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(hereinafter referred to as the “Agreement”)





Winston-Salem, North Carolina


For and on behalf of the participants in the Company Pool


(hereinafter collectively referred to as the “Company”)




The Reinsurers subscribing to the respective Interests and Liabilities Contract to which this Agreement is attached   (each subscribing reinsurer is referred to hereinafter, individually, as a “Subscribing Reinsurer” and collectively as the "Reinsurer")




The Reinsurer hereby reinsures the Company to the extent and on the terms and conditions and subject to the exceptions, exclusions and limitations hereinafter set forth.






The Company shall cede to the Reinsurer and the Reinsurer shall accept from the Company, a 50% quota share participation of Losses Incurred by the Company Pool under new and renewal policies becoming effective on or after 12:01 A.M. March 1, 2010, (hereinafter called "Policies") on business classified by the Company as Private Passenger and Commercial Automobile business (as hereinafter defined).


As respects business subject to this Agreement, the liability of the Reinsurer for Net Loss(es) shall never exceed $5,000,000 (i.e., 50% of $10,000,000) each Occurrence.  Notwithstanding the foregoing, the limit for each Occurrence set forth herein shall not apply to an Extra Contractual Obligation or Excess of Original Policy Limit Loss to the extent that the Company has excess of loss reinsurance which covers part, but not 100% of such Extra Contractual Obligation or Excess of Original Policy Limit Loss.



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This Agreement shall be effective from 12:01 A.M., Eastern Standard Time, March 1, 2010, to 12:01 A.M., Eastern Standard Time, March 1, 2013, and shall automatically renew for successive three-year periods thereafter unless terminated, cancelled or commuted earlier in accordance with the terms of this Agreement.  Each three year period shall be hereinafter referred to as an “Agreement Term.”  In the event that this Agreement is terminated prior to or as of the end of an Agreement Term, the final Agreement Term shall be the period from the beginning of such Agreement Term through the termination date or the end of the run-off period, if any, whichever is later.



If the Reinsurer or Company elects to not renew this Agreement for a successive Agreement Term, it shall give written notice to the other party hereto and to the North Carolina Department of Insurance, Missouri Department of Insurance, Michigan Department of Insurance and California Department of Insurance not less than nine months prior to the expiration of such current Agreement Term.



Unless otherwise mutually agreed by the parties,   at the termination of this Agreement, the reinsurance hereunder on Policies in force on the effective date of termination shall remain in full force and effect until expiration, cancellation or the next anniversary of such Policies, whichever first occurs.



Notwithstanding the termination of this Agreement as hereinabove provided, the provisions of this Agreement shall continue to apply until all obligations and liabilities incurred by each party prior to such termination shall be fully performed and discharged.






This Agreement applies only to Policies issued in the United States of America.  In addition, this Agreement is extended to apply to automobiles temporarily within the Canadian borders as well as incidental exposures elsewhere, provided that the principal exposure under the Policy is within the United States of America.



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The Company warrants that the following shall apply throughout the term of this Agreement, or so deemed:




The Company shall retain net for its own account at least 50% of Losses Incurred each Policy, each Occurrence on all business ceded hereunder.




Except as set forth below, during the initial Agreement Term and each subsequent Agreement Term, the Net Earned Premium ceded hereunder shall not exceed the following amounts (the “Premium Cap”):




For the first calendar year or part thereof, the Premium Cap shall be $550,000,000.




For each calendar year thereafter, the Premium Cap shall increase by an amount equal to 10% of (i) the Premium Cap for the previous calendar year or (ii) actual Net Earned Premium ceded for the previous calendar year, whichever is higher;



Each Subscribing Reinsurer shall be promptly notified in writing by the Company when the premium reaches 75% of the Premium Cap.  It is the intent of the parties that the Reinsurer shall reinsurer all Covered Business, notwithstanding the Premium Cap, subject to each Subscribing Reinsurer’s good faith management of its capital requirements.  In the event that the Premium Cap is exceeded and a Subscribing Reinsurer determines in good faith that it cannot assume its pro-rata share of such excess premium, such Subscribing Reinsurer’s participation for such calendar year, at its option, may be reduced to a percentage, which when multiplied by the Company’s Net Earned Premium equals no less than the Premium Cap.  In the event a Subscribing Reinsurer exercises its option not to participate in any calendar year in any excess premium ceded (a “Non-Participating Reinsurer”), such Subscribing Reinsurer shall promptly notify the Company and each other Subscribing Reinsurer of its exercise of such option and the other Subscribing Reinsurers, subject to the Company’s written consent, may elect to assume all or any portion of the Non-Participating Reinsurer’s share of the applicable excess premium ceded by prompt written notice to the Company.



In the event that the Premium Cap is exceeded and a Subscribing Reinsurer exercises its option not to participate, the Company shall provide prompt written notice of the Non-Participating Reinsurer’s exercise of its right to the North Carolina Department of Insurance.



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In the event the Company issues Policies that cover new product lines of business other than those set forth in the Business Covered article herein, including any new business written on behalf of the Company by managing general agents (hereinafter collectively “Additional Business”), the Company shall offer to the Reinsurer the opportunity to reinsure any such Additional Business.  If the Reinsurer elects, in its sole discretion, to so reinsure any Additional Business, such Additional Business shall be subject to all the terms and conditions of this Agreement other than (a) the date and time as of which the reinsurance of such Additional Business shall be effective; (b) the ceding commission allowed in respect of such Additional Business and (c) the maximum Policy limits of such Additional Business that may be ceded hereunder, which terms and conditions described in clauses (a), (b) and (c) shall be mutually agreed by the parties.




The maximum Policy limits ceded hereunder shall be as follows:



Private Passenger Auto




Automobile Bodily Injury Liability: $1,000,000 per person/$1,000,000 per occurrence or $2,000,000 where mandated by state statute




Automobile Property Damage Liability: $1,000,000 per occurrence or $2,000,000 where mandated by state statute




Automobile Bodily Injury Liability and/or Automobile Property Damage Liability, combined single limit: $1,000,000 each occurrence or $2,000,000 where mandated by state statute




Physical Damage: As per company underwriting guidelines




Personal Injury Protection: Statutory limits




Uninsured/Underinsured Motorist Bodily Injury: $1,000,000 per person/$1,000,000 each occurrence or $2,000,000 where mandated by state statute




Medical Payments: $100,000 per occurrence




The Company shall make commercially reasonable efforts to purchase and maintain in effect during the term of this Agreement excess of loss reinsurance, recoveries under which shall inure to the benefit of this Agreement with the following retentions and limits:






Retention:             $10 million (per occurrence)

Limit:                    $20 million (per occurrence)

Extra Contractual/Excess Policy Limits: 90%



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Retention:               $5 million (per occurrence)

Limit:                      $50 million (per occurrence)

Extra Contractual/Excess Policy Limits: 90%


The Company shall confer with the Subscribing Reinsurers prior to purchasing excess of loss reinsurance with higher retentions or lower limits than set forth above.




The Company shall provide thirty (30) days prior written notice to each Subscribing Reinsurer of any reductions in the rates on policies reinsured hereunder and shall consider, in good faith, the position of the Subscribing Reinsurers with respect thereto.







The reinsurance provided under this Agreement does not apply to and specifically excludes:




All lines of business not specifically covered under this Agreement.




All reinsurance assumed by the Company, except pursuant to the Company Pool and reinsurance assumed from Motors Insurance Corporation (“MIC”), CIM Insurance Corporation (“CIM”) and MIC Property and Casualty Insurance Corporation (“MICPC”) in connection with the acquisition by American Capital Acquisition Corporation of the Company Pool participants.




Insolvency and financial guarantees.




Risks written on a deductible, excess or excess of self-insured retention when such retained, primary or underlying amounts are greater than $25,000.




Business derived from any pool (excluding the Company Pool), association, including joint underwriting association, syndicate, exchange, plan, fund or other facility directly as a member, subscriber or participant, or indirectly by way of reinsurance or assessments; provided this exclusion shall not apply to automobile assigned risks which may be currently or subsequently covered hereunder and which are specifically identifiable.




Liability of the Company and Company Pool arising from participation or membership, whether voluntary or involuntary, in any insolvency fund, including any guarantee fund, association, pool, plan or other facility which provides for the assessment of, payment by, or assumption by the Company of a part or the whole of any claim, debt, charge, fee or other obligations of an insurer, or its successors or assigns, which has been declared insolvent by any authority having jurisdiction.



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Third party bodily injury, personal injury or property damage liabilities, loss expenses, fines and penalties arising out of toxic or harmful substances including but not limited to asbestos, dioxin, polychlorinated biphenyls, manganese and silica as follows:




inhaling, ingesting or prolonged physical exposure to such substances or goods or products containing same; or




the use of such substances in constructing or manufacturing any good, product or structure; or




the removal of such substances from any good, product or structure; or




the manufacture, transportation, storage or disposal of such substances or goods or products containing same.




Any loss, cost or expense arising out of or related to, either directly or indirectly to terrorism as per the Terrorism Exclusion attached hereto.




Any loss or liability arising out of or related to mold as per the Mold Exclusion attached hereto.




All liability beyond circumscribed policy provisions, including but not limited to punitive, exemplary, consequential or compensatory damages (other than Excess of Original Policy Limit Loss awarded a third party claimant, if covered under this Agreement) resulting from an action of an insured or assignee against the Company, its agents or employees, (except for Extra Contractual Obligations coverage if provided under this Agreement).




“Self-Insurance” or “self-insured obligations”, howsoever styled, of the Company, its affiliates or subsidiaries, or any insurance wherein the Company, its affiliates or subsidiaries, are named as the insured party, either alone or jointly with some other party.




Loss or damage arising out of or resulting as a consequence of or related to war, whether or not declared, invasion, hostilities, acts of foreign enemies, revolution, civil war, rebellion, insurrection, bombardment or any use of military or usurped power, or martial law or confiscation, nationalization or damage of property by order of any government, military or other public authority.  This exclusion shall apply whether or not there is another cause of loss which may have contributed concurrently or in any sequence to a loss.



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Loss or liability excluded by the provisions of the following clauses.  The word “Reinsured” used therein means “Company”.




Nuclear Incident Exclusion Clauses – Physical Damage – Reinsurance – U.S.A;




Nuclear Incident Exclusion Clauses – Physical Damage – Reinsurance – Canada Reinsurance – No. 4;




Nuclear Incident Exclusion Clause Liability – Reinsurance – USA (NMA 1590);




Nuclear Incident Exclusion Clause Liability – Reinsurance – Canada (NMA 1979);




Nuclear Incident Exclusion Clause – Reinsurance – No. 4.




Loss, damage or expenses of whatsoever nature directly or indirectly caused by, contributed to by, resulting from, arising out of or in connection with biological or chemical substances, nuclear reaction or radiation, radioactive contamination, or the threat thereof, regardless of any other cause or event contributing concurrently or in any other sequence to the loss.




Seepage and Pollution as per the “Pollution And Seepage Exclusion Clause” attached to and forming a part of this Agreement;




Vehicles used in or while in practice or preparation for a prearranged racing, speed, exhibition or demolition contest.




Fire, Police, Emergency or Municipal vehicles except for vehicles owned by the insured and used when responding to an emergency.




All vehicles classified as “Public Vehicles”.




Vehicles hauling goods for others operating frequently and regularly beyond a radius of 1,000 miles.




The rental or leasing of vehicles to others without a driver.




Commercial automobiles over 66,000 lbs gross vehicle weight or gross combination weight as defined in the manuals of the Insurance Services Office, other than vehicles of unibody construction.




Vehicles primarily engaged in transporting and distributing fireworks, fuses, nitroglycerine, explosives, ammunitions, ammonium nitrate, natural or artificial fuel gas, butane, propane or liquefied petroleum gases, gasoline, diesel and other petroleum products.



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Vehicles in connection with:




Driving schools and driver education;



Bobtail liability;




Churches, schools, public entity, day care vans and/or buses;



Commercial buses;




Garbage and/or waste haulers other than vehicles used for recycling;



Messenger or delivery services or other activities that operate under time constraints.



The exclusions set forth in items 23(i) through (vi). above shall not apply if the excluded class or operations are minor or incidental exposures that constitute less than 10% of the regular operations of the insured.



If the Company is inadvertently bound on any risk excluded under items 23(i)  through (vi). above, and the risk is not reinsured elsewhere, the reinsurance provided under this Agreement shall apply to such risk until discovery by a member of the Company’s underwriting department of the existence of such risk and 30 days thereafter or such time period as mandated by state statute.



Risks excluded hereunder may be individually submitted by the Company to the Subscribing Reinsurers for inclusion hereunder, and if specially accepted in writing by all of the Subscribing Reinsurers, such business shall then be covered under the terms of this Agreement, except to the extent the terms of this Agreement are modified by the special acceptance.







As a condition precedent to the Reinsurer’s obligations hereunder, the Company shall pay to the Reinsurer an amount equal to 50% of the Company’s Net Earned Premium with respect to Policies written or renewed with an effective date on or after the inception of this Agreement.



The Reinsurer shall be credited with its exact proportion of the original premiums received by the Company, prior to disbursement of any dividends, but after deduction of premiums, if any, ceded by the Company for inuring reinsurance.






The Reinsurer shall allow the Company a provisional ceding commission of 32.5% of all Net Earned Premium ceded to the Reinsurer hereunder.  The Company shall allow the Reinsurer return commission on return premiums at the same rate.



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The provisional commission allowed to the Company shall be adjusted periodically in accordance with the provisions set forth herein.



The first adjustment period shall be from the inception date of this Agreement through December 31, 2010 and each subsequent 12 month period shall be a separate adjustment period (each an “Adjustment Period and, collectively, “Adjustment Periods”).  However, if this Agreement is terminated, the final adjustment period shall be from the beginning of the then current Adjustment Period through the date of termination if this Agreement is terminated on a "cutoff" basis, or the end of the runoff period if this Agreement is terminated on a "runoff" basis.  The first calculation of adjusted commission for an Adjustment Period shall be made as of the date that is 12 months after the end of such Adjustment Period (the “Initial Calculation Date”).



The adjusted commission rate shall be calculated as follows and be applied to Net Earned Premium for the Adjustment Period under consideration:




If the Actual Loss Ratio for the Adjustment Period is 64.5% or greater, the adjusted commission rate for the Adjustment Period under consideration shall be a minimum commission of 30.5%;




If the Actual Loss Ratio for the Adjustment Period  is less than 64.5%, but equal to or greater than 62.5%, the adjusted commission rate for such Adjustment Period under consideration shall be 30.5%, plus the difference in percentage points between 62.5% and the Actual Loss Rati

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