Allied World Assurance 10-Q 2007 Q1 Quarterly report

Exhibit 10.6

CASUALTY VARIABLE QUOTA SHARE REINSURANCE AGREEMENT

ARTICLE	PAGE
PREAMBLE		2
DEFINITIONS ARTICLE		2
REINSURANCE COVERAGE ARTICLE		7
FOLLOW THE FORTUNES ARTICLE		9
TERM ARTICLE		10
SPECIAL TERMINATION OR SETTLEMENT ARTICLE		11
TERRITORY ARTICLE		13
EXCLUSIONS ARTICLE		14
REINSURANCE PREMIUM AND CEDING COMMISSION ARTICLE		22
OTHER REINSURANCE ARTICLE		22
EXTRA CONTRACTUAL OBLIGATIONSANDEXCESS OF LIMITS LIABILITY
ARTICLE		22
REPORTS AND REMITTANCES ARTICLE		23
LOSS SETTLEMENTS ARTICLE		25
OFFSET ARTICLE		25
SALVAGE AND SUBROGATION ARTICLE		25
DELAYS, ERRORS, OR OMISSIONS ARTICLE		26
ENTIRE AGREEMENT, INTERPRETATION ARTICLE		26
ACCESS TO RECORDS ARTICLE		26
CONFIDENTIALITY ARTICLE		27
INSOLVENCY ARTICLE		27
ARBITRATION ARTICLE		28
GOVERNING LAW ARTICLE		30
CURRENCY REVALUATION AND FOREIGN EXCHANGE ARTICLE		31
SERVICE OF SUIT ARTICLE		33
AGENCY ARTICLE		34
INTERMEDIARY ARTICLE		34
RESERVES AND FUNDING ARTICLE		35
TAXES ARTICLE		37
FEDERAL EXCISE TAX ARTICLE		37
SURVIVAL ARTICLE		37

1

CASUALTY VARIABLE QUOTA SHARE REINSURANCE AGREEMENT

(Words and phrases that appear inboldprint have special meanings that are defined either in the DEFINITIONS ARTICLE or in the text of thisagreement.)

PREAMBLE

Thisagreementis made and entered into by and between:

ALLIED WORLD ASSURANCE COMPANY, LTD, a Bermuda corporation;

ALLIED WORLD ASSURANCE COMPANY (EUROPE) LIMITED, an Ireland corporation; ALLIED WORLD ASSURANCE COMPANY (REINSURANCE) LIMITED, an Ireland corporation;

ALLIED WORLD ASSURANCE COMPANY (U.S.) INC., a Delaware corporation; and/or NEWMARKET UNDERWRITERS INSURANCE COMPANY, a New Hampshire corporation;

(hereinafter collectively referred to as the “company”and wherever the word “company” is used in thisagreement, such term shall be held to include any and/or all of the subsidiary or affiliated companies that are or may hereafter come under the ownership, management and/or control of thecompany, provided that notice be given to the reinsurer of any such subsidiary or affiliate companies that may hereafter come under the ownership, management and/or control of thecompanyas soon as practicable)

of the one part; and the various reinsurers as identified by the INTERESTS AND LIABILITIES AGREEMENTS attaching to and forming a part of thisagreement(hereinafter referred to individually as the “reinsurer”and collectively as the“reinsurers") of the other part.

The parties hereto agree as hereinbelow, in consideration of the mutual covenants contained in the following Articles and upon the terms and conditions set forth therein:

DEFINITIONS ARTICLE

The following terms, wherever used in thisagreement, will have the meanings set forth herein, and will be deemed to refer to the singular, plural, or otherwise inflected forms of such terms, as the context requires:

A. “Advertising liability”and“advertising injury”have the same meanings that they do in thecompany’s policy.

B. “Agreement”means this contract of reinsurance, any exclusion clauses as may be referenced in the Exclusions Article and the INTERESTS AND LIABILITIES AGREEMENTS attached hereto as well as any written amendment to thisagreementthat has been by signed by both thecompanyand thereinsurer.

2

C. “Automobile”has the same meaning that it does in thecompany’s policy.

D. “Bodily injury”has the same meaning that it does in thecompany’s policy.

E. “Critical auto parts”means brakes and component parts, alternators, engines and engine control parts, clutch sets, axles/joints, fuel/gas tanks and component parts, ignition parts, shocks/struts, steering/suspensions, transmissions/gearboxes, wheels/tires, seatbelts, door latches, and airbags.

F. “Date of loss”means:

1.	The date of theoccurrenceor accident as determined by apolicyresponding to the loss if thepolicywas issued on anoccurrencebasis;
2.	The date the claim is made as determined by apolicyresponding to the loss if thepolicywas issued on a claims-made basis; or
3.	The date theoccurrenceis reported as determined by apolicyresponding to the loss if thepolicyis issued on anoccurrences-reported basis.

The date of any claim made under a claims-madepolicy, oroccurrencereported under aoccurrences-reportedpolicywill be deemed to be the date as determined under the terms of thepolicy, except that the date of any claim made oroccurrencereported under a BasicExtended Reporting Period, SupplementalExtended Reporting PeriodorDiscovery Periodprovided by such apolicywill be deemed to be the termination date of thepolicy.

G. “Declaratory judgment expense”means all expenses incurred by thecompanyin direct connection with declaratory judgment actions brought to determine thecompany’s policy obligations that are allocable to specificpoliciesand claims subject to thisagreement.Declaratory judgment expensewill be deemed to have been incurred by thecompanyon thedate of loss.

H. “Extended reporting period”and “discovery period”mean a specific time period after apolicy’stermination date within which claims may be made oroccurrencesmay be reported (under apolicywritten on a claims-made oroccurrences-reported basis) with respect tooccurrenceshappening between thepolicy’sretroactive date, if any, and the termination date of thatpolicy.

I. “Ethical pharmaceutical”means the specific dosage(s) of a pharmaceutical or drug dispensable only directly by or upon prescription of a physician or other practitioner licensed by law to administer such pharmaceutical or drug.

J. “Incidental”with respect to any premises, operations, products, activities or work of an original insured means premises, operations, products, activities or work that generate 10.00% or less of such insured’s total revenues for the 12-month period that immediately precedes the effective orrenewaldate of thepolicywritten for such insured.

3

K. “Industrial aid aircraft”and “industrial aid aircraft use”have the same meanings that they do in thecompany’s policy.

L. “Incidental medical malpractice”includes:

1.	Any liability, loss, cost or expense arising out of emergency first aid provided by any original insured that is not principally engaged in the provision of emergency medical services.
2.	Any liability, loss, cost or expense arising out of medical, surgical, dental, x-ray, nursing or chiropractic services or care provided to any person, including the furnishing of drugs in connection therewith, by any original insured that is not principally engaged in the provision of such medical care or services.

M. “Insured’s products”has the same meaning that it does in thecompany’s policy.

N. “Integrated occurrence”or “batch occurrence”have the same meaning that they do in thecompany’s policy, if applicable.

O. “Joint venture”has the same meaning that it does in thecompany’s policy.

P. “Loss adjustment expense”includes:

1.	All expenses incurred by thecompanyin the investigation, appraisal, adjustment, litigation and/or defense of claims underpoliciesreinsured hereunder, including salaries and expenses of thecompany’sfield employees and salaried adjusters who have no administrative duties;
2.	Charges or expenses incurred through the use of third party claim services or technical services;
3.	Expenses of thecompany’sofficials incurred in connection with the loss;
4.	Court costs;
5.	Interest accrued prior to final judgment, if included as part of expense on reinsuredpolicies; and
6.	Interest accrued after final judgment;and
7.	Declaratory judgment expense.

Thereinsurer’sliability forloss adjustment expensewill be in addition to its limit of liability forultimate net lossunder thisagreementas set forth in the REINSURANCE COVERAGE ARTICLE (except as respects any such expense that is included in the definition of “ultimate net loss”as set forth below).

4

Thereinsurerwill bear its pro rata share of allloss adjustment expense, and thereinsurer will, on the other hand, benefit proportionately from all reductions ofloss adjustment expense by salvage, compromise or otherwise.

Loss adjustment expensedoes not include salaries of thecompany’sofficials and regular office employees and office expenses of thecompany.

Q. “Low-rise residential construction operations”mean the construction of:

1.	Homes;
2.	Town homes;
3.	Residential apartment buildings; or
4.	Residential condominium buildings;

that are under three stories in height.

R. “Net subject written premium”means the gross written premium of thecompanyfor thepolicies reinsured hereunder, including any premium paid by original insureds in respect of anyextended reporting periodsordiscovery periodsand any reinstatement premium payable by the original insureds, less returned premium for cancellations, premium audits and reductions, and less premium for inuring reinsurance as set forth in the OTHER REINSURANCE ARTICLE.

S. “Occurrence”has the same meaning that it does in thecompany’s policy. If apolicyhas an “each accident,” “each wrongful act,” “each common cause,” “each disease,” “each location,” “each claim,” “each employee” or “each offense” limit of liability, thenoccurrenceas used in thisagreementwill have the same meaning as an “accident,” “wrongful act,” “common cause,” “disease,” “location,” “claim,” “employee,” or “offense” in suchpolicywith respect to such limit of liability.

T. “Personal injury”and“personal and advertising injury”have the same meanings that they do in thecompany’s policy.

U.	“Policy”means any policy, binder, contract, or agreement of insurance or reinsurance. Where thecompanyhas issued two or more ceded policies covering the same original named insured, or group of original named insureds, at different attachment points, then such policies will be deemed to be a singlepolicyhereunder.
	Themaximum policy periodfor subject business will be:

1.	12 months plus odd time, not to exceed eighteen (18) months in all, for allpolicies other than those described in paragraph 2. below; and
2.	60 months plus odd time, not to exceed 66 months in all, for allpolicieswritten to insure a specific construction project or series of construction projects;

5

Provided, however:

a.

That the limitation in 1. above will not apply topoliciesissued forpolicyperiods of greater than 18 months if they can be re-priced and re-underwritten without limitation, other than such limitations as are described in c) below, at the expiration of each annual period during thepolicyperiod. The commencement of each subsequent annual period will be considered a separaterenewalfor purposes of thisagreement;

b.

In determining whether apolicyhas exceeded themaximum policy period,thepolicy period of suchpolicywill not include any:

1.	Extended reporting periods(whether basic, supplemental or both);
2.	Discovery period(s); or
3.	Products-completed operations extensions or extensions for maintenance defects liability;
	That are provided under the terms and conditions of thatpolicy; and

c. If thecompanyis limited or prevented by statute, regulation, or judicial decision from re-pricing, re-underwriting, cancelling, or non-renewing apolicy, then the maximumpolicyperiod will be extended until the firstrenewaldate when thecompanycan lawfully re-price, re-underwrite, cancel or non-renew suchpolicy.

Any products-completed operations extension provided under apolicythat is reinsured hereunder will commence at the end of thepolicyperiod of suchpolicyand will not extend beyond the greatest amount of time allowed under:

(1)	The longest applicable statute of repose (including any applicable extensions thereof); or
(2)	The longest applicable statute of limitations (including any applicable extensions thereof).

V. “Pollutants” has the same meaning that it does in thecompany’s policy.

W. “Products-completed operations hazard”has the same meaning that it does in thecompany’s policy.

X. “Property damage”has the same meaning that it does in thecompany’s policy.

Y. “Renewal”or“renewed”will include anypolicywith apolicyperiod of one year or less that is renewed at its expiration or anniversary date as well as anypolicythat is issued for more than one year, but which can be re-priced and re-underwritten at the expiration of each annual period during itspolicyperiod.

6

Z. “Satisfactory proof of loss”means reasonable evidence of amounts paid or payable by thecompanyin any settlement, compromise or adjustment of loss made by thecompany.

AA. “Ultimate net loss”means the amount of any settlement, award, or judgment paid by thecompany,or for which thecompanyhas become liable to pay, including interest accrued prior to the final judgment, if such interest erodes the applicable limit of liability of thecompany’s policy. All recoveries, salvages and subrogations that are actually recovered and all inuring reinsurance, whether recovered or not, will be deducted from the amount of theultimate net loss.Ultimate net lossdoes not include:

1.	Any element ofloss adjustment expense, unless that element ofloss adjustment expense erodes the applicable limit of liability of thecompany’s policy;
2.	Extra contractual obligations;or
3.	Excess of limits liability.

REINSURANCE COVERAGE ARTICLE

Thecompanywill cede to thereinsurer, and thereinsurerwill accept a quota share percentage of the interests and liabilities of allpoliciesclassified by thecompanyas:

EXCESS GENERAL CASUALTY INSURANCE.

Said quota share cession will be based on the original limits and initial attachment point of eachpolicyas set forth in the below Sections A, B, and C.

SECTION A

(This Section A is not applicable topolicieswritten through Allied World Assurance Company (U.S.) Inc. or Newmarket Underwriters Insurance Company.)

As respectspolicieswith original limits up to and including $25,000,000,€25,000,000, or £15,000,000 eachoccurrence, thereinsurerswill accept a 100% quota share participation. The limit of liability to thereinsurersforultimate net losswill not exceed $25,000,000,€25,000,000, or £15,000,000, eachoccurrenceeachpolicy, subject to any reinstatement or any aggregate provisions (or both) in thepolicy, plus their proportionate share ofloss adjustment expense(payable whether or not thecompanyhas paid or has become liable to pay anyultimate net lossunder itspolicy),and anyextra contractual obligationsandexcess of limits liabilitynot included within the above limit, subject to the provisions of the EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILTY ARTICLE.

Allpoliciessubject to this Section A will be written above a minimum initial attachment point of $10,000,000,€10,000,000, or £10,000,000.

Thecompanywill retain a 75% share in eachpolicy, eachoccurrencesubject to this Section A net and unreinsured, except as provided in the OTHER REINSURANCE ARTICLE.

7

SECTION B

(This Section B is not applicable topolicieswritten through Allied World Assurance Company (U.S.) Inc. or Newmarket Underwriters Insurance Company.)

1. As respectspolicieswith original limits in excess of $25,000,000,€25,000,000, or £15,000,000 eachoccurrence, thecompanywill cede to thereinsurersa variable quota share cession, which will be calculated individually with respect to eachpolicy.The variable quota share ceded percentage as used in this Section B will be calculated according to the following formula: Forpoliciesissued in U.S. Dollars, Euros or United Kingdom Pounds Sterling, the formula is:

a.	The amount of thepolicy’stotal original limit in excess of $25,000,000,€25,000,000 or £15,000,000
b.	Divided by thepolicy’stotal originalpolicylimit
c.	Equals thepolicy’svariable quota share ceded percentage.

2. As respectspoliciesissued in currency other than U.S. Dollars, Euros or United Kingdom Pounds Sterling, thepolicy’stotal original limit will be converted into U.S. Dollars in accordance with the CURRENCY REVALUATION AND FOREIGN EXCHANGE ARTICLE, and the calculation described in 1. above will apply to suchpolicyas if it had been initially written with limits in U.S. Dollars.

The limit of liability to the reinsurers forultimate net losswill not exceed $25,000,000 or€25,000,000 or £15,000,000 eachoccurrenceunder eachpolicy, subject to any reinstatement or any aggregate provisions (or both) in thecompany’s policy,plus their proportionate share ofloss adjustment expense(payable whether or not thecompanyhas paid or has become liable to pay anyultimate net lossunder itspolicy), and anyextra contractual obligationsandexcess of limits liabilitynot included within the above limit, subject to the provisions of the EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY ARTICLE.

Allpoliciessubject to this Section B will be written above a minimum initial attachment point of $25,000,000,€ 25,000,000, or £15,000,000.

Thecompanywill retain a 100% share, less the cession toreinsurers(as calculated above in this Section B) in eachpolicysubject to this Section net and unreinsured, except as provided in the OTHER REINSURANCE ARTICLE.

SECTION C

(This Section C is applicable only topolicieswritten through Allied World Assurance Company (U.S.) Inc. or Newmarket Underwriters Insurance Company.)

As respectspolicieswith original limits up to and including $25,000,000 eachoccurrence, thereinsurerswill accept a 100% quota share participation. The limit of liability to thereinsurers forultimate net losswill not exceed $25,000,000 eachoccurrenceunder eachpolicy, subject to any reinstatement or any aggregate provisions (or both) in thecompany’s policy,plus their proportionate share ofloss adjustment expense(payable whether or not thecompanyhas paid or has become liable to pay anyultimate net lossunder itspolicy), and anyextra contractual

8

obligationsandexcess of limits liabilitynot included within the above limit, subject to the provisions of the EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY ARTICLE.

Allpoliciesthat provide coverage for original named insureds that are principally engaged in the construction of real property and that are subject to this Section C will be written above a minimum initial attachment point of $10,000,000. All otherpoliciessubject to this Section C will be written above a minimum initial attachment point of $5,000,000.

Thecompanywill retain a 72% share in eachpolicy,eachoccurrencesubject to this Section C net and unreinsured, except as provided in the OTHER REINSURANCE ARTICLE.

APPLICABLE TO SECTIONS A, B AND C ABOVE

The application of amounts in U.S. Dollars, Euros, or United Kingdom Pounds Sterling above will be subject to Paragraph V. of the CURRENCY REVALUATION AND FOREIGN EXCHANGE ARTICLE.

If thecompany’s policyrecognizes any:

1. Erosion of its initial attachment point due to payment of claims by underlying insurance and drops down; or

2. Reduction in its stated attachment point due to any provisions in any underlying insurance with respect to anyjoint venture;

then the minimum initial attachment points specified in Sections A, B, and C above will likewise recognize any such erosion or reduction and be eroded or reduced to the same extent.

Should any loss involve thisagreement, the obligation of thereinsurersin Sections A, B, and C above will be reinstated immediately and automatically as to any subsequent loss for the full amount of reinsurance as set forth above.

FOLLOW THE FORTUNES ARTICLE

Thereinsurer’sliability will attach simultaneously with that of thecompanyand will be subject in all respects to the same terms, conditions, interpretations, waivers, modifications, alterations, and cancellations as the respectivepoliciesof thecompany, the true intent of thisagreementbeing that thereinsurerwill follow the fortunes of thecompany,subject to the terms, conditions and limits of thisagreement.

Nothing will in any manner create any obligations or establish any rights against thereinsurerin favor of any third parties or any persons not parties to thisagreement.

9

TERM ARTICLE

Thisagreementapplies to allpolicieswritten orrenewedwith effective dates during the 12-month term extending from March 1^st, 2007, 12:01 a.m. standard time to March 1^st, 2008, 12:01 a.m. standard time.

Standard time is as determined by thecompany’s policy.

Thisagreementwill expire on a run-off basis, and thereinsurerwill remain liable for all losses underpoliciesin force until their expiration orrenewaldates, whichever comes first. Additionally, thereinsurerwill remain liable during anyextended reporting periodordiscovery periodthat an original insured may elect to invoke on a claims-made oroccurrence-reportedpolicy that is written orrenewedwith an effective date during the term of thisagreement. In conformance with state regulations, the obligations of thereinsurerunder thisagreementas respects all claims-made oroccurrence-reportedpolicieswill extend to the reinstatement of any aggregate limits as may be afforded by anyextended reporting periodordiscovery periodprovision of suchpolicies. Thereinsurerwill receive its share of any premium applicable to saidextended reporting periodordiscovery period, which will be considered fully earned by thereinsureron the last in-force day of thecompany’s policyperiod.

Alternatively, thecompanymay elect that the expiration or termination of thisagreement be effected on a cut-off basis, and in the event that thecompanyelects a cut-off expiration or termination:

1. Thereinsurerwill not be liable for any losses with adate of losson or after the date of expiration or termination of thisagreement; and

2. Thereinsurerwill return immediately to thecompanythe unearned portion of thenet subject written premiumless ceding commission as of the date of expiration or termination of thisagreement, computed on a pro-rata basis.

Should expiration or termination take place on a cut-off basis, any aggregate limits of liability to thereinsurersunder thisagreementwill be prorated as of the date of expiration or termination in the same proportion that the earnednet subject written premiumbears to the totalnet subject written premiumfor allpoliciesas of that date.

In the event thatpoliciessubject to thisagreementare written in a jurisdiction where cancellation, renewal, or nonrenewal of coverage is regulated by the insurance authorities, and thecompanyis bound by statute or regulation of said jurisdiction or by a judicial decision to continue coverage after the expiration or termination date of thisagreement, then thereinsurer will remain liable on anypoliciescontinuing such coverage (and will receive any premium collected there for) until the first date when thecompanycan lawfully cancel or nonrenew saidpolicies. If, however, thecompanynotifies thereinsurerin writing that it has decided to hold the business net and for its own account, then thereinsurerwill not be liable for longer than the run-off period set forth above.

10

Notwithstanding the expiration or termination of thisagreement(or anyreinsurer’spercentage participation hereon) as hereinabove provided, the provisions of thisagreementwill continue to apply to all obligations and liabilities of the parties incurred hereunder to the end that all such obligations and liabilities will be fully performed and discharged.

SPECIAL TERMINATION OR SETTLEMENT ARTICLE
(Applicable separately as between thecompanyand each participatingreinsurer)

Section I

A. Thecompanymay terminate thisagreementforthwith in the event that:

1.	Thereinsurerceases writing reinsurance;
2.	Thereinsurerat any time:

a.	Has a Standard & Poor’s (S&P) Insurer Financial Strength Rating of lower than “A-”; or
b.	Ceases to have any S&P Insurer Financial Strength Rating (or has a designation of “not rated” or “NR”) after having had an S&P rating at or after the inception of thisagreement;

3. Thereinsurerat any time:

a.	Has an A.M. Best’s Financial Strength Rating of lower than “A-”; or
b.	Ceases to have any A.M. Best’s Financial Strength Rating (or has a designation of “not rated” or “NR”) after having had an A.M. Best’s Financial Strength Rating at or after the inception of thisagreement;

4.

Over any period not exceeding twelve months, the policyholders’ surplus of thereinsurer, as reported in such financial statements of thereinsureras designated by thecompany, drops by 20% or more; or

5.

As respects eachreinsurerdomiciled in the United States of America only, upon application of the NAIC Insurance Regulatory Information System (IRIS) tests to thereinsurer’smost recent statutory Annual Statement (which thereinsurerhereby agrees to furnish to thecompanyupon request), it is found that four or more of thereinsurer’sIRIS financial ratio values are outside of the usual range established in the IRIS system.

B. Termination under Section I A. above will be effected by written notice. Thecompanywill elect whether the termination will be on a run-off basis or a commutation with an immediate settlement ofall present and future obligationsunder thisagreement. If thecompany initially elects a run-off basis, within 15 calendar days after receiving notice of the

11

company’selection, thereinsurerwill secure all such obligations through a trust account or a clean, unconditional, irrevocable, and evergreen letter of credit from a financial institution acceptable to thecompany. However, even if such security is requested by thecompanyor provided by thereinsurer, thecompanywill retain the right to require an immediate settlement ofall present and future obligationsat any subsequent date.

Section II

A. After the expiration (if there is no Special Termination as governed by Section I above) of thisagreement, if thereinsurerhas any remaining present or future obligations to thecompanyand any of the five events described in paragraph A. of Section I should occur, thecompanymay require:

1.	An immediate settlement ofall present and future obligationsunder thisagreement; or
2.	Thereinsurerto secure all such obligations through a trust account or a clean, unconditional, irrevocable, and evergreen letter of credit from a financial institution acceptable to thecompany.

B. If thecompanyinitially requires security under Paragraph A. 2. of this Section, it will notify thereinsurerin writing and thereinsurerwill provide such trust account or letter of credit within 15 calendar days. However, even if such security is requested by thecompanyor provided by thereinsurer, it is agreed that thecompanywill retain the right to require an immediate settlement ofall present and future obligationsat any subsequent date.

Section III

A. For purposes of this Article, “all present and future obligations”means outstandingultimate net loss, extra contractual obligations, excess of limits liabilityandloss adjustment expense[including reserves for incurred-but-not-reportedultimate net lossandloss adjustment expense(hereinafter “IBNR”)], return of unearnednet subject written premium, and all other present or future balances, obligations, or amounts due thecompanyunder thisagreement.

B. In no event will this Article be construed to limit the amount of, or the rights and obligations of the parties with respect to, any security withheld or required in accordance with the RESERVES AND FUNDING ARTICLE hereof (if applicable).

C. In the event of an immediate settlement ofall present and future obligations, upon receipt of final payment, thecompanyand thereinsurerwill execute a full and final commutation and mutual release of their respective liabilities under theagreement.

12

D. When requested by either party an appraisal of IBNR will be made by a panel of three disinterested actuaries to be selected as follows:

1.	Thecompany, or thereinsurer, may request in writing to the other party that any differences in the estimated amount of IBNR be settled by a panel of three actuaries, one to be chosen by each party and the third by the two so chosen.
2.	If the other party refuses or neglects to appoint an actuary within 10 calendar days after thecompany’sorreinsurer’srequest in writing that the differences be settled by a panel of three actuaries, the other party may appoint two actuaries.
3.	If the two actuaries fail to agree on the selection of a third actuary within 10 calendar days of their appointment, each of them will name two, of whom the other will decline one, and the decision will be made by drawing lots. All the actuaries will be regularly engaged in the valuation of excess general liability insurance claims, and each will be a Fellow of the Casualty Actuarial Society. None of the actuaries will be under the control of either party to thisagreement.
4.	Each party will submit its case to the actuary it selected within 10 calendar days of the appointment of the third actuary. The decision in writing of any two actuaries, when filed with the parties hereto, will be final and binding on both parties. The expense of the actuaries and of the commutation will be equally divided between the two parties. Said appraisal will take place in Hamilton, Bermuda unless some other place is mutually agreed upon by thecompanyand thereinsurer.
5.	Any appraisal rendered pursuant to this subparagraph D. will not be subject to arbitration, and either party to thisagreementmay proceed to a court of competent jurisdiction to initiate an action to enforce such an appraisal.

E. All demands, requests and notices pursuant to this Article will be given in writing and given by hand, prepaid express courier, airmail or telecopier properly addressed to the appropriate party and will be deemed as having been effected only upon actual receipt.

F. Settlements under this Article will be adjusted for net present value. The discount rate used for determining net present value will be the current yield of a United States Treasury 2-year note as quoted in theWall Street Journalon the nearest working day prior to the date the commutation is executed.

G. In the event of any conflict between this Article and any other Article of thisagreement, the terms of this Article will control.

TERRITORY ARTICLE

The territorial scope of thisagreementwill follow that of thecompany’s policies.

13

EXCLUSIONS ARTICLE

I. With respect topoliciesotherwise subject to Sections A, B or C of the REINSURANCE COVERAGE ARTICLE, thisagreementdoes not apply to and specifically excludes the following:

A.	Liability assumed by thecompanyunder treaty reinsurance; provided, however, that this exclusion does not apply topoliciessubject to an inter-company pooling reinsurance agreement among the parties comprising thecompanyhereunder.
B.	Loss or liability excluded by the Insolvency Funds Exclusion Clause, as attached to thisagreement.
C.	Loss or liability excluded by the following clauses, which are attached to this Agreement:

1.	Nuclear Incident Exclusion Clause—Liability—Reinsurance (U.S.A.);
2.	Nuclear Incident Exclusion Clause—Liability—Reinsurance (Canada);
3.	Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994), (Worldwide Excluding U.S.A. and Canada), (Includes Japanese Amendment);
4.	Nuclear Incident Exclusion Clause—Physical Damage—Reinsurance (U.S.A.);
5.	Nuclear Incident Exclusion Clause—Physical Damage—Reinsurance (Canada);
6.	Nuclear Incident Exclusion Clause—Physical Damage and Liability (Boiler and Machinery Policies)—Reinsurance (U.S.A.); and
7.	Nuclear Incident Exclusion Clause—Physical Damage and Liability (Boiler and Machinery Policies)—Reinsurance (Canada).

D. Loss caused directly, or indirectly, by war, whether or not declared, civil war, insurrection, rebellion or revolution or any act or condition incidental to any of the foregoing. If apolicycontains, or follows as in the case of a follow-formpolicy, any war or terrorism exclusion that incorporates any provision(s) in conflict with any provision(s) of this exclusion, then the provision(s) of thecompany’s policywill supersede the conflicting provision(s) of this exclusion. This exclusion will not be more limiting than any war or terrorism exclusion contained in, or followed by, anypolicyissued by thecompany.

E. Costs incurred for the withdrawal, inspection, repair, recall, return, replacement, or disposal of an original named insured’s products or work.

Except with respect topoliciesissued to original named insureds that are principally engaged in the manufacture ofautomobilesorcritical auto parts,this exclusion does not apply to liability, loss, cost or expense incurred for the withdrawal, inspection, repair, recall, return, replacement, or disposal of products or work of a party other than an original named insured of which the original named insured’s products or work forms a part.

14

F. Anintegrated occurrenceorbatch occurrence; provided, however, that this exclusion applies only with respect to loss or liability arising out of theinsured’s productsor theproducts-completed operations hazardand only with respect topoliciesissued to original named insureds that are principally engaged in the manufacture ofautomobilesorcritical auto parts.

G. Business classified by thecompanyas:

1.	Directors and Officers Liability;
2.	Surety;
3.	Fidelity Insurance;
4.	Credit Insurance;
5.	Financial Guarantee Insurance;
6.	Insolvency Insurance;
7.	Environmental Impairment Liability;
8.	Employment Practices Liability; or
9.	Pure Financial Loss Insurance;

When written as such.

H. Aviation Liability, unless such coverage pertains to anincidentalpart of the original insured’s overall operations. Additionally, Aircraft Products Liability will not be covered when thepolicyis issued to an original named insured whose primary business is the manufacture of aircraft, aircraft engines, or aircraft propellers. This exclusion does not apply to:

1.	Fuel or other fluids and lubricants utilized for aircraft;
2.	Any aviation liability arising out of aircraft that an original insured leases to others if such insured is not principally engaged in the manufacture of aircraft, aircraft engines or aircraft propellers or in the carrying of passengers aboard aircraft for a fee.
3.	Industrial aid aircraftorindustrial aid aircraft useorincidentalaircraft use or aviation liability.

If apolicycontains, or follows as in the case of a follow-formpolicy, any aviation liability or aircraft exclusion that incorporates any provision(s) in conflict with any provision(s) of this exclusion, then the provision(s) of thecompany’s policywill supersede the conflicting provision(s) of this exclusion. This exclusion will not be more limiting than any aviation liability or aircraft exclusion contained in, or followed by, anypolicy issued by thecompany.

15

I. Errors and omissions (E&O) or professional liability coverage; provided, however, that this exclusion does not apply to:

1. Any:

a.	Bodily injury;
b.	Property damage;
c.	Personal injury;
d.	Advertising liability(oradvertising injuryorpersonal and advertising injury); or
e.	Extra contractual obligations,excess of limits liability, or anyloss adjustment expenseassociated with 1. a. through 1. d. above,

regardless of whether or not suchextra contractual obligations,excess of limits liability,loss adjustment expense, liability, injury, or damage results directly, or indirectly, or is caused in whole, or in part, by any act, misfeasance, malfeasance, breach of duty, error, or omission of the insured that is of a professional nature;

2.	Druggists or Pharmacists Professional Liability;
3.	Employee Benefits Liability;
4.	Incidental medical malpractice;or
5.	Incidentalprofessional exposure.

	If apolicycontains, or follows as in the case of a follow-formpolicy, any E&O or professional liability exclusion that incorporates any provision(s) in conflict with any provision(s) of this exclusion, then the provision(s) of thecompany’s policywill supersede the conflicting provision(s) of this exclusion. This exclusion will not be more limiting than any E&O or professional liability exclusion contained in, or followed by, anypolicy issued by thecompany.
J.	Loss or liability directly resulting from the rendering, or failure to render, the following professional services:
	Medical, surgical, dental, x-ray, nursing or chiropractic services or care provided to any person, including the furnishing of drugs, in connection therewith.
	This exclusion will not apply to:

1.	Druggists or Pharmacists Professional Liability; or
2.	Incidental medical malpractice.

16

	If apolicycontains, or follows as in the case of a follow-formpolicy, any medical malpractice exclusion that incorporates any provision(s) in conflict with any provision(s) of this exclusion, then the provision(s) of thecompany’s policyshall supersede the conflicting provision(s) of this exclusion. This exclusion will not be more limiting than any medical malpractice exclusion contained in, or followed by, anypolicyissued by thecompany.
K.	Loss or liability arising out of amulti-year policy. The termmulti-year policyas used herein means apolicyissued for apolicyperiod greater than themaximum policy periodas specified under the DEFINITIONS ARTICLE.
L.	Business derived directly as a member of any pool, association, or syndicate.
M.	Asbestos, except as respects such coverage as may be provided by the XL 004 policy form (or similar provisions of other occurrence-reported or claims-made forms).
N.	1. Loss or liability arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of methyl tertiary-butyl ether (MTBE)pollutants,but only with respect topoliciesissued to original insureds that are engaged in the:

(a)	Refining or manufacturing of MTBE;
(b)	Refining of petroleum products; or
(c)	Blending of MTBE with other petroleum products;

provided, however, that:

(i)	This exclusion does not apply to persons or organizations that qualify as additional insureds underpoliciesissued to original insureds that are not engaged in any of the operations described in 1. through 3. above.
(ii)	As respects liability or alleged liability arising out of an actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of both MTBE and otherpollutants, coverage hereon will not be excluded for that portion of such liability or alleged liability which arises out ofpollutantsthat are not MTBE.

2. If apolicycontains, or follows as in the case of a follow-formpolicy, any MTBE or fuel oxygenates exclusion that incorporates any provision(s) in conflict with any provision(s) of this exclusion, then the provision(s) of thecompany’s policywill supersede the conflicting provision(s) of this exclusion. This exclusion will not be more limiting than any MTBE or fuel oxygenates exclusion contained in, or followed by, anypolicyissued by thecompany.

17

3. However, solely with respect tobodily injuryorproperty damagearising out of theinsured’s productsor theproducts-completed operations hazard, if any MTBE or fuel oxygenates exclusion contained in, or followed by, thecompany’s policydoes not exclude agradual dischargeof MTBEpollutants, then:

(a)	The provisions of paragraph 2. above will not apply to such coverage as may be allowed for suchgradual dischargeof MTBEpollutantsby thecompany’s policy; and
(b)	The provisions of paragraph 1. above will apply to suchgradual dischargeof MTBEpollutants, notwithstanding that such provisions may be in conflict with the provisions of any MTBE or fuel oxygenates exclusion contained in, or followed by, thecompany’s policy.

As used in this exclusion:

“Discharge”has the same meaning that it does in thecompany’s policyor, if such term is not used in thecompany’s policy, has the same meaning as whatever equivalent term(s) is(are) used in thecompany’s policysuch as ‘dispersal,’ ‘release,’ ‘seepage,’ ‘migration,’ ‘release’ or ‘escape’.

Adischargewill not be considered a “gradual discharge” if:

(a)	The original insured is aware of it within 20 days following its commencement and if the original insured gives thecompanynotice of suchdischarge within 80 days following its commencement; or
(b)	Suchdischargeresults from a “covered pollution peril”or “named peril” (as such terms are defined in thecompany’s policy)or such perils as are listed or covered in thecompany’s policy.

II. With respect topoliciesthat are otherwise subject to Sections B or C of the REINSURANCE COVERAGE ARTICLE and issued to original named insureds that areethical pharmaceutical manufacturers, thisagreementdoes not apply to and specifically excludesbodily injuryorproperty damagearising out of theinsured’s productsor theproducts-completed operations hazard. However, this exclusion does not apply to:

A.	Nutraceutical companies;
B.	Over-the-counter (non-ethical) drug companies; or
C.	Diversified manufacturers whoseethical pharmaceuticalrevenues are less than 20.00% of total corporate revenues for the 12-month period that immediately precedes the effective orrenewaldate of thepolicy.

18

III. With respect topoliciesotherwise subject to Section C of the REINSURANCE COVERAGE ARTICLE, thisagreementdoes not apply to and specifically excludes the following:

A. Bodily injuryorproperty damagethat directly results from the following premises or operations; provided, however, that this exclusion does not apply to suchbodily injuryorproperty damagethat arises out of theinsured’s productsor that is included in theproducts-completed operations hazard:

1.	Demolition operations when written as such, but this exclusion does not apply to any mining or quarrying operations or any blasting operations of original insureds whose primary business is not demolition operations;
2.	Fraternity premises when written as such, but this exclusion does not apply to any educational institution that is found liable for its oversight (or failure thereof) of the premises, operations, or conduct of fraternities;
3.	Ship-building; ship repair yards, or dry dock operations;
4.	Amusement parks, carnivals, or automobile racing events when written as such, but this exclusion does not apply to original insureds that do not operate such events or premises, but do:

a.	Promote, market, or advertise such events or premises;
b.	Use such events or premises in their promotional, marketing, or advertising activities; or
c.	Sell or give away tickets to such events or premises;

5.	Airports, but only as respects loss or liability that directly results from the ownership, maintenance, or use of aircraft or from flight operations;
6.	Construction of subways, tunnels, or dams, but this exclusion does not apply to the construction of:

a.	A dam that has an embankment less than 20 feet in height or a reservoir capacity less than 100 acre-feet;
b.	A pool or impoundment; or
c.	A pond;

7.	The application of insecticides or pesticides within a building, but this exclusion does not apply to an original insured that owns, occupies, rents, leases, or uses such a building;
8.	Underground mining operations, but this exclusion does not apply to surface mining or quarrying operations; or
9.	Low-rise residential construction operations;

Provided, however, that if:

(1)	Apolicycontains, or follows as in the case of a follow-formpolicy, an exclusion of any of the premises or operations (or both) listed above; and
(2)	Such exclusion incorporates any provision(s) in conflict with any provision(s) of this exclusion A.;

19

	Then the provision(s) ofcompany’s policywill supersede the conflicting provision(s) of this exclusion A. with respect to such premises or operations (or both). This exclusion A. will not be more limiting than any exclusion of such premises or operations (or both) listed above, which is contained in, or followed by, anypolicyissued by thecompany.
	This exclusion A. will not apply to any original insured that performs work or operations at, orincidentalto, any of the premises or operations excluded above unless such insured is also principally engaged in the ownership of such premises or the performance of such work or operations excluded above.
B.	Bodily injuryorproperty damageincluded in theproducts-completed operations hazard, but only if suchbodily injuryorproperty damagedirectly results from the manufacturing of:

1.	Automobiles or motorcycles;
2.	Springboards or trampolines;
3.	Helmets intended to be used in athletic events or athletic activities;
4.	Underground storage tanks intended to be used for the storage of petroleum products;
5.	Firearms or guns;
6.	Paints containing lead;
7.	Fireworks;
8.	Medical devices intended to be used for implantation into humans;
9.	Cell phones;
10.	Smoke detectors;
11.	NutraSweet or saccharin intended to be used in food or beverage products for human consumption, but this exclusion does not apply to an original insured who handles, sells, or distributes food or beverage products intended for human consumption that contain NutraSweet or saccharin, unless such insured is principally engaged in the manufacturing of NutraSweet or saccharin;
12.	Latex gloves;
13.	Rides intended for use in amusement parks;
14.	Tobacco products, but this exclusion does not apply injury or damage due to a fire caused by lighted tobacco products;
15.	Diving boards or diving towers;
16.	Insecticides, pesticides or herbicides;
17.	Manganese welding rods; or
18.	Explosives or nitroglycerine, celluloid, pyroxlin, or other explosive substances intended for use in explosives;

Provided, however, that if:

(1)	Apolicycontains, or follows as in the case of a follow-formpolicy, an exclusion of any of the products or completed operations (or both) listed above; and
(2)	Such exclusion incorporates any provision(s) in conflict with any provision(s) of this exclusion B.;

20

Then the provision(s) of thecompany’s policywill supersede the conflicting provision(s) of this exclusion B. with respect to such products or completed operations (or both) listed above. This exclusion B. will not be more limiting than any exclusion of such products or completed operations (or both) listed above, which is contained in, or followed by, anypolicyissued by thecompany.

Except as noted above, this exclusion B. will not apply to any original insured that produces, manufactures or assembles any component parts, subassemblies, chemicals, materials, or substances used in any of the products or completed operations listed above unless such insured is also principally engaged in the final production, manufacturing, or assembly of such product(s) or the performance of such completed operations listed above.

The exclusions enumerated in III. above will not apply toincidentalpremises, operations, products, activities or work of the original insured.

Should thecompany, by reason of an inadvertent act, error, or omission, be bound to afford coverage excluded hereunder or should an existing insured extend its premises, operations, products, activities or work to include exposures excluded hereunder, thereinsurerwill temporarily waive such exclusions. Such waiver, however, will not apply to exclusions I.A., I.B., I.C., I.G.2. through I.G.6., I.L. or I.M. of this Article. The duration of said waiver will not extend beyond the time that notice of such exposure has been received by a member of the executive or managerial staff of thecompany’soffice having underwriting authority in the class of business involved, plus the minimum time period required thereafter for thecompanyto terminate such coverage. If thecompanyis prevented from canceling saidpolicywithin such period by applicable statute or regulation, then suchpolicywill be covered hereunder until the earliest date on which thecompanymay cancel.

Thecompanymay submit in writing to thereinsurer, for special acceptance hereunder,policy(ies) that would otherwise not be covered by thisagreement. If saidpolicy(ies)is/are accepted in writing by thereinsurer, it/they will be subject to the terms and conditions of thisagreementfor thatreinsurer’spercentage participation hereon, except as such terms and conditions are modified by such acceptance. Recognizing the urgent nature of these communications, thereinsureragrees to respond forthwith to such requests. Silence on the part of thereinsurerafter five business days from its receipt of a request for special acceptance will be deemed constructive concurrence with thecompany’selection to cede to thisagreementthepolicy(ies)that is/are the subject of the request. Anypoliciesspecial accepted under reinsurance agreements that precede thisagreement will be automatically covered hereunder. Further, shouldreinsurersbecome a party to thisagreementsubsequent to the acceptance of anypoliciesnot normally covered hereunder, they will automatically accept suchpoliciesas being a part of thisagreement.

21

REINSURANCE PREMIUM AND CEDING COMMISSION ARTICLE

Thecompanywill cede to thereinsurerthereinsurer’squota share percentage (as specified for suchreinsurerin the INTERESTS AND LIABILITIES AGREEMENTS attaching to and forming a part of thisagreement) of thenet subject written premiumon allpolicieswritten orrenewedwith an effective date on or after the effective date of thisagreement, less a flat ceding commission on thenet subject written premiumceded as follows:

Section A:	Flat rate of 25% ofnet subject written premium.
Section B:	Flat rate of 23.5% ofnet subject written premium.
Section C:	Flat rate of 22.5% ofnet subject written premium.

The flat ceding commission will include premium taxes of all kinds, local board assessments, and all other expenses and charges whatsoever based on the premium forpoliciesceded under thisagreement,except for Federal Excise Tax as described in the FEDERAL EXCISE TAX ARTICLE.

OTHER REINSURANCE ARTICLE

Thecompanymay purchase the following treaty reinsurance on its retentions (as set forth in the
REINSURANCE COVERAGE ARTICLE):

A.	Inter-company pooling reinsurance agreements among the parties comprising thecompany;and
B.	Aggregate excess of loss reinsurance written on an each-occurrence(a.k.a. “clash”) basis.

The premium paid for such treaty reinsurance will not be deducted from thenet subject written premiumhereon; likewise, recoveries under such reinsurance will inure to the sole benefit of thecompany.

Additionally, thecompanymay purchase facultative reinsurance on anypolicyfor which it deems such purchase advisable, and the premium for that portion of thecompany’s policyreinsured elsewhere will be deducted from thenet subject written premium, and such facultative reinsurance (if any) will inure to the benefit of thisagreement.

EXTRA CONTRACTUAL OBLIGATIONSANDEXCESS OF LIMITS LIABILITYARTICLE

Thisagreementwill extend to cover any claims-relatedextra contractual obligationsorexcess of limits liability(or both) arising because of, but not limited to, the following:

A. Failure of thecompanyto agree to settle a claim within thepolicylimits or to provide a defense against such claims.

22

B. Actual or alleged bad faith, fraud, or negligence in investigating or handling a claim or in rejecting an offer of settlement.

C. Negligence or breach of duty in the preparation of the defense or the conduct of a trial or the preparation or prosecution of any appeal or subrogation (or both) or any subsequent action resulting therefrom.

“Extra contractual obligations”as used in thisagreementmeans those liabilities not covered under any other provision of thisagreementfor which thecompanyis liable to its insured or a third-party claimant, or that thecompanypaid as its share of a claims-related extra contractual obligation awarded against one or more of its co-insurers.

“Excess of limits liability”as used in thisagreementwill mean any amount for which thecompany would have been contractually liable to pay had it not been for the limits of thecompany’s policy.

There will be no recovery hereunder where theextra contractual obligationsorexcess of limits liability(or both) have been incurred due to fraud committed by a member of the board of directors or a duly elected corporate officer of thecompany, acting individually, collectively, or in collusion with a member of the board of directors, a duly elected corporate officer, or a partner of any other corporation, partnership, or organization involved in the defense or settlement of a claim on behalf of thecompany.

The date on which anyextra contractual obligationsorexcess of limits liability(or both) is incurred by thecompanywill be deemed, in all circumstances, to be thedate of lossunder thecompany’s policy. In no event will thereinsurer’stotal liability forextra contractual obligationsorexcess of limits liability(or both) exceed the following limits with respect to any oneoccurrence, which limits are in addition to suchreinsurer’slimits of liability, as set forth in the REINSURANCE COVERAGE ARTICLE, with respect toultimate net lossarising out of suchoccurrence.

1.	Thereinsurer’sshare, if applicable, of the Section A limit;
2.	Thereinsurer’sshare, if applicable, of the maximum possible limit under Section B.; or
3.	Thereinsurer’sshare, if applicable, of the Section C limit;

The limitations set forth above in this paragraph apply to their respective Sections of the REINSURANCE COVERAGE ARTICLE.

REPORTS AND REMITTANCES ARTICLE

A. Within 75 calendar days after the close of each month, as respects allpoliciessubject to thisagreementthat are underwritten by thecompany’sLondon offices, and within 45 calendar days after the close of each month, as respects all otherpoliciessubject to thisagreement,

23

thecompanywill furnish thereinsurerwith a report summarizing the premium ceded less return premium and ceding commission,ultimate net losspaid,loss adjustment expensepaid,extra contractual obligationspaid,excess of limits liabilitypaid, monies recovered, and net balance due either party. Said monthly reports will also include the following information for eachpolicysubject to thisagreementthat is written orrenewedduring the month:

1.	First named insured;
2.	Policyeffective date;
3.	Policyexpiration date;
4.	Policylimits;
5.	Policyattachment point(s);
6.	Policypremium;
7.	Premium ceded toreinsurers;
8.	Paidultimate net loss;
9.	Reserves for outstandingultimate net loss;
10.	Paidloss adjustment expense; and
11.	Reserves for outstandingloss adjustment expense.

	Amounts due thereinsurerwill accompany said reports. Except with respect to amounts due under paragraph C. of this Article, any balances due thecompanywill be paid within 45 calendar days after thecompanyhas furnished thereinsurerwith the report.
B.	Semi-annually thecompanywill provide thereinsurerwith a report listing all claims subject to thisagreementto which thecompanyhas assigned the claim code of “D”, “P”, or “R”. Such reports will be valued as of June 30th and December 31st, respectively, and will contain with respect to each claim listed the following information:

1.	First named insured;
2.	Policyeffective date;
3.	Date of loss;
4.	Date of report;
5.	Amount paid;
6.	Amount reserved;
7.	Status of claim (i.e., whether open or closed); and
8.	Claim code.

	In addition, thecompanywill furnish thereinsurerwith such other information as may be required by thereinsurerfor completion of its NAIC interim and/or annual statements.
C.	If the amount due thecompanyfor the sum ofultimate net loss,loss adjustment expense,extra contractual obligations, orexcess of limits liability(whether individually or collectively) recoverable under thisagreementfor any oneoccurrenceis in excess of:

1. $1,500,000 with respect topoliciessubject to Section A of the REINSURANCE COVERAGE ARTICLE;

24

2.	$5,000,000 with respect topoliciessubject to Section B of the REINSURANCE COVERAGE ARTICLE; or
3.	$1,500,000 with respect topoliciessubject to Section C of the REINSURANCE COVERAGE ARTICLE;

thereinsurerwill, upon thecompany’sdemand and its receipt ofsatisfactory proofs of loss(as defined in the LOSS SETTLEMENTS ARTICLE), remit the amount due thecompanywithin five business days.

LOSS SETTLEMENTS ARTICLE

Thereinsureragrees to abide by all settlements made by thecompanywhether under strictpolicy conditions or by way of compromise including settlements involving disputed interpretations ofpolicyterms and/or coverage. All settlements, compromises, and adjustments made by thecompany, whether involving coverage issues or otherwise, will be binding on thereinsurerin proportion to its percentage participation. Such settlements, compromises, or adjustments will be consideredsatisfactory proofs of loss, and amounts falling to the share of thereinsurerwill be payable to thecompany,subject to the provisions of the REPORTS AND REMITTANCES ARTICLE and the LOSS SETTLEMENTS ARTICLE.

Thecompanywill likewise at its sole discretion commence, continue, defend, compromise, settle, or withdraw from actions, suits, or proceedings and generally do all such matters and things relating to any claim or loss as in its judgment may be beneficial or expedient, and thereinsurerwill be liable for its share of all payments made and costs and expenses incurred in connection therewith or in taking legal advice therefore (including those which are the result of actions or disputes between original insured(s) and thecompany).

OFFSET ARTICLE

Thecompanyor thereinsurerhave and may exercise, at any time and from time to time, the right to offset any balance or balances whether on account of premiums or on account of losses or otherwise, due from one party to the other party hereto, under the terms and within the subject matter of thisagreement, and any predecessor and successor agreements of thisagreement.

In the event of an insolvency of a party hereto, offset shall only be allowed in accordance with the provisions of Section 7427 of the Insurance Law of the State of New York.

SALVAGE AND SUBROGATION ARTICLE

Thereinsurerwill be credited with its proportionate share of salvage or subrogation (or both) in respect of claims and settlements under thisagreement, less its share of recovery expense. Unless thecompanyand thereinsureragree to the contrary, thecompanywill enforce its right

25

to salvage or subrogation (or both) and will prosecute all claims arising out of such right. Should thecompanyrefuse or neglect to enforce this right, thereinsureris hereby empowered and authorized to institute appropriate action in the name of thecompany.

Thereinsurerwill benefit proportionately from all reductions ofultimate net lossby salvage, compromise or otherwise. If the amount recovered exceeds the recovery expense, such expense will be borne by each party in proportion to its benefit from the recovery. If the recovery expense exceeds the amount recovered, the amount recovered (if any) will be applied to the reimbursement of recovery expense and the remaining expense will be borne by each party in proportion to its liability for the loss before recovery was attempted.

Notwithstanding anything to the contrary in thisagreement, if thereinsurersinitiate an action to secure salvage and/or subrogation in the name of thecompany, and there is no such recovery, or if the amount recovered is insufficient to cover the expenses incurred in pursuing salvage and/or subrogation, thereinsurersinitiating such action will be jointly and severally liable for 100% of such excess expense. Further, saidreinsurerswill be jointly and severally liable for 100% of any damages to thecompany, including reimbursement of any compensatory or punitive damages (or both) resulting from the action.

DELAYS, ERRORS, OR OMISSIONS ARTICLE

Any inadvertent delay, omission, or error will not relieve either party hereto from any liability, which would attach to it hereunder if such delay, omission or error had not been made, provided such delay, omission, or error is rectified immediately upon discovery.

ENTIRE AGREEMENT, INTERPRETATION ARTICLE

Thisagreementrepresents the entire agreement between thecompanyand thereinsurerswith respect to business covered hereunder. There are no understandings between the parties other than as expressed in thisagreement. All prior agreements, understandings and representations made by thecompanyand thereinsurersare superseded by thisagreement. Any change or modification of thisagreementwill be documented by an amendment of thisagreement, signed by the parties to theagreement.

ACCESS TO RECORDS ARTICLE

Thereinsureror its duly designated representatives will have, upon providing reasonable advance notice to thecompany, access to thecompany’sunderwriting, accounting, or claim files, other than proprietary or privileged communications, pertaining to the subject matter of thisagreementduring the period that thisagreementis in force and subsequent to its expiration or termination until all claims are closed. If any amount is overdue from areinsurerto thecompanyfor any reason, other than a disputed payment, thereinsurerwill have such access to records only upon payment of such overdue amounts to thecompanyor by placing the overdue

26

amounts in a trust or an escrow account acceptable by thecompany, pending resolution of the dispute. Thereinsurermay, at its own expense, reasonably make copies of such books and records and in such event agrees to pay thecompany’sreasonable expenses (including staff and other overhead costs) in procuring such copies.

If thereinsurermakes any inspection of thecompany’sclaim files under thisagreementand, as a result of the inspection the claim is contested or disputed, thereinsurerwill provide thecompany, at thecompany’srequest, a summary of any reports completed by thereinsurer’spersonnel or by third parties on behalf of thereinsureroutlining the findings of the inspection and identifying the reasons for contesting or disputing the subject claim. Thereinsurerwill provide to thecompanya copy of any such reports within 15 days of thecompany’srequest for same. Nothing in this Article requires thecompanyto maintain or make available any document for a period longer than that required under thecompany’sdocument retention policies or procedures.

CONFIDENTIALITY ARTICLE

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

INSOLVENCY ARTICLE

(This Article will apply severally to each reinsured company referenced within the definition of thecompanyin the Preamble to thisagreement. Further, this Article and the laws of the domiciliary state will apply in the event of the insolvency of any company intended to be covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company intended to be covered hereunder, that domiciliary state’s laws will prevail.)

A. In the event of the insolvency of thecompany, this reinsurance will be payable directly to thecompany, or to its liquidator, receiver, conservator or statutory successor, immediately upon demand on the basis of the liability of thecompanywithout diminution because of the insolvency of thecompanyor because the liquidator, receiver, conservator or statutory successor of thecompanyhas failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of thecompanywill give written notice to thereinsurerof the pendency of a claim against thecompany, which would involve a possible liability on the part of thereinsurer, indicating thepolicyor bond reinsured, within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership. It is further agreed that during the pendency of such claim thereinsurermay investigate such claim and interpose, at its own expense, in the proceeding

27

where such claim is to be adjudicated, any defense or defenses that it may deem available to thecompanyor its liquidator, receiver, conservator, or statutory successor. The expense thus incurred by thereinsurerwill be chargeable, subject to the approval of the Court, against thecompanyas part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit, which may accrue to thecompanysolely as a result of the defense undertaken by thereinsurer.

B. Where two or more of thereinsurersare involved in the same claim and a majority in interest elects to interpose defense to such claim, the expense will be apportioned in accordance with the terms of theagreementas though such expense had been incurred by thecompany.

C. The reinsurance will be payable by thereinsurerto thecompanyor to its liquidator, receiver, conservator, or statutory successor, except as provided by Section 4118(a) (1) (A) and 1114 (c) of the New York Insurance Law or except (a) where theagreementspecifically provides another payee of such reinsurance in the event of the insolvency of thecompanyor (b) where thereinsurerwith the consent of the original insured or insureds has voluntarily assumed suchpolicyobligations of thecompanyas direct obligations of thereinsurerto the payees under suchpoliciesand in substitution for the obligations of thecompanyto the payees. Then, and in that event only, thecompany, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Insurance of the State of New York, is entirely released from its obligation and thereinsurerwill pay any loss directly to payees under suchpolicy.

D. Notwithstanding paragraphs A., B., and C., where thecompanyis authorized under the Insurance Companies Act (Canada) to insure risks in Canada, in the event of the insolvency of thecompany, reinsurance payable in respect of the insurance business in Canada of thecompany will be payable to the Chief Agent in Canada of thecompanyor to the liquidator, receiver, conservator or statutory successor appointed in Canada in respect of the insurance business in Canada of thecompanywithout diminution because of the insolvency of thecompanyor because thecompanyor a liquidator, receiver, conservator or statutory successor of thecompanyhas failed to pay all or any portion of any claim. All other terms and conditions of paragraphs A., B., and C. remain in effect and apply to this paragraph D., which will prevail if there is a conflict or inconsistency.

ARBITRATION ARTICLE

A. As a condition precedent to any right of action under thisagreement, any and all disputes arising under or relating to thisagreement, including its formation and validity, will be finally and fully determined in Hamilton, Bermuda under the provisions of The Bermuda International Conciliation and Arbitration Act of 1993 (exclusive of the Conciliation Part of such Act), as may be amended and supplemented, by a Board composed of three arbitrators to be selected for each controversy as follows:

In the event of a dispute, controversy or claim, any party may notify the other party or parties to such dispute, controversy or claim of its desire to arbitrate the matter, and at the time of

28

such notification the party desiring arbitration will notify any other party or parties of the name of the arbitrator selected by it. The other party who has been so notified will within 30 calendar days thereafter select an arbitrator and notify the party desiring arbitration of the name of such second arbitrator. If the party notified of a desire for arbitration will fail or refuse to nominate the second arbitrator within 30 calendar days following receipt of such notification, the party who first served notice of a desire to arbitrate will, within an additional period of 30 calendar days, apply to the Supreme Court of Bermuda for the appointment of a second arbitrator and in such a case the arbitrator appointed by such court will be deemed to have been nominated by the party or parties who failed to select the second arbitrator. The two arbitrators, chosen as above provided, will within 30 calendar days after the appointment of the second arbitrator choose a third arbitrator. In the event of the failure of the first two arbitrators to agree on a third arbitrator within said 30 calendar day period, the third arbitrator will be drawn automatically utilizing the Dow Jones Industrial Average on the third working day after both names have been chosen in writing. A Dow Jones Industrial Average ending in an even number before the decimal point will be deemed to be the selection of the claimant’s name and the Dow Jones Industrial Average ending in an odd number before the decimal point will be deemed to be the selection of the respondent’s name. The three arbitrators will decide by majority. The umpire will also act as Chair of the Tribunal and, in the event that no majority can be reached, the verdict of the umpire will prevail.

B. All claims, demands, denials of claims and notices pursuant to this Article will be given in writing and given by hand, prepaid express courier, airmail or telecopier properly addressed to the appropriate party and will be deemed as having been effected only upon actual receipt.

C. The Board of Arbitration will fix, by a notice in writing to the parties involved, a reasonable time and place for the hearing and may prescribe reasonable rules and regulations governing the course and conduct of the arbitration proceeding, including without limitation discovery by the parties. The Board will be relieved of all judicial formality and will not be bound by the strict rules of procedure evidence. The Board will interpret thisagreement as if it were an honorable engagement rather than as merely a legal obligation.

D. The Board will, within 90 calendar days following the conclusion of the hearing, render its decision on the matter or matters in controversy in writing and will cause a copy thereof to be served on all the parties thereto. In case the Board fails to reach a unanimous decision, the decision of the majority of the members of the Board will be deemed to be the decision of the Board. Such decision will be a complete defense to any attempted appeal or litigation of such decision of the Board of Arbitration by, any court or other body to the fullest extent permitted by applicable law.

E. Any order as to the costs of the arbitration will be in the sole discretion of the Board, who may direct to whom and by whom and in what manner they will be paid.

F. All awards made by the Arbitration Board will be final and no right of appeal will lie from any award rendered by the Arbitration Board. The parties agree that the Supreme Court of Bermuda: (i) will not grant leave to appeal any award based upon a question of law arising out of the award; (ii) will not grant leave to make an application with respect to an award;

29

(iii) and will not assume jurisdiction upon any application by a party to determine any issue of law arising in the course of the arbitration proceeding.

All awards made by the Arbitration Board may be enforced in the same manner as a judgment or order from the Supreme Court of Bermuda and judgment may be entered pursuant to the terms of the award by leave from the Supreme Court of Bermuda.

G. If thecompanyand more than onereinsurerare involved in thesame dispute(s) or difference(s) arising out of this agreement, and thecompanyrequests consolidated arbitration with thosereinsurersin an initial notice of arbitration or response, then thosereinsurers will constitute and act as one party for purposes of the arbitration and thus will select a single party-appointed arbitrator among them. If thecompanyrequests consolidation in its notice of arbitration, then both parties will elect their party-appointed arbitrators within 45 calendar days of the commencement of the arbitration proceeding. If thecompanyrequests consolidation in its response, then (i) that response will be appended to thecompany’snotice of arbitration to the additionalreinsurer(s)joined in the proceeding, (ii) any arbitral appointment made before that response will be of no effect, and (iii) thereinsurerswill select their arbitrator within 45 calendar days of their receipt of those pleadings. For purposes of this paragraph, any instance in which two or more of thereinsurershave not paid their proportional shares of the same balance claimed due by thecompanywill be deemed to involve thesame dispute(s) or difference(s) arising out of this Agreement.Communications will be made by thecompanyto each of thereinsurersconstituting one party. Nothing in this paragraph will impair the rights ofreinsurersto assert several rather than joint defenses or claims, change their liability under thisagreementfrom several to joint, or impair their rights to retain separate counsel in connection with the arbitration.

H. Unless prohibited by law, the Supreme Court of Bermuda will have exclusive jurisdiction over any and all court proceedings that either party may initiate in connection with the arbitration, including proceedings to compel, stay, or enjoin arbitration or to confirm, vacate, modify, or correct an arbitration award.

GOVERNING LAW ARTICLE

Thisagreement, and any dispute, controversy, or claim arising out of or relating to thisagreement, will be governed by and construed according to the laws of the State of New York, except with regard to:

A.	The payment of punitive damages; and
B.	The procedural law required under the ARBITRATION ARTICLE of thisagreement,

which will be construed in accordance with the laws of Bermuda.

30

Notwithstanding the foregoing, as to rules regarding credit for reinsurance, the rules of all applicable states or other jurisdictions will pertain thereto.

CURRENCY REVALUATION AND FOREIGN EXCHANGE ARTICLE

I. It is understood and agreed that any original limit(s) or original sub-limit(s) of liability, underlying limit(s) or attachment point(s) of apolicyin currencies other than United States of America (“U.S.”) Dollars, Euros, or United Kingdom Pounds Sterling will be converted into its(their) U.S. dollar equivalent(s) using the same rate of exchange used by thecompanywhen suchpolicywas entered by thecompanyinto its own books of account. In the event that there is a subsequent change in the parity value of the U.S. dollar (from that used by thecompany when suchpolicywas entered by thecompanyinto its own books of account) which results in:

A.	Thereinsurer’smaximum limit of liability for suchpolicy(as specified in the REINSURANCE COVERAGE ARTICLE) being exceeded;
B.	Suchpolicybeing subject to Section A instead of Section B of thisagreement(or subject to Section B instead of Section A of thisagreement);
C.	Any minimum initial attachment point threshold in U.S. Dollars, which is required by the REINSURANCE COVERAGE ARTICLE in order for suchpolicyto be reinsured hereunder, not being met; or
D.	A change in thecompany’s retained percentageunder the provisions of B. of the REINSURANCE COVERAGE ARTICLE (if applicable);

then:

1.	In the case of A. above, thecompanywill be held covered for such excess limit;
2.	In the case of B. above, thecompany’s policywill remain subject to the section of thisagreementthat applied based on the exchange rate that was used by thecompanywhen suchpolicywas entered by thecompanyinto its own books of account; and
3.	In the case of C. above, the required minimum initial attachment point threshold will be deemed to have been met for suchpolicyto be reinsured hereunder;
4.	In the case of D. above, thecompany’sretention under the provisions of Section B of the REINSURANCE COVERAGE ARTICLE (if applicable) will be deemed unchanged from what it was when suchpolicywas entered by thecompanyinto its own books of account;

31

until the nextrenewalof thepolicy, at which time:

a.	The warrantedreinsurers’maximum U.S. dollar limit of liability;
b.	Section A or Section B under the REINSURANCE COVERAGE ARTICLE of thisagreement;
c.	The minimum initial attachment point threshold in U.S. Dollars, which is required by the REINSURANCE COVERAGE ARTICLE in order for suchpolicyto be reinsured hereunder; and
d.	Thecompany’sretention under provisions of Section B. of the REINSURANCE COVERAGE ARTICLE (if applicable);

will apply to suchpolicybased on the exchange rate used by thecompanywhen suchrenewalis entered by thecompanyinto its own books of account.

II.	All amounts due to either thecompanyor thereinsurerunder thisagreementwill be paid in United States of America (U.S.) Dollars subject to paragraphs III. and IV. below.
III.	Net subject written premium, as well as any subsequent adjustments thereto, collected or returned by thecompanyin other than U.S. Dollars will be paid to, or by, thereinsurerin U.S. Dollars at the same rates of exchange at which thecompanyentered such transaction into its own books of account.
IV.	Amounts due thecompanyforultimate net loss,loss adjustment expense,extra contractual obligations, orexcess of limits liability hereunder in other than U.S. Dollars will be converted into U.S. Dollars at the same rates of exchange at which thecompanyentered the payment(s) of such loss into its own books of account.
V.	The sign “$” in thisagreementrefers to United States of America (U.S.) Dollars. The sign “€” refers to Euros, the currency of the European Union. The sign “£” refers to United Kingdom Pounds Sterling. For the purposes of determining the manner in whichpoliciesare to be ceded to thisagreement, the limits and attachment points set forth in thisagreementthat are to apply to a subjectpolicy, based upon saidpolicy’sissuingcompany, attachment point and limit, will be those limits and attachment points stated in the currency(ies) in which thepolicyis issued; however, in the event apolicyis issued with limits or attachment points (or both) in a currency other than one of those set forth in this subparagraph V., such limit and attachment point will be converted to U.S. Dollars and saidpolicywill be ceded as if it were originally written in U.S. Dollars.

32

SERVICE OF SUIT ARTICLE

(This Article is not intended to conflict with or override the parties’ obligation to arbitrate their disputes in accordance with the ARBITRATION ARTICLE.)

A. This paragraph A. applies:

1.	Only topoliciesthat are subject to Section A or Section B of the REINSURANCE COVERAGE ARTICLE; and
2.	To areinsurerunauthorized in any jurisdiction that has authority over thecompanyand in which a subject suit has been instituted.

In the event anyreinsurerhereon fails to pay any amount claimed due hereunder, suchreinsurer, at the request of thecompany, will submit to the jurisdiction of a court of competent jurisdiction within England or Bermuda and will comply with all requirements necessary to give that court jurisdiction.

B. This paragraph B. applies:

1.	Only topoliciesthat are subject to Section C of the REINSURANCE COVERAGE ARTICLE; and
2.	To areinsurereither:

a.	Domiciled outside the United States of America; or
b.	Unauthorized in any state, territory or district of the United States of America that has jurisdiction over thecompanyand in which a subject suit has been instituted.

In the event of the failure of anyreinsurerhereon to pay any amount claimed to be due hereunder, suchreinsurer, at the request of thecompany, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of thereinsurer’sright 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. Thereinsurer, once the appropriate court is accepted by thereinsureror is determined by removal, transfer, or otherwise, as provided for above, will comply with all requirements necessary to give said court jurisdiction. In any suit instituted against it upon thisagreement, thereinsurerwill abide by the final decision of such court or of any appellate court in the event of an appeal.

Service of process in such suit may be made upon Mendes and Mount, LLP, 750 Seventh Avenue, New York, New York 10019-6829, when such suit is instituted in the state of New York; Mendes and Mount, LLP, 725 South Figueroa, 19th Floor, Los Angeles, California 90017-5524, when such suit is instituted in the state of California; either of the foregoing if

33

the suit is not instituted in New York or California; or another party as specifically designated in the INTERESTS AND LIABILITIES AGREEMENT for suchreinsurer.

However, if another party is so designated, thereinsurerin question recognizes that the laws of the states of New York and California require that service be made on a law firm located in the respective state if a suit is instituted in that state, so that if the party designated above is not located in California as respects a suit instituted in California, or New York as respects a suit instituted in New York, the applicable office of Mendes and Mount stipulated above must be used for service of suit unless the provisions of the final paragraph of this Article apply.

The agent for service of process is authorized and directed to accept service of process on behalf of thereinsurerin any such suit and/or upon the request of thecompanyto give a written undertaking to thecompanythat they will enter a general appearance upon thereinsurer’sbehalf in the event such a suit is instituted.

Further, pursuant to any statute of any state, territory, or district of the United States that makes provision therefor, thereinsurerhereby designates the Superintendent, Commissioner, or Director of Insurance or other officer specified for that purpose in the statute, or the successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit, or proceeding instituted by or on behalf of thecompanyor any beneficiary hereunder arising out of thisagreement, 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.

AGENCY ARTICLE

For purposes of sending and receiving notices and payments required by thisagreement, the reinsured company that is set forth first in the definition ofcompanyin the Preamble to thisagreementwill be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, will any reinsured company be deemed the agent of another with respect to the terms of the INSOLVENCY ARTICLE.

INTERMEDIARY ARTICLE

Aon Re Inc., an Illinois corporation, or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as theintermediarynegotiating thisagreementfor allpoliciesreinsured hereunder. All communications relating to thisagreementwill be transmitted to thecompanyor thereinsurersthrough theintermediary. Payments by thecompanyto theintermediarywill be deemed payment to thereinsurers. Payments by thereinsurersto theintermediarywill be deemed payment to thecompanyonly to the extent that such payments are actually received by thecompany.

34

RESERVES AND FUNDING ARTICLE

A.

As respectspoliciessubject to Section C of the REINSURANCE COVERAGE ARTICLE only, this Article applies to thereinsurerin the event that thecompanyis unable to recognize a statutory credit in any state having jurisdiction over thecompany’sreserves as respects saidreinsurer’sobligations hereunder.

B.

As regardspoliciesissued by thecompanycoming within the scope of thisagreement, thecompanyagrees that when it will file with the insurance regulatory authority or set up on its books reserves for unearned premium, losses, andloss adjustment expensereinsured hereunder, which it will be required by law to set up, it will forward to thereinsurera statement showing the proportion of such reserves which is applicable to thereinsurer. Thereinsurer hereby agrees to fund such reserves in respect of:

1.	Unearned premium;
2.	Known outstanding losses that have been reported to thereinsurerandloss adjustment expenserelating thereto;
3.	Losses andloss adjustment expensepaid by thecompanybut not recovered from thereinsurer; plus
4.	Reserves, including incurred-but-not-reported (IBNR) reserves as determined by thecompany, for losses andloss adjustment expenserelating thereto;

All of which are hereinafter referred to as “reinsurer’s obligations”, by funds withheld, cash advances, a letter of credit, or a trust. Thereinsurerwill have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over thecompany’sreserves.

C. When funding by a letter of credit, thereinsurerwill apply for and secure timely delivery to thecompanyof a clean, irrevocable and unconditional letter of credit issued by a bank and containing provisions acceptable to thecompanyand any insurance regulatory authorities having jurisdiction over thecompanyin an amount equal to thereinsurer’s obligations. Such letter of credit will be issued for a period of not less than one year and will be automatically extended for one year from its date of expiration or any future expiration date unless 30 calendar days (60 calendar days where required by insurance regulatory authorities) prior to the expiration date of such letter of credit the issuing bank notifies thecompanyby certified or registered mail that the issuing bank elects not to consider the letter of credit extended for any additional period.

35

D. Thereinsurerandcompanyagree that the letters of credit provided by thereinsurerpursuant to the provisions of thisagreementmay be drawn upon at any time, notwithstanding any other provision of thisagreement, and be utilized by thecompanyor any successor, by operation of law, of thecompanyincluding, without limitation, any liquidator, rehabilitator, receiver, or conservator of thecompanyfor the following purposes, unless otherwise provided for in a separate trust agreement:

1.	To reimburse thecompanyfor thereinsurer’s obligations, the payment of which is due under the terms of thisagreementand which has not been otherwise paid;
2.	To make refund of any sum which is in excess of the actual amount required to pay thereinsurer’s obligationsunder thisagreement;
3.	To fund an account with thecompanyfor thereinsurer’s obligations. Such cash deposit will be held in an interest-bearing account separate from thecompany’sother assets, and interest thereon not in excess of the prime rate will accrue to the benefit of thereinsurer.
4.	If prior to any expiration date the issuing bank has sent notice that it elects not to consider the letter of credit extended for any additional period.
	This subparagraph 4. will only apply if thereinsurerhas failed to replace the expiring letter of credit at least 15 calendar days prior its expiration with an irrevocable and unconditional, letter of credit issued by another bank and containing provisions acceptable to thecompanyand any insurance regulatory authorities having jurisdiction over thecompany in an amount equal to thereinsurer’s obligationsof said reserves.

E.	In the event the amount drawn by thecompanyon any letter of credit is in excess of the actual amount required for D.1., D.2. or D.4. above, thecompanywill promptly return to thereinsurerthe excess amount so drawn. All of the foregoing will be applied without diminution because of insolvency on the part of thecompanyor thereinsurer.
F.	The issuing bank will have no responsibility whatsoever in connection with the propriety of withdrawals made by thecompanyor the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of thecompany.
G.	At annual intervals, or more frequently as agreed but never more frequently than quarterly, thecompanywill prepare a specific statement of thereinsurer’s obligations, for the sole purpose of amending the letter of credit, in the following manner:

1. If the statement shows that thereinsurer’s obligationsexceed the balance of credit as of the statement date, thereinsurerwill, within 30 calendar days after receipt of notice of such excess, secure delivery to thecompanyof an amendment to the letter of credit increasing the amount of credit by the amount of such difference;

36

2. If, however, the statement shows that thereinsurer’s obligationsare less than the balance of credit as of the statement date, thecompanywill, within thirty (30) calendar days after receipt of written request from thereinsurer, release such excess credit by agreeing to secure an amendment to the letter of credit reducing the amount of credit available by the amount of such excess credit.

TAXES ARTICLE

Thecompanywill pay all taxes (except Federal Excise Tax) on premiums reported to thereinsurers on this Agreement.

FEDERAL EXCISE TAX ARTICLE

(This Article is applicable to thosereinsurers, excepting Underwriters at Lloyd’s London and otherreinsurersexempt from Federal Excise Tax, who are domiciled outside the United States of America.)

Only as respectspoliciessubject to Section C of the REINSURANCE COVERAGE ARTICLE, thereinsurers will allow thecompanyto deduct, for the purpose of paying Federal Excise Tax, the applicable percentage of any premium payable hereon (as imposed under Section 4371 of the Internal Revenue Service Code) to the extent such premium is subject to such tax. In the event of any return of such premium, thereinsurerswill deduct the aforesaid percentage from the return premium payable hereon and thecompanyor its agent will recover such tax from the United States Government.

SURVIVAL ARTICLE

All Articles of thisagreementwill survive the termination of thisagreementuntil all obligations between thecompanyand thereinsurershave been finally settled.

37