ARTICLE

PAGE

I

BUSINESS COVERED

1

II

TERM

1

III

SPECIAL TERMINATION

2

IV

DEFINITIONS

3

     Ultimate Net Loss

3

     Extended Reporting Period Coverage

4

     Gross Net Earned Premium Income

4

     Insured

4

     Loss Occurrence

5

     Policy or Policies

5

V

LOSS IN EXCESS OF POLICY LIMITS

5

VI

EXTRA CONTRACTUAL OBLIGATIONS

5

VII

TERRITORY (BRMA 51A)

6

VIII

EXCLUSIONS

6

IX

ADDITIONAL PROVISIONS

8

X

AMOUNT OF COVERAGE AND RETENTION

9

XI

REINSURANCE PREMIUM

9

XII

NOTICE OF LOSS AND LOSS SETTLEMENTS

9

XIII

AGENCY AGREEMENT

10

XIV

SALVAGE AND SUBROGATION

10

XV

ERRORS AND OMISSIONS (BRMA 14C)

10

XVI

OFFSET

11

XVII

CURRENCY (BRMA 12A)

11

XVIII

TAXES (BRMA 50C)

11

XIX

FEDERAL EXCISE TAX (BRMA 17A)

11

XX

UNAUTHORIZED REINSURANCE (BRMA 55A)

12

XXI

NET RETAINED LINES

13

XXII

THIRD PARTY RIGHTS (BRMA 52C)

14

XXIII

SEVERABILITY

14

XXIV

GOVERNING LAW (BRMA 71A)

14

XXV

ACCESS TO RECORDS

14

XXVI

INSOLVENCY

14

XXVII

ARBITRATION

15

XXVIII

CONFIDENTIALITY

16

XXIX

SERVICE OF SUIT

16

ARTICLE

PAGE

XXX

TERRORISM RISK INSURANCE ACT OF 2002

18

XXXI

ENTIRE AGREEMENT

18

XXXII

MODE OF EXECUTION

18

XXXIII

INTERMEDIARY

19

Schedule A

Nuclear Incident Exclusion Clause - Liability - Reinsurance - U.S.A.

Nuclear Incident Exclusion Clause - Liability - Reinsurance - Canada

Terrorism Exclusion Endorsement (Reinsurance)

War Exclusion

A.

By this Contract the Reinsurer agrees to reinsure the net excess liability of the Company under its Policies in force at the effective time and date hereof or issued or renewed after that time and date by or on behalf of the Company and classified by the Company as Casualty, Liability and Fidelity, which is defined as insurance which is classified in the NAIC Annual Statement as commercial multiple peril (liability portion coverages), other liability – occurrence and claims made, commercial auto liability, and fidelity (liability coverages only) lines of business. The business covered under this Article includes business written by the Company’s Commercial and Specialty Lines Divisions. It is understood and agreed that, as respects Policies on a claims-made or losses-discovered basis, any Extended Reporting Period Coverage provided thereunder shall be reinsured hereunder, provided the date of loss is during the term of this Contract.

B.

Furthermore, it is agreed that the Company may add other Casualty, Liability or Fidelity product lines of business to the scope of this Contract with prior written approval of the Reinsurer.

A.

This Contract shall become effective at 12:01 a.m., Eastern Standard Time, January 1, 2008, as respects losses occurring at or after that time and date, and shall continue in effect until 12:01 a.m., Eastern Standard Time, January 1, 2009.

B.

As respects Policies written for NYSARC Inc. and its member chapters, this Contract shall become effective 12:01 a.m., Eastern Standard Time, December 31, 2007, as respects losses occurring at or after that time and date, and shall continue in effect until 12:01 a.m., Eastern Standard Time, January 1, 2009.

C.

The Reinsurer shall cease to be liable for Loss Occurrences after the time and date of expiration of this Contract but shall remain liable for Ultimate Net Loss incurred by the Company with respect to Loss Occurrences under the Company’s Policies with the date of loss prior to the termination date of this Contract.

D.

The Company shall have the option to elect run-off coverage for Policies in force at the expiration of this Contract. If the Company chooses to run off liability, the Company will notify the Reinsurer prior to January 31, 2009. If run-off of liability is chosen, the Reinsurer shall continue to be liable for Ultimate Net Loss incurred by the Company under all Policies in force at the time and date of expiration until each Policy’s next anniversary, renewal or expiration, but in no event shall the Reinsurer’s liability continue for more than 12 months after the expiration date plus odd time, not to exceed a total of 18 months. The premium for the run-off coverage shall be the expiring rate from the attached Schedule A applied to the unearned subject premium for the Policies in force as of December 31, 2008.

A.

The Company may terminate this Contract at any time by the giving of 10-days’ notice in writing to the Reinsurer upon the happening of any one of the following circumstances:

1.

A State Insurance Department or other legal authority orders the Reinsurer to cease writing business; or

2.

The Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there has been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy or other agent known by whatever name, to take possession of its assets or control of its operations; or

3.

The Reinsurer’s policyholders’ surplus has been reduced by whichever is greater, either 25% of the amount of surplus at the inception of this Contract or 25% of the amount at the latest anniversary; or

4.

The Reinsurer has become merged with, acquired or controlled by any company, corporation or individual(s) not controlling the party’s operations at the inception of this Contract; however, this subparagraph A4 shall not apply where the acquiring or surviving company, corporation, or individuals have a Standard & Poor’s Insurer Financial Strength Rating equal to or higher than an "A-" and/or an A.M. Best’s rating equal to or higher than an "A-" following such change in acquisition, merger or control; or

5.

The Reinsurer has reinsured its entire liability under this Contract without the terminating party’s prior written consent; or

6.

The Reinsurer ceases writing new or renewal business; or

7.

The Reinsurer has been assigned an A.M. Best’s rating of less than "A-" or a Standard & Poor’s Insurer Financial Strength Rating of less than "A-".

B.

Notwithstanding any other termination provision of this Contract, if this Contract is terminated under the provisions of this Article, the Company shall have the right to terminate liability for losses occurring subsequent to termination of this Contract. In such event, the Reinsurer shall return the unearned portion, if any, less any commission allowed thereon, of premiums paid hereunder and the minimum premium provisions, if any, shall be waived.

C.

Additionally, the Company, at its sole discretion, may elect to commute the Reinsurer’s liabilities for loss and loss adjustment expenses, whether known and unknown, on Policies covered under this Contract. In the event the Company and the Reinsurer cannot agree on the capitalized value of the Reinsurer’s liabilities on the Policies covered under this Contract, the two parties shall mutually appoint an actuary to resolve the matter of valuation. If the two parties cannot agree on the appointment of an actuary, a selection process based on the ARBITRATION ARTICLE will be employed. Payment by the Reinsurer of the amount ascertained will constitute full and final release of the Reinsurer’s liabilities hereunder.

A.

Ultimate Net Loss

"Ultimate Net Loss," as used in this Contract, shall mean the actual loss paid by the Company or for which the Company becomes liable to pay, such loss shall include 100% of any Loss in Excess of Policy Limits as defined in the LOSS IN EXCESS OF POLICY LIMITS ARTICLE, 100% of any Extra Contractual Obligations as defined in the EXTRA CONTRACTUAL OBLIGATIONS ARTICLE, ex-gratia payments subject to prior approval, expenses of litigation and interest, claim-specific declaratory judgment expenses, and all other loss expense of the Company including subrogation, salvage, and recovery expenses (office expenses and salaries of officials and employees not classified as loss adjusters are not chargeable as expenses for purposes of this paragraph), but salvages and all recoveries, including recoveries under all reinsurances, which inure to the benefit of this Contract (whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder.

The phrase "ex-gratia payments" shall mean payments made as an accommodation by the Company in settlement of a claim for which no coverage exists under the Policy reinsured hereunder, subject to the prior approval of the Reinsurer.

The phrase "claim-specific declaratory judgment expenses," as used in this Contract will mean all expenses incurred by the Company in connection with declaratory judgment actions brought to determine the Company’s defense and/or indemnification obligations that are allocable to specific Policies and claims subject to this Contract. Declaratory judgment expenses will be deemed to have been incurred by the Company on the date of the original loss (if any) giving rise to the declaratory judgment action.

All salvages, recoveries or payments recovered or received subsequent to loss settlements hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto.

For purposes of this definition, the phrase "becomes liable to pay" shall mean the existence of a judgment, which the Company does not intend to appeal, or a release has been obtained by the Company, or the Company has accepted a proof of loss.

Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Company’s Ultimate Net Loss has been ascertained.

B.

Extended Reporting Period Coverage

"Extended Reporting Period Coverage" as used herein shall mean coverage for claims made after termination or expiration of the Company’s Policy on losses that would have been covered under the terminated or expired Policy had the claims been made during the term of that Policy. All claims made against or reported to the Company during an extended reporting period shall be deemed to have been made against or reported to the Company on the last full day of the Policy period to which the extended reporting period applies. For purposes of this Contract, the date of loss for any claim coming within Extended Reporting Period Coverage, whether such coverage is automatically extended under the Policy or whether a specific endorsement is issued, will be the termination or expiration date of the Policy.

C.

Gross Net Earned Premium Income

"Gross Net Earned Premium Income," as used in this Contract, shall mean gross earned premium income during the term of this Contract on business the subject of this Contract less earned premium income paid for reinsurances, recoveries under which would inure to the benefit of this Contract.

D.

Insured

"Insured," as used in this Contract, shall have the same meaning as this term or similar term in the Company’s Policies. However, in the event of any ambiguity or dispute relating to this term, the Company shall be the sole judge of what constitutes one Insured.

E.

Loss Occurrence

"Loss Occurrence," as used in this Contract, shall have the same meaning as this term or similar term (e.g., loss, claims-made, losses discovered, wrongful act, error, omission) in the Company’s Policies. However, in the event of any ambiguity or dispute relating to this term, the Company shall be the sole judge of what constitutes one Loss Occurrence.

F.

Policy or Policies

"Policy" or "Policies," as used in this Contract, shall mean any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, including any extended reporting periods, by or on behalf of the Company.

A.

This Contract shall protect the Company, within the limits hereof, in connection with the Ultimate Net Loss in excess of the limit of its original Policy, such loss in excess of the limit having been incurred because of failure by it to settle within the Policy limit or by reason of alleged or actual negligence, criminal act or fraud, or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such action.

B.

For the purpose of this Article, the word "loss" shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy. However, this Article shall not apply where the loss has been incurred due to fraud by a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

A.

This Contract shall protect the Company within the limits hereof, where the Ultimate Net Loss includes any Extra Contractual Obligations. The term "Extra Contractual Obligations" is defined as those liabilities not covered under any other provision of this Contract and which arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the Company to settle within the Policy limit, or by reason of alleged or actual negligence, criminal act or fraud, or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such action.

B.

The date on which any Extra Contractual Obligation is incurred by the Company shall be deemed, in all circumstances, to be the date of the original disaster and/or casualty.

C.

However, this Article shall not apply where the loss has been incurred due to fraud by a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

A.

Policies with per claim or per occurrence limits of $1,000,000 and less.

When the Company writes a primary Policy and an umbrella Policy for the same Insured, and the sum of the per claim or per occurrence limits of the two Policies is greater than $1,000,000, this exclusion shall not apply to either Policy.

B.

Pools, Associations or Syndicates, except losses from Assigned Risk Plans or similar plans, are not excluded.

C.

Nuclear Incident pursuant to the "Nuclear Incident Exclusion Clause — Liability — Reinsurance — U.S.A." attached hereto.

D.

Nuclear Incident pursuant to the "Nuclear Incident Exclusion Clause — Liability — Reinsurance — Canada" attached hereto.

E.

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 guarantee 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.

F.

Financial Guarantee or Insolvency, when written as such.

However, the liability of the Company under any bond covering losses due to negligence of any person or failure of any person to faithfully perform his duty or failure to account for and pay over money or other property in his custody shall not be considered Financial Guarantee or Insolvency.

Notwithstanding the foregoing, no claim is to attach hereto in respect of any loss or losses arising as a result of:

1.

The insolvency of any financial institution at which trust moneys are deposited or insolvency of any person, firm or company, or

2.

The fall in the market value of investments unless such loss is the direct result of a) a dishonest, fraudulent, criminal or negligent act on the part of the bonded person or b) a dishonest, fraudulent or criminal act on the part of any other person or persons or c) unless such loss is solely created by a physical damage loss to property other than where such physical damage loss could have been recovered from a third party but for the insolvency of such third party.

The above shall not apply as respects claims made under the Company’s Specialty Lines Division Policies.

G.

Pollution liability to the extent excluded in the Company’s original Policies. However, this exclusion shall not apply:

1.

When a judicial entity having legal jurisdiction invalidates the Company’s Pollution exclusion, thereby obligating the Company for liability when such liability for Pollution was intended to be excluded by the Company’s exclusion.

2.

In respect of any Policy written in a state whose insurance regulatory authorities have prohibited the Company from including a Pollution liability exclusion in its Policies.

H.

Business classified by the Company as Primary Rental Liability and Supplemental Liability.

I.

Liability assumed by the Company under any form of treaty reinsurance; however, group intra-company reinsurance (if applicable), local agency reinsurance accepted in the normal course of business and/or Policies written by another carrier at the Company’s request and reinsured 100% by the Company, as well as Policies written for the captive of the Company’s Insured, will not be excluded hereunder.

J.

Terrorism pursuant to the "Terrorism Exclusion Endorsement (Reinsurance)" attached hereto.

K.

Loss or liability excluded under the provisions of the "War Exclusion" attached hereto.

L.

Any losses arising out of the manufacturing of tobacco or tobacco products, when written as such.

M.

Any losses arising out of the manufacturing of latex gloves or latex products, when written as such.

N.

Business classified by the Company as Nursing Home General Liability or Nursing Home Umbrella Liability.

O.

Business classified as Unsupported Umbrella.