or restriction because of the insolvency of either the Company or the Reinsurer for one or more of the following purposes set forth below.

E.           Draws shall be made only for the following purposes:

1.           To make payment to and reimburse the Company for the Reinsurer’s share of Net Loss and Loss Adjustment Expense and other amounts paid by the Company under its Policies and for which the Reinsurer is responsible under this Contract that is due to the Company but unpaid by the Reinsurer including but not limited to the Reinsurer’s share of premium refunds and returns; and

2.           To obtain a cash advance of the entire amount of the remaining balance under any letter of credit in the event that the Company:

a.           has received notice of non-renewal or expiration of the letter of credit or trust account;

b.           has not received assurances satisfactory to the Company of any required increase in the amount of the letter of credit or trust account, or its replacement or other continuation of the letter of credit or trust account at least thirty (30) days before its stated expiration date;

c.           has been made aware that others may attempt to attach or otherwise place in jeopardy the security represented by the letter of credit or trust account; or

d.           has concluded that the trustee or issuing (or confirming) bank’s financial condition is such that the value of the security represented by the letter of credit or trust account may be in jeopardy;

and under any of those circumstances where the Reinsurer’s entire Obligations, or part thereof, under this Contract remain unliquidated and undischarged at least thirty (30) days prior to the stated expiration date or at the time the Company learns of the possible jeopardy to the security represented by the letter of credit or trust account.

F.           If the Company draws on the letter of credit or trust account to obtain a cash advance, the Company will hold the amount of the cash advance so obtained in the name of the Company in any qualified United States financial institution as defined under the Insurance Law of the Company’s domiciliary state in trust solely to secure the Obligations referred to above and for the use and purposes enumerated above and to return any balance thereof to the Reinsurer:

1.           Upon the complete and final liquidation and discharge of all of the Reinsurer’s Obligations to the Company under this Contract; or

2.           In the event the Reinsurer subsequently provides alternate or replacement security consistent with the terms hereof and acceptable to the Company.

G.           The Company will prepare and forward at annual intervals or more frequently as determined by the Company, but not more frequently than quarterly to the Reinsurer a statement for the purposes of this Article, showing the Reinsurer’s share of Obligations as set forth above. If the Reinsurer’s share thereof exceeds the then existing balance of the security provided, the Reinsurer will, within fifteen (15) days of receipt of the Company’s statement, but never later than December 31 of any year, increase the amount of the letter of credit, (or subsequent cash deposit), trust account or Funds Deposit to the required amount of the Reinsurer’s share of Obligations set forth in the Company’s statement, but never later than December 31 of any year. If the Reinsurer’s share thereof is less than the then existing balance of the security provided, the Company will release the excess thereof to the Reinsurer upon the Reinsurer’s written request. The Reinsurer will not attempt to prevent the Company from holding the security provided or Funds Deposit so long as the Company is acting in accordance with this Article. The Company shall pay interest earned on the deposited amounts to the Reinsurers as the parties shall have agreed at the time of the deposit.

H.           Any assets deposited to a trust account will be valued according to their current fair market value and will consist only of cash (U.S. legal tender), certificates of deposit issued by a qualified United States financial institution as defined under the Insurance Law of the Company’s domiciliary state and payable in cash, and investments of the types no less conservative than those specified in Section 1404 (a)(1)(2)(3)(8) and (10) of the New York Insurance Law and which are admitted assets under the Insurance Law of the Company’s domiciliary state. Investments issued by the parent, subsidiary, or affiliate of either the Company or the Reinsurer will not be eligible investments. All assets so deposited will be accompanied by all necessary assignments, endorsements in blank, or transfer of legal title to the trustee in order that the Company may negotiate any such assets without the requirement of consent or signature from the Reinsurer or any other entity.

I.           All settlements of account between the Company and the Reinsurer will be made in cash or its equivalent. All income earned and received by the amount held in an established trust account will be added to the principal.

J.           The Company’s “successors in interest” will include those by operation of law, including without limitation, any liquidator, rehabilitator, receiver, or conservator.

K.           The Reinsurer will take any other reasonable steps that may be required for the Company to take full credit on its statutory financial statements for the reinsurance provided by this Contract.

A.           Payments from the Reinsurer to the Company for coverage providing pro rata forms of reinsurance shall have a due date as expressed in the Article entitled REPORTS AND REMITTANCES. Payments from the Reinsurer to the Company for coverage providing excess of loss reinsurance shall have as a due date the date on which the proof of loss or demand for payment is received by the Reinsurer. Payment not received within sixty (60) days of the due date shall be deemed overdue (the “Overdue Date”). Payments due from the Reinsurer to the Company will not be considered overdue if the Reinsurer requests, in writing, that such payment be made by drawing on a letter of credit or other similar method of funding that has been established for this Contract, provided that there is an adequate balance in place, and further provided that such advice to draw is received by the Company within the sixty (60) day deadline set forth above. Payments from the Company to the Reinsurer will have a due date as the date specified in this Contract and will be overdue sixty (60) days thereafter. Premium adjustments will be overdue sixty (60) days from the Contract due date or one hundred twenty (120) days after the expiration or renewal date, whichever is greater.

B.           In the event that this Contract provides excess of loss reinsurance, the Company will provide the Reinsurer with a reasonable proof of loss and a copy of the claim adjuster’s report(s) or any other reasonable evidence of indemnification. If subsequent to receipt of this evidence, the information contained therein is unreasonably insufficient or not in substantial accordance with the contractual conditions of this Contract, then the payment due date as specified above will be deemed to be the date upon which the Reinsurer received the additional information necessary to approve payment of the claim and the claim is presented in a reasonably acceptable manner. This paragraph is only for the purpose of establishing when a claim payment is overdue, and will not alter the provisions of the Article entitled REPORTS AND REMITTANCES or other pertinent contractual stipulations of this Contract.

C.           If payment is made of overdue amounts within thirty (30) days of the Overdue Date, overdue amounts will bear simple interest from the Overdue Date at a rate determined by the annualized one month London Interbank Offered Rate for the first business day of the calendar month in which the amount becomes overdue, as published in The Wall Street Journal, plus two hundred (200) basis points to be calculated weekly. If payment is made of overdue amounts more than thirty (30) days after the Overdue Date, overdue amounts will bear simple interest from the Overdue Date at a rate determined by the annualized one month London Interbank Offered Rate for the first business day of the calendar month in which the amount becomes overdue, as published in The Wall Street Journal, plus four hundred (400) basis points to be calculated on a weekly basis, but in no event less than eight percent (8%) simple interest. If the sum of the compensating additional amount computed in respect of any overdue payment is less than one quarter of one percent (0.25%) of the amount overdue, or one thousand dollars ($1,000), whichever is greater, and/or the overdue period is one week or less, then the interest amount shall be waived. The basis point standards referred to above shall be doubled if the late payment is due from a Reinsurer who is no longer an active reinsurance market. Interest shall cease to accrue upon the party’s payment of an overdue amount to the Intermediary.

A.           This Contract may be executed by:

1.           an original written ink signature of paper documents;

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

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

B.            The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract.

A.           This Contract shall be binding upon and inure to the benefit of the Company and Reinsurer and their respective successors and assigns provided, however, that this Contract may not be assigned by either party without the prior written consent of the other which consent may be withheld by either party in its sole unfettered discretion. This provision shall not be construed to preclude the assignment by the Company of reinsurance recoverables to another party for collection.

B.           The territorial limits of this Contract shall be identical with those of the Company’s Policies.

C.           This Contract shall constitute the entire agreement between the parties with respect to the Business Covered hereunder. There are no understandings between the parties other than as expressed in this Contract. Any change or modification of this Contract shall be null and void unless made by amendment to the Contract and signed by both parties.

D.           Except as may be provided in the Article entitled ARBITRATION, this Contract shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania, exclusive of that state’s rules with respect to conflicts of law.

E.           The headings preceding the text of the Articles and paragraphs of this Contract are intended and inserted solely for the convenience of reference and shall not affect the meaning, interpretation, construction or effect of this Contract.

F.           This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract.

G.           If any provision of this Contract should be invalid under applicable laws, the latter shall control but only to the extent of the conflict without affecting the remaining provisions of this Contract.

H.           The failure of the Company or Reinsurer to insist on strict compliance with this Contract or to exercise any right or remedy shall not constitute a waiver of any rights contained in this Contract nor estop the parties from thereafter demanding full and complete compliance nor prevent the parties from exercising any remedy.

I.           Each party shall be excused for any reasonable failure or delay in performing any of its respective obligations under this Contract, if such failure or delay is caused by Force Majeure. “Force Majeure” shall mean any act of God, strike, lockout, act of public enemy, any accident, explosion, fire, storm, earthquake, flood, drought, peril of sea, riot, embargo, war or foreign, federal, state or municipal order or directive issued by a court or other authorized official, seizure, requisition or allocation, any failure or delay of transportation, shortage of or inability to obtain supplies, equipment, fuel or labor or any other circumstance or event beyond the reasonable control of the party relying upon such circumstance or event; provided, however, that no such Force Majeure circumstance or event shall excuse any failure or delay beyond a period exceeding thirty (30) days from the date such performance would have been due but for such circumstance or event.

J.           All Articles of this Contract shall survive the termination of this Contract until all Obligations between the parties have been finally settled.

K.           This Contract may be executed by the parties hereto in any number of counterparts, and by each of the parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

L.           Whenever the word “Company” is used in this Contract, such term shall mean each and all affiliated companies which are or may hereafter be under common control provided notice be given to the Reinsurers of any newly affiliated companies which may hereafter come under common control as soon as practicable, with full particulars as to how such affiliation is likely to affect this Contract. In the event that either party maintains that such affiliation calls for altering the terms of this Contract and an agreement for alteration not being arrived at, then the Business Covered of such newly affiliated company is covered at existing terms for a period not to exceed (90) ninety days after notice by either party that it does not wish to cover the business of the newly affiliated company at the existing terms.

M.           The term “Reinsurer” shall refer to each Reinsurer participating severally and not jointly in this Contract. The subscribing (Re)insurers’ obligations under contracts of (re)insurance to which they subscribe are several and not joint and are limited solely to the extent of their individual subscriptions. The subscribing (Re)insurers are not responsible for the subscription of any co-subscribing (Re) insurer who for any reason does not satisfy all or part of its obligations.

N.           For purposes of sending and receiving notices and payments required by this Contract other than in respect of the Articles entitled SERVICE OF SUIT and RESERVES herein, the reinsured company that is set forth first in the definition of “Company” is deemed the agent of all other reinsured companies referenced herein. In no event, however, shall any reinsured company be deemed the agent of another with respect to the terms of the Article entitled INSOLVENCY.

O.           Whenever the content of this Contract requires, the gender of all words shall include the masculine, feminine and neuter, and the number of all words shall include the singular and the plural. This Contract shall be construed without regard to any presumption or other rule requiring construction against the party causing this Contract to be drafted.

P.           The Company shall furnish the Reinsurer, in accordance with regulatory requirements, periodic reporting of premiums and losses that relate to the Business Covered in this Contract as may be needed for Reinsurers’ completion of financial statements to regulatory authorities.

Q.           When so requested in writing, the Company shall afford the Reinsurer or its representatives an opportunity to be associated with the Company, at the expense of the Reinsurer, in the defense of any claim, suit or proceeding involving this reinsurance, and the Company and the Reinsurer shall cooperate in every respect in the defense of such claim, suit or proceeding, provided the Company shall have the right to make any decision in the event of disagreement over any matter of defense or settlement.

A.           Towers Watson Pennsylvania Inc. (“Towers Watson”) is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through Towers Watson, Centre Square East, 1500 Market Street, Philadelphia, Pennsylvania, 19102-4790. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.  In acting as Intermediary for this Contract, the Intermediary shall (i) comply with all aspects of New York Regulation 98 and shall (ii) be entitled to withdraw funds in accordance with section 32.3(a)(3) of that Regulation including commissions, excise tax and interest received on its premium and loss accounts, and shall also (iii) return to the Reinsurer any brokerage allowed by the Reinsurer and taken on premium ceded to the Reinsurer but refunded or returned to the Company.

B.           Whenever notice is required within this Contract, such notice may be given by certified mail, registered mail, or overnight express mail. Notice shall be deemed to be given on the date received by the receiving party.

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

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

2.           Without in any way restricting the operation of paragraph 1 of this Clause, it is understood and agreed that for all purposes of this reinsurance all the original Policies of the Company (new, renewal and replacement) of the classes specified in Clause II of this paragraph 2 from the time specified in Clause III in this paragraph 2 shall be deemed to include the following provision (specified as the Limited Exclusion Provision):

3.           Except for those classes of Policies specified in Clause II of paragraph 2 and without in any way restricting the operation of paragraph 1 of this Clause, it is understood and agreed that for all purposes of this reinsurance the original liability Policies of the Company (new, renewal and replacement) affording the following coverages:

shall be deemed to include, with respect to such coverages, from the time specified in Clause V of this paragraph 3, the following provision (specified as the Broad Exclusion Provision):

Broad Exclusion Provision*

(With respect to injury to or destruction of property, the word “injury” or “destruction”

                       (includes all forms of radioactive contamination of property.

4.           Without in any way restricting the operation of paragraph 1 of this Clause, it is understood and agreed that paragraphs 2 and 3 above are not applicable to original liability Policies of the Company in Canada and that with respect to such Policies this Clause shall be deemed to include the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian Underwriters’ Association or the Independent Insurance Conference of Canada.

*NOTE:  The words printed in italics in the Limited Exclusion Provision and in the Broad Exclusion Provision shall apply only in relation to original liability Policies which include a Limited Exclusion Provision or a Broad Exclusion Provision containing those words.

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

2.           Without in any way restricting the operation of paragraph 1 of this clause, it is agreed that for all purposes of this Agreement all the original liability contracts of the Company, whether new, renewal or replacement, of the following classes, namely:

which become effective on or after 31st December 1984, shall be deemed to include, from their inception dates and thereafter, the following provision:

3.           Without in any way restricting the operation of paragraph 1 of this clause, it is agreed that for all purposes of this Agreement all the original liability contracts of the Company, whether new, renewal or replacement, of any class whatsoever (other than Personal Liability, Farmers’ Liability, Storekeepers’ Liability or Automobile Liability contracts), which become effective on or after 31st December 1984, shall be deemed to include from their inception dates and thereafter, the following provision:

As used in this Policy:

1.           The term “nuclear energy hazard” means the radioactive, toxic, explosive or other hazardous properties of radioactive material.

2.           The term “radioactive material” means uranium, thorium, plutonium, neptunium, their respective derivatives and compounds, radioactive isotopes of other elements and any other substances that the Atomic Energy Control Board may, by regulation, designate as being prescribed substances capable of releasing atomic energy, or as being requisite for the production, use or application of atomic energy.

4.           The term “fissionable substance” means any prescribed substance that is, or from which can be obtained, a substance capable of releasing atomic energy by nuclear fission.

5.           With respect to property, loss of use of such property shall be deemed to be property damage.