e10vq

x Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of November 10, 2003.


Part I — Financial Information
	Item 1. Financial Statements:
		Consolidated Balance Sheets — September 30, 2003 and December 31, 2002	3
		Consolidated Statements of Operations and Comprehensive Income — For the three and nine months ended September 30, 2003 and 2002	4
		Consolidated Statements of Changes in Shareholders’ Equity — For the nine months ended September 30, 2003 and year ended December 31, 2002	5
		Consolidated Statements of Cash Flows — For the nine months ended September 30, 2003 and 2002	6
		Notes to Consolidated Financial Statements	7-13
	Item 2
		Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-23
	Item 3
		Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4
		Controls and Procedures	25
Part II — Other Information			26-27
Signatures			28


			As of

			September 30,			December 31,
			2003			2002
			(Unaudited)

ASSETS
INVESTMENTS:
	FIXED MATURITIES AVAILABLE FOR SALE AT MARKET (AMORTIZED COST $1,054,193 AND $832,701)		$	1,074,520		$	854,513
	EQUITY SECURITIES AT MARKET (COST $78,665 AND $51,257)			86,441			54,346

		TOTAL INVESTMENTS		1,160,961			908,859
	CASH AND CASH EQUIVALENTS			90,891			42,002
	ACCRUED INVESTMENT INCOME			10,512			8,571
	PREMIUMS RECEIVABLE			181,861			130,007
	PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES			275,328			151,352
	DEFERRED INCOME TAXES			15,313			7,541
	DEFERRED ACQUISITION COSTS			54,161			61,272
	PROPERTY AND EQUIPMENT, NET			15,182			12,794
	GOODWILL			25,724			25,724
	OTHER ASSETS			8,767			10,212

		TOTAL ASSETS	$	1,838,700		$	1,358,334

LIABILITIES AND SHAREHOLDERS’ EQUITY
POLICY LIABILITIES AND ACCRUALS:
	UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES		$	593,527		$	445,548
	UNEARNED PREMIUMS			431,791			306,093

		TOTAL POLICY LIABILITIES AND ACCRUALS		1,025,318			751,641
	FUNDS HELD PAYABLE TO REINSURER			90,587			—
	LOANS PAYABLE			49,750			39,113
	PREMIUMS PAYABLE			32,489			33,553
	PAYABLE FOR SECURITIES PURCHASE			46,690			6,100
	OTHER LIABILITIES			72,567			50,104

		TOTAL LIABILITIES		1,317,401			880,511

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
	PREFERRED STOCK, $.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED, NONE ISSUED AND OUTSTANDING			—			—
	COMMON STOCK, NO PAR VALUE, 100,000,000 SHARES AUTHORIZED, 21,984,492 AND 21,868,877 SHARES ISSUED AND OUTSTANDING			280,286			276,945
	NOTES RECEIVABLE FROM SHAREHOLDERS			(6,197	)		(6,407	)
	ACCUMULATED OTHER COMPREHENSIVE INCOME			18,267			16,185
	RETAINED EARNINGS			228,943			191,100

		TOTAL SHAREHOLDERS’ EQUITY		521,299			477,823

		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,838,700		$	1,358,334

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)


			For the Three Months						For the Nine Months
			Ended September 30,						Ended September 30,

			2003			2002			2003			2002

REVENUE:
	NET EARNED PREMIUMS		$	142,688		$	106,146		$	412,499		$	295,663
	NET INVESTMENT INCOME			9,173			9,497			28,348			27,727
	NET REALIZED INVESTMENT GAIN (LOSS)			474			199			(1,309	)		(2,935	)
	OTHER INCOME			1,988			419			3,689			435

		TOTAL REVENUE		154,323			116,261			443,227			320,890

LOSSES AND EXPENSES:
	LOSS AND LOSS ADJUSTMENT EXPENSES			100,645			114,325			328,023			252,003
	NET REINSURANCE RECOVERIES			(21,240	)		(35,976	)		(65,232	)		(59,773	)

	NET LOSS AND LOSS ADJUSTMENT EXPENSES			79,405			78,349			262,791			192,230
	ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES			41,542			32,343			120,120			91,221
	OTHER OPERATING EXPENSES			2,668			1,632			5,974			4,570

		TOTAL LOSSES AND EXPENSES		123,615			112,324			388,885			288,021

INCOME BEFORE INCOME TAXES				30,708			3,937			54,342			32,869

INCOME TAX EXPENSE (BENEFIT):
	CURRENT			10,403			2,044			25,392			14,413
	DEFERRED			(678	)		(999	)		(8,893	)		(4,066	)

		TOTAL INCOME TAX EXPENSE		9,725			1,045			16,499			10,347

		NET INCOME	$	20,983		$	2,892		$	37,843		$	22,522

OTHER COMPREHENSIVE INCOME, NET OF TAX:
	HOLDING GAIN (LOSS) ARISING DURING PERIOD			(1,568	)		6,364			1,231			7,639
	RECLASSIFICATION ADJUSTMENT			(308	)		(129	)		851			1,908

	OTHER COMPREHENSIVE INCOME (LOSS)			(1,876	)		6,235			2,082			9,547

COMPREHENSIVE INCOME			$	19,107		$	9,127		$	39,925		$	32,069

PER AVERAGE SHARE DATA:
	BASIC EARNINGS PER SHARE		$	0.96		$	0.13		$	1.73		$	1.04

	DILUTED EARNINGS PER SHARE		$	0.92		$	0.13		$	1.68		$	1.01

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING				21,913,053			21,625,799			21,879,748			21,577,670
WEIGHTED-AVERAGE SHARE EQUIVALENTS OUTSTANDING				787,627			636,828			681,716			716,017

WEIGHTED-AVERAGE SHARES AND SHARE EQUIVALENTS OUTSTANDING				22,700,680			22,262,627			22,561,464			22,293,687

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)


				For the Nine Months
				Ended
				September 30,			For the Year Ended
				2003			December 31,
				(Unaudited)			2002

COMMON SHARES:
	BALANCE AT BEGINNING OF YEAR				21,868,877			21,509,723
	EXERCISE OF EMPLOYEE STOCK OPTIONS				75,125			107,000
	ISSUANCES OF SHARES PURSUANT TO STOCK PURCHASE PLANS, NET				40,490			252,154

			BALANCE AT END OF PERIOD		21,984,492			21,868,877

TREASURY SHARES:
	BALANCE AT BEGINNING OF YEAR				—			—
	SHARES REPURCHASED PURSUANT TO AUTHORIZATION				10,000			75,000
	EXERCISE OF EMPLOYEE STOCK OPTIONS				(6,500	)		—
	ISSUANCES OF SHARES PURSUANT TO STOCK PURCHASE PLANS				(3,500	)		(75,000	)

			BALANCE AT END OF PERIOD		—			—

COMMON STOCK:
	BALANCE AT BEGINNING OF YEAR			$	276,945		$	268,509
	EXERCISE OF EMPLOYEE STOCK OPTIONS				1,991			2,115
	ISSUANCES OF SHARES PURSUANT TO STOCK PURCHASE PLANS				1,350			6,321

			BALANCE AT END OF PERIOD		280,286			276,945

NOTES RECEIVABLE FROM SHAREHOLDERS:
	BALANCE AT BEGINNING OF YEAR				(6,407	)		(3,373	)
	NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE STOCK PURCHASE PLANS				(1,154	)		(4,017	)
	COLLECTION OF NOTES RECEIVABLE				1,364			983

			BALANCE AT END OF PERIOD		(6,197	)		(6,407	)

ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF DEFERRED INCOME TAXES:
		BALANCE AT BEGINNING OF YEAR			16,185			8,461
		OTHER COMPREHENSIVE INCOME, NET OF TAXES			2,082			7,724

			BALANCE AT END OF PERIOD		18,267			16,185

RETAINED EARNINGS:
	BALANCE AT BEGINNING OF YEAR				191,100			155,095
	NET INCOME				37,843			36,005

			BALANCE AT END OF PERIOD		228,943			191,100

COMMON STOCK HELD IN TREASURY:
	BALANCE AT BEGINNING OF YEAR				—			—
	EXERCISE OF EMPLOYEE STOCK OPTIONS				94			—
	COMMON SHARES REPURCHASED				(300	)		(2,023	)
	ISSUANCES OF SHARES PURSUANT TO STOCK PURCHASE PLANS				206			2,023

			BALANCE AT END OF PERIOD		—			—

			TOTAL SHAREHOLDERS’ EQUITY	$	521,299		$	477,823

The accompanying notes are an integral part of the consolidated financial statements.


			For the Nine Months Ended September 30,

			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
	NET INCOME		$	37,843		$	22,522
	ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
	NET REALIZED INVESTMENT LOSS			1,309			2,935
	DEPRECIATION AND AMORTIZATION EXPENSE			6,148			1,345
	DEFERRED INCOME TAX BENEFIT			(8,893	)		(4,066	)
	CHANGE IN PREMIUMS RECEIVABLE			(51,854	)		(36,720	)
	CHANGE IN PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES, NET OF FUNDS HELD PAYABLE TO REINSURER			(33,389	)		(35,759	)
	CHANGE IN OTHER RECEIVABLES			(1,941	)		(1,013	)
	CHANGE IN INCOME TAXES PAYABLE			636			(5,520	)
	CHANGE IN DEFERRED ACQUISITION COSTS			7,111			(18,686	)
	CHANGE IN OTHER ASSETS			1,138			(458	)
	CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES			147,979			96,769
	CHANGE IN UNEARNED PREMIUMS			125,698			108,443
	CHANGE IN OTHER LIABILITIES			20,763			32,490
	TAX BENEFIT FROM EXERCISE OF EMPLOYEE STOCK OPTIONS			495			1,251

		NET CASH PROVIDED BY OPERATING ACTIVITIES		253,043			163,533

CASH FLOWS FROM INVESTING ACTIVITIES:
	PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES			71,674			188,746
	PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES			162,032			82,793
	PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES			10,936			13,898
	COST OF FIXED MATURITIES ACQUIRED			(419,264	)		(422,182	)
	COST OF EQUITY SECURITIES ACQUIRED			(38,593	)		(26,703	)
	PURCHASE OF PROPERTY AND EQUIPMENT, NET			(4,632	)		(2,484	)

		NET CASH USED BY INVESTING ACTIVITIES		(217,847	)		(165,932	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	REPAYMENTS ON LOANS PAYABLE			(34,245	)		(29,842	)
	PROCEEDS FROM LOANS PAYABLE			44,882			29,381
	PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS			1,590			864
	PROCEEDS FROM COLLECTION OF NOTES RECEIVABLE			1,364			617
	PROCEEDS FROM SHARES ISSUED PURSUANT TO STOCK PURCHASE PLANS			402			410
	COST OF COMMON STOCK REPURCHASED			(300	)		—

		NET CASH PROVIDED BY FINANCING ACTIVITIES		13,693			1,430

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				48,889			(969	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				42,002			49,910

CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	90,891		$	48,941

CASH PAID DURING THE PERIOD FOR:
	INCOME TAXES		$	23,635		$	18,412
	INTEREST		$	487		$	466
NON-CASH TRANSACTIONS:
	ISSUANCE OF SHARES (FORFEITURES) PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN IN EXCHANGE FOR NOTES RECEIVABLE		$	1,154		$	(84	)

The accompanying notes are an integral part of the consolidated financial statements.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

The consolidated financial statements as of and for the nine months ended September 30, 2003 and 2002 are unaudited, but in the opinion of management have been prepared on the same basis as the annual audited consolidated financial statements and reflect all adjustments, consisting of only normal recurring accruals, necessary for a fair statement of the information set forth therein. The results of operations for the nine months ended September 30, 2003 are not necessarily indicative of the operating results to be expected for the full year or any other period. Certain prior years’ amounts have been reclassified for comparative purposes.

These financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2002.

The carrying amounts for the Company’s investments approximates their estimated fair value. The Company measures the fair value of investments based upon quoted market prices or by obtaining quotes from dealers. At September 30, 2003, the Company held no derivative financial instruments or embedded financial derivatives.

The Company performs various analytical procedures with respect to its investments, including identifying any security whose fair value is below its cost. Upon identification of such securities, a detailed review is performed for such securities, except interests in securitized assets, meeting predetermined thresholds to determine whether a decline in fair value below a security’s cost basis is other than temporary. If the Company determines a decline in value to be other than temporary, the cost basis of the security is written down to its fair value with the amount of the write down included in earnings as a realized loss in the period the impairment arose. Non-cash realized investment losses recorded for the three and nine months ended September 30, 2003 were $0 million and $0.9 million, respectively, as a result of the Company’s other than temporary impairment evaluation. There were no non-cash realized investment losses recorded for the three and nine months ended September 30, 2002 as a result of the Company’s other than temporary impairment evaluation.

The Company’s impairment evaluation and recognition for interests in securitized assets is conducted in accordance with the guidance provided by the Emerging Issues Task Force of the Financial Accounting Standards Board. Under this guidance, impairment losses on securities must be recognized if both the fair value of the security is less than its book value and the net present value of expected future cash flows is less than the net present value of expected future cash flows at the most recent (prior) estimation date. If these criteria are met, an impairment charge, calculated as the difference between the current book value of the security and its fair value, is included in earnings as a realized loss in the period the impairment arose. Non-cash realized investment losses recorded for the three and nine months ended September 30, 2003 and 2002 were $0.4 million and $0.3 million, respectively, and $2.6 million and $1.5 million, respectively, as a result of the Company’s impairment evaluation for investments in securitized assets.

The Insurance Subsidiaries have investments, principally U.S. Treasury securities, on deposit with the various states in which they are licensed insurers. At September, 30, 2003 and December 31, 2002, the carrying value of the securities on deposit totaled $17.0 million and $13.5 million, respectively.

Additionally, the Insurance Subsidiaries have investments, principally asset backed securities, which collateralize the borrowings from the Federal Home Loan Bank of Pittsburgh, see Note 7. The carrying value of these investments was $62.2 million and $49.2 million as of September 30, 2003 and December 31, 2002, respectively.

The carrying amount of goodwill is subject to an annual impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). As a result of the impairment analysis, no change in the carrying amount of goodwill was recorded by the Company for the year ended December 31, 2002. No events have occurred or circumstances have arisen subsequent to December 31, 2002 that would necessitate the Company to perform an interim impairment test. Consequently no change in the carrying amount of goodwill has been recorded for the nine months ended September 30, 2003.

The liability for unpaid loss and loss adjustment expenses reflects the Company’s best estimate for future amounts needed to pay losses and related settlement expenses with respect to insured events. Estimating the ultimate claims liability is necessarily a complex and judgmental process, inasmuch as the amounts are based on management’s informed estimates and judgments using data currently available. In some cases significant periods of time, up to several years or more, may elapse between the occurrence of an insured loss and the reporting of such to the Company. The method for determining the Company’s liability for unpaid loss and loss adjustment expenses includes, but is not limited to, reviewing past loss experience and considering other factors such as legal, social, and economic developments. As additional experience and data become available the Company’s estimate for the liability for unpaid loss and loss adjustment expenses is revised accordingly. If the Company’s ultimate losses, net of reinsurance, prove to differ substantially from the amounts recorded at September 30, 2003, the related adjustments could have a material adverse impact on the Company’s results of operations.

During the second quarter of 2003, the Company increased the estimated gross and net loss for unreported claims incurred and related claim adjustment expenses on residual value polices issued during the years 1998 through 2002 by $33.0 million. As of September 30, 2003 the Company has estimated a total liability for unpaid loss and loss adjustment expenses for these policies of $51.5 million ($51.3 million net of reinsurance) and approximately 48,000 leases were outstanding under the Company’s residual value policies. As of June 30, 2003 the Company had estimated a total liability for unpaid loss and loss adjustment expenses for these policies of $59.8 million ($57.9 million net of reinsurance) and approximately 61,000 leases were outstanding under the residual value policies. The residual value policies provide coverage guaranteeing the value of a leased automobile at the lease termination, which can be up to five years from lease inception. Adverse trends further deteriorated in both frequency and severity on leases expiring in 2003. As part of the Company’s monitoring and evaluation process, a consulting firm was engaged during the second quarter of 2003 to aid in evaluating the ultimate potential loss exposure under these policies. Based upon the result of the subsequent evaluation by the Company and changes in the Company’s assumptions relating to future frequency and severity of losses, the estimate for unpaid loss and loss adjustment expenses was increased. The Company primarily attributes this deterioration to the following factors that led to a softening of prices in the used car market subsequent to the September 11, 2001 terrorist attacks: prolonged 0% new car financing rates and other incentives which increased new car sales and the volume of trade-ins, daily rental units being sold into the market earlier and in greater numbers than expected further adding to the over supply of used cars; and the overall general economic conditions.

During the second quarter of 2003, the Company also decreased the gross and net liability for unpaid loss and loss adjustment expenses for accident year 2002, principally in the property line of its commercial package products, by approximately $9.0 million due to better than expected loss experience.

Effective April 1, 2003, the Company entered into a quota share reinsurance agreement covering all of the Company’s lines of business. Under this agreement, the Company cedes 22% of its net written premium (including 22% of net unearned premium reserves at April 1, 2003) and loss and loss adjustment expenses. The Company also receives a provisional commission of 33.0% adjusted pro-rata based upon the ratio of losses incurred to premiums earned. Pursuant to this reinsurance agreement the Company withholds the reinsurance premium due the reinsurers reduced by the reinsurers’ expense allowance, and the Company’s ceding commission allowance in a Funds Held Payable to Reinsurer account. This Funds Held Payable to Reinsurer account is also reduced by ceded paid losses and loss adjustment expenses under this agreement, and increased

by an interest credit. The interest credit (expense), which is included in net investment income, was $0.8 million and $1.3 million for the three and nine months ended September 30, 2003, respectively.

As of September 30, 2003, the Company had aggregate borrowings of $49.7 million from the Federal Home Loan Bank. These borrowings bear interest at adjusted LIBOR and mature twelve months from inception. The proceeds from these borrowings are invested in collateralized mortgage obligation and asset backed securities to achieve a positive spread between the rate of interest on these securities and the borrowing rates.

Earnings per common share has been calculated by dividing net income for the period by the weighted average number of common shares and common share equivalents outstanding during the period. Following is the computation of earnings per share for the three and nine months ended September 30, 2003 and 2002, respectively (in thousands, except per share data):


	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,

	2003		2002		2003		2002

Weighted-Average Common Shares Outstanding		21,913		21,626		21,880		21,578
Weighted-Average Share Equivalents Outstanding		788		637		681		716

Weighted-Average Shares and Share Equivalents Outstanding		22,701		22,263		22,561		22,294

Net Income	$	20,983	$	2,892	$	37,843	$	22,522

Basic Earnings per Share	$	0.96	$	0.13	$	1.73	$	1.04

Diluted Earnings per Share	$	0.92	$	0.13	$	1.68	$	1.01

The effective tax rate differs from the 35% marginal tax rate principally as a result of tax-exempt interest income, the dividend received deduction and other differences in the recognition of revenues and expenses for tax and financial reporting purposes.

Stock-based compensation plans are accounted for under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, no compensation expense is recognized for fixed stock option grants and the Company’s stock purchase plans. The following table illustrates the effect on net income and earnings per share as if the provisions of statement of Financial Accounting Standards (SFAS) No. 123 (as amended by SFAS No. 148), “Accounting for Stock-Based Compensation,” had been applied for the three and nine months ended September 30, 2003 and 2002, respectively:


(In thousands, except per share data)		Three Months Ended Sept. 30,				Nine Months Ended Sept. 30,

		2003		2002		2003		2002

Net Income As Reported		$	20,983	$	2,892	$	37,843	$	22,522
Assumed Stock Compensation Cost			783		609		1,510		1,114

Pro Forma Net Income		$	20,200	$	2,283	$	36,333	$	21,408

Basic Earnings Per Share:
	As Reported	$	0.96	$	0.13	$	1.73	$	1.04

	Pro Forma	$	0.92	$	0.11	$	1.66	$	0.99

Diluted Earnings Per Share:
	As Reported	$	0.92	$	0.13	$	1.68	$	1.01

	Pro Forma	$	0.89	$	0.10	$	1.61	$	0.96

On April 30, 2002, U.S. Bank, N.A. d/b/a Firstar Bank (“Firstar”), a bank to which one of the Company’s insurance subsidiaries, Philadelphia Indemnity Insurance Company (“PIIC”), issued insurance coverages, filed a complaint against PIIC in the United States District Court for the Southern District of Ohio (Western Division). This matter was reported in Part II, Item 1 of the Company’s Form 10-Q for the period ended June 30, 2002. Firstar subsequently has requested that the court permit Firstar to amend its complaint against PIIC, which amended complaint would add a bad faith claim for compensatory damages and punitive damages in three times the amount of any compensatory damage award. Firstar’s original complaint indicated that its projected damage estimates exceed $75.0 million. The proposed amended complaint does not specify the amount of Firstar’s alleged or projected damages. The Court has not ruled on Firstar’s request to amend its complaint.

On July 30, 2003, PIIC requested the court to allow PIIC to file a counterclaim to Firstar’s complaint against PIIC seeking money damages and equitable relief relating to certain residual value insurance policies issued by PIIC to Firstar for policy years 1994, 1995, 1996, 1997 and 1998, as a result of material misrepresentations by Firstar in its applications for residual value insurance coverage. The counterclaim seeks money damages representing the amount of claim payments to date under the policies, less the amount of premium paid by Firstar, and a declaratory judgment that PIIC has no obligation to pay pending or future claims arising under the policies. The Court has not ruled on PIIC’s request to file a counterclaim to Firstar’s complaint.

The Company has not recorded a litigation reserve with respect to the Firstar litigation.

The Company is subject to routine legal proceedings in connection with its property and casualty insurance business. The Company is not involved in any other pending or threatened legal or administrative proceedings which management believes can reasonably be expected to have a material adverse effect on the Company’s financial condition or results of operations.

Components of comprehensive income, as detailed in the Consolidated Statements of Operations and Comprehensive Income, are net of tax. The related tax effect of Holding Gains (Losses) arising during the three and nine months ended September 30, 2003 and 2002 was ($0.8) million and $3.4 million, respectively and $0.7 million and $4.1 million, respectively. The related tax effect of Reclassification Adjustments for the three and nine months ended September 30, 2003 and 2002 was ($0.2) million and ($0.1) million, respectively and $0.5 million and $1.0 million, respectively.

The Company’s operations are classified into three reportable business segments which are organized around its three underwriting divisions: The Commercial Lines Underwriting Group, which has underwriting responsibility for the Commercial Automobile and Commercial Property and Commercial multi-peril package insurance products; The Specialty Lines Underwriting Group, which has underwriting responsibility for the professional liability insurance products; and The Personal Lines Group, which designs, markets and underwrites personal property and casualty insurance products for the Manufactured Housing and Homeowners markets. Each business segment’s responsibilities include: pricing, managing the risk selection process and monitoring the loss ratios by product and insured. The reportable segments operate solely within the United States and have not been aggregated.

The segments follow the same accounting policies used for the Company’s consolidated financial statements as described in the summary of significant accounting policies. Management evaluates a segment’s performance based upon premium production and the associated loss experience which includes paid losses, an amount determined on the basis of claim adjusters’ evaluation with respect to insured events that have occurred and an amount for losses incurred that have not been reported. Investments and investment performance including investment income and net realized investment gain (loss), acquisition costs and other underwriting expenses including commissions, premium taxes and other acquisition costs, and other operating expenses are managed at a corporate level by the corporate accounting function in conjunction with other corporate departments, and are included in “Corporate”.

Following is a tabulation of business segment information for the nine and three months ended September 30, 2003 and 2002. Corporate information is included to reconcile segment data to the consolidated financial statements (in thousands):


			Nine Months Ended,

			Commercial		Specialty		Personal
			Lines		Lines		Lines		Corporate			Total

September 30, 2003:
Gross Written Premiums			$	512,871	$	106,818	$	70,926	$	—		$	690,615

Net Written Premiums			$	349,117	$	72,628	$	24,484	$	—		$	446,229

Revenue:
	Net Earned Premiums		$	309,829	$	76,477	$	26,193	$	—		$	412,499
	Net Investment Income			—		—		—		28,348			28,348
	Net Realized Investment Loss			—		—		—		(1,309	)		(1,309	)
	Other Income			—		—		3,361		328			3,689

	Total Revenue			309,829		76,477		29,554		27,367			443,227

Losses and Expenses:
		Net Loss and Loss Adjustment Expenses		202,357		45,941		14,493		—			262,791
		Acquisition Costs and Other Underwriting Expenses		—		—		—		120,120			120,120
		Other Operating Expenses		—		—		2,422		3,552			5,974

		Total Losses and Expenses		202,357		45,941		16,915		123,672			388,885

Income Before Income Taxes				107,472		30,536		12,639		(96,305	)		54,342
Total Income Tax Expense				—		—		—		16,499			16,499

Net Income			$	107,472	$	30,536	$	12,639	$	(112,804	)	$	37,843

Total Assets			$	—	$	—	$	283,507	$	1,555,193		$	1,838,700

September 30, 2002:
Gross Written Premiums			$	360,169	$	82,427	$	65,125	$	—		$	507,721

Net Written Premiums			$	287,797	$	76,625	$	31,670	$	—		$	396,092

Revenue:
	Net Earned Premiums		$	208,396	$	61,157	$	26,110	$	—		$	295,663
	Net Investment Income			—		—		—		27,727			27,727
	Net Realized Investment Loss			—		—		—		(2,935	)		(2,935	)
	Other Income			—		—		1,294		(859	)		435

	Total Revenue			208,396		61,157		27,404		23,933			320,890

Losses and Expenses:
		Net Loss and Loss Adjustment Expenses		147,723		30,551		13,956		—			192,230
		Acquisition Costs and Other Underwriting Expenses		—		—		—		91,221			91,221
		Other Operating Expenses		—		—		140		4,430			4,570

		Total Losses and Expenses		147,723		30,551		14,096		95,651			288,021

Income Before Income Taxes				60,673		30,606		13,308		(71,718	)		32,869
Total Income Tax Expense				—		—		—		10,347			10,347

Net Income			$	60,673	$	30,606	$	13,308	$	(82,065	)	$	22,522

Total Assets			$	—	$	—	$	215,058	$	1,081,182		$	1,296,240


			Three Months Ended,

			Commercial		Specialty		Personal
			Lines		Lines		Lines		Corporate			Total

September 30, 2003:
Gross Written Premiums			$	231,169	$	35,071	$	20,186	$	—		$	286,426

Net Written Premiums			$	164,673	$	25,489	$	6,215	$	—		$	196,377

Revenue:
	Net Earned Premiums		$	110,603	$	24,142	$	7,943	$	—		$	142,688
	Net Investment Income			—		—		—		9,173			9,173
	Net Realized Investment Gain			—		—		—		474			474
	Other Income			—		—		1,807		181			1,988

	Total Revenue			110,603		24,142		9,750		9,828			154,323

Losses and Expenses:
		Net Loss and Loss Adjustment Expenses		61,277		13,948		4,180		—			79,405
		Acquisition Costs and Other Underwriting Expenses		—		—		—		41,542			41,542
		Other Operating Expenses		—		—		1,364		1,304			2,668

		Total Losses and Expenses		61,277		13,948		5,544		42,846			123,615

Income Before Income Taxes				49,326		10,194		4,206		(33,018	)		30,708
Total Income Tax Expense				—		—		—		9,725			9,725

Net Income			$	49,326	$	10,194	$	4,206	$	(42,743	)	$	20,983

Total Assets			$	—	$	—	$	283,507	$	1,555,193		$	1,838,700

September 30, 2002:
Gross Written Premiums			$	161,139	$	30,103	$	19,232	$	—		$	210,474

Net Written Premiums			$	126,595	$	28,137	$	6,501	$	—		$	161,233

Revenue:
	Net Earned Premiums		$	77,051	$	21,748	$	7,347	$	—		$	106,146
	Net Investment Income			—		—		—		9,497			9,497
	Net Realized Investment Gain			—		—		—		199			199
	Other Income			—		—		372		47			419

	Total Revenue			77,051		21,748		7,719		9,743			116,261

Losses and Expenses:
		Net Loss and Loss Adjustment Expenses		66,457		7,398		4,494		—			78,349
		Acquisition Costs and Other Underwriting Expenses		—		—		—		32,343			32,343
		Other Operating Expenses		—		—		78		1,554			1,632

		Total Losses and Expenses		66,457		7,398		4,572		33,897			112,324

Income Before Income Taxes				10,594		14,350		3,147		(24,154	)		3,937
Total Income Tax Expense				—		—		—		1,045			1,045

Net Income			$	10,594	$	14,350	$	3,147	$	(25,199	)	$	2,892

Total Assets			$	—	$	—	$	215,058	$	1,081,182		$	1,296,240

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Although the Company’s financial performance is dependent upon its own specific business characteristics, certain risk factors can affect the profitability of the Company. These include, but are not limited to:

•

Industry factors — Historically the financial performance of the property and casualty insurance industry has tended to fluctuate in cyclical patterns of soft markets followed by hard markets. The Company’s strategy is to focus on underwriting profits, and accordingly the Company’s marketing organization is being directed into those niche businesses that exhibit the greatest potential for underwriting profits.

•

Competition — The Company competes in the property and casualty business with other domestic and international insurers having greater financial and other resources than the Company.

•

Regulation — The Company’s insurance subsidiaries are subject to a substantial degree of regulatory oversight, which generally is designed to protect the interests of policyholders, as opposed to shareholders.

•

Inflation — Property and casualty insurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflation may affect such amounts is known.

•

Investment Risk — Substantial future increases in interest rates could result in a decline in the market value of the Company’s investment portfolio and resulting losses and/or reduction in shareholders’ equity.

•

Claims development and the process of estimating loss reserves — Estimating the Company’s ultimate liability for unpaid loss and loss adjustment expenses is necessarily a complex and judgmental process, inasmuch as the amounts of any ultimate liability of the Company with respect to such claims are based on management’s informed estimates and judgments using data currently available.

•

Catastrophe Exposure — The Company’s insurance subsidiaries issue insurance policies which provide coverage for commercial and personal property and casualty risks. It is possible that a catastrophic event could greatly increase claims under the insurance policies the insurance subsidiaries issue. Catastrophes may result from a variety of events or conditions, including hurricanes, windstorms, earthquakes, hail and other severe weather conditions and may include terrorist events. It is possible that a catastrophic event could adversely impact profitability.

•

Reinsurance — The adequacy of reinsurance coverage which may be obtained by the Company and the ability and willingness of the Company’s reinsurers to pay.

The above risk factors should be read in conjunction with the Certain Critical Accounting Estimates and Judgments included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

The Company’s investment objective is the realization of relatively high levels of investment income while generating competitive after-tax total rates of return within a prudent level of risk and within the constraints of maintaining adequate securities in amount and duration to meet cash requirements of current operations and long-term liabilities, as well as maintaining and improving the Company’s A.M. Best rating. The Company utilizes external independent professional investment managers for its fixed maturity and equity investments. These investments consist of diversified issuers and issues, and as of September 30, 2003, approximately 86.2% and 6.4% of the total invested assets (total investments plus cash equivalents) on a cost basis consisted of investments in fixed maturity and equity securities, respectively, versus 90.2% and 5.6%, respectively, at December 31, 2002.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

During 2003, the relative percentage investment in tax-exempt fixed maturity securities versus taxable fixed maturity securities increased due to the Company taking advantage of the more favorable after-tax yields. As of September 30, 2003, on a cost basis, investment grade tax-exempt fixed maturity securities represented 36.4% of the total invested assets, compared to 30.3% as December 31, 2002.

Collateralized mortgage and asset backed securities, on a cost basis, amounted to $63.7 million and $357.3 million, respectively, as of September 30, 2003, and $89.2 and $284.1, respectively, as of December 31 2002. The collateralized mortgage and asset backed investments are amortizing securities possessing favorable prepayment and/or extension risk profiles.

The Company regularly performs various analytical procedures with respect to its investments, including identifying any security whose fair value is below its cost. Upon identification of such securities, a detailed review is performed for all securities, except interests in securitized assets, meeting predetermined thresholds, to determine whether such decline is other than temporary. If the Company determines a decline in value to be other than temporary, based upon its detailed review, or if a decline in value for an equity investment has persisted continuously for nine months the cost basis of the security is written down to its fair value. The factors considered in reaching the conclusion that a decline below cost is other-than-temporary include, but are not limited to, whether: the issuer is in financial distress; the investment is secured; a significant credit rating action has occurred; scheduled interest payments have been delayed or missed; or changes in laws and/or regulations have impacted an issuer or industry. The amount of any write down is included in earnings as a realized loss in the period the impairment arose. This evaluation resulted in non-cash realized investment losses of $0 million for the three months ended September 30, 2003 and 2002 and $0.9 million and $0 million, respectively, for the nine months ended September 30, 2003 and 2002. The $0.9 million in non-cash realized investment losses resulted from other than temporary declines in the fair value of certain holdings in the Company’s common stock portfolio. The Company primarily attributes these other than temporary declines in fair value to an uncertain economic climate, the overhang of corporate governance issues, high profile bankruptcies and the recent war with Iraq.

Additionally, the Company conducts its impairment evaluation and recognition for interests in securitized assets in accordance with the guidance provided by the Emerging Issues Task Force of the Financial Accounting Standards Board (“EITF”). Under this guidance, impairment losses on securities must be recognized if both the fair value of the security is less than its book value and the net present value of expected future cash flows is less than the net present value of expected future cash flows at the most recent (prior) estimation date. If these criteria are met, an impairment charge, calculated as the difference between the current book value of the security and its fair value, is included in earnings as a realized loss in the period the impairment arose. This evaluation resulted in non-cash realized investment losses of $0.4 million and $0.3 million, respectively, and $2.6 million and $1.5 million, respectively, for the three and nine months ended September 30, 2003 and 2002, respectively. These non-cash realized investment losses were primarily due to investments in collateralized bond obligations as a result of the non investment grade default rates which remain higher than historic averages.

The Company’s fixed maturity portfolio amounted to $1,074.5 million and $854.5 million, as of September 30, 2003 and December 31, 2002, respectively, of which 98.3% of the portfolio is comprised of investment grade securities. Since the fourth quarter of 2001, U.S. investment grade securities have experienced varying price and ratings volatility, having been affected by the uncertain economic climate corporate governance issues, and the subsequent stream of corporate scandals and high profile bankruptcies. While these circumstances have the potential to impact investment grade securities, the high quality of the Company’s overall “AA+” rated fixed maturity portfolio have mitigated potential volatility. The Company had fixed maturity investments with unrealized losses amounting to $12.7 million and $9.2 million as of September 30, 2003 and December 31, 2002, respectively. Of these amounts, interests in securitized assets had unrealized losses amounting to $10.6 million and $7.3 million as of September 30, 2003 and December 31, 2002, respectively, and investments in aircraft collateralized Enhanced Equipment Trust Certificates (EETCs) had unrealized losses amounting to $0.7 and $1.3 million as of September 30, 2003 and December 31, 2002, respectively. As discussed above, the Company’s impairment evaluation and recognition for interests in securitized assets is conducted in accordance with the guidance provided by the EITF. With respect to the EETCs, these investments are current on interest and sinking fund payments, and are subjected to a quarterly

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

impairment review which includes performing a liquidation collateral analysis that incorporates various stress scenarios impacting the security’s implied loan-to-value levels.

The following table identifies the period of time securities with an unrealized loss at September 30, 2003 have continuously been in an unrealized loss position. Included in the amounts shown in the table are $8.8 million of unrealized losses due to non-investment grade fixed maturity securities having a fair value of $17.8 million. No issuer of securities or industry represents more than 4.3% and 10.7%, respectively, of the total estimated fair value, or 19.0% and 37.4%, respectively, of the total gross unrealized loss included in the table below. As previously discussed, there are certain risks and uncertainties inherent in the Company’s impairment methodology such as the financial condition of specific industry sectors and resultant effect on underlying security collateral values. Should the Company subsequently determine a decline in the fair value below the cost basis to be other than temporary, the security would be written down to its fair value and the difference would be included in earnings as a realized loss for the period such determination was made.


	Gross Unrealized Losses
	(in millions)

	Fixed Maturities
Continuous	Available for Sale				Total
time in unrealized	Excluding Interests		Interests in		Fixed Maturities
loss position	in Securitized Assets		Securitized Assets		Available for Sale		Equity Securities		Total Investments

0 – 3 months	$	0.2	$	0.4	$	0.6	$	0.3	$	0.9
4 – 6 months		0.6		1.3		1.9		0.1		2.0
7 – 9 months		—		—		—		0.4		0.4
10 – 12 months		—		—		—		—		—
13 – 18 months		—		3.2		3.2		—		3.2
19 – 24 months		1.3		2.6		3.9		—		3.9
> 24 months		—		3.1		3.1		—		3.1

Total Gross
Unrealized Losses	$	2.1	$	10.6	$	12.7	$	0.8	$	13.5

Estimated fair value of securities with a gross unrealized loss	$	70.7	$	92.7	$	163.4	$	16.4	$	179.8

The following table presents certain information with respect to individual securities with a significant unrealized loss position as of September 30, 2003.


	Significant Unrealized Losses by Security

	(in millions)
Issuer	Security Type	Carrying Value		Unrealized Loss

Continental Airlines 2000-1-C-2	Fixed Maturity		$2.4	$	0.6
Conseco Fin SEC Corp 2000-4 M1	Fixed Maturity – Interest in Securitized Assets		0.5		1.5
Conseco Fin SEC Corp SER 2000-4 M2	Fixed Maturity – Interest in Securitized Assets		0.2		1.0
Greentree Financial Corp. 99-2 B1	Fixed Maturity – Interest in Securitized Assets		0.4		2.6
Nextcard CRCN MNT 2001-1 CLB144A	Fixed Maturity – Interest in Securitized Assets		3.2		1.7
Scotia Pacific Co LLC	Fixed Maturity		1.4		0.7
Waterside Loan TR JR NT CLO 144A	Fixed Maturity – Interest in Securitized Assets		2.2		0.8

			$10.3	$	8.9

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

For the nine months ended September 30, 2003 the Company’s gross loss on the sale of fixed maturity and equity securities amounted to $0.3 million and $0.7 million, respectively. The fair value of the fixed maturity and equity securities at the time of sale was $14.5 million and $3.5 million, respectively. During the three months ended September 30, 2003 the Company’s gross loss on the sale of fixed maturity and equity securities amounted to $0.2 million and $0 million, respectively. The fair value of the fixed maturity and equity securities at the time of sale was $13.0 million and $0.1 million, respectively. The decision to sell these securities was based upon management’s assessment of economic conditions.

Results of Operations (Nine Months ended September 30, 2003 vs. September 30, 2002)

Premiums: Gross written premiums grew $182.9 million (36.0%) to $690.6 million for the nine months ended September 30, 2003 from $507.7 million for the same period of 2002; gross earned premiums grew $165.2 million (41.3%) to $564.9 million for the nine months ended September 30, 2003 from $399.7 million for the same period of 2002; net written premiums increased $50.1 million (12.6%) to $446.2 million for the nine months ended September 30, 2003 from $396.1 million for the same period of 2002; and net earned premiums grew $116.8 million (39.5%) to $412.5 million in 2003 from $295.7 million in 2002.

The respective gross written premium increases for commercial lines, specialty lines and personal lines segments for the nine months ended September 30, 2003 vs. September 30, 2002 amount to $152.7 million (42.4%), $24.4 million (29.6%) and $5.8 million (8.9%), respectively. The overall growth in gross written premiums is primarily attributable to the following:

•

Further rating downgrades of certain major competitor property and casualty insurance companies have led to their diminished presence in the Company’s commercial and specialty lines business segments and continue to result in additional prospects and increased premium writings, most notably for the Company’s various commercial package and non-profit D&O product lines.

•

The displacement of certain competitor property and casualty insurance companies and their independent agency relationships continues to result in new agency relationship opportunities for the Company. These relationship opportunities have resulted in additional policyholders and premium writings for the Company’s commercial and specialty lines segments.

•

Continued expansion of marketing efforts relating to commercial lines and specialty lines products through the Company’s field organization and preferred agents.

•

In-force policy counts have increased 22.6% and 37.6% for the commercial and specialty lines segments, respectively, primarily as a result of the factors discussed above. Policy counts have decreased approximately 1.0% for the personal lines segment as a result of restricting new business and not renewing certain business to manage overall property exposures and the related catastrophe loss considerations. Firming prices in the property and casualty industry resulting in weighted average rate increases on renewal business approximating 4.9%, 11.8%, and 9.2% for the commercial, specialty and the personal lines segments, respectively.

The respective net written premium changes for commercial lines, specialty lines and personal lines segments for the nine months ended September 30, 2003 vs. September 30, 2002 amount to $61.3 million (21.3%), -$4.0 million (-5.2%) and -$7.2 million (-22.7%) respectively. The differing percentage changes in net written premiums versus gross written premiums for the commercial lines, specialty lines and personal lines segments during the period results from:

•

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

Funds Held Payable to Reinsurer account. This Funds Held Payable to Reinsurer account is also reduced by ceded paid losses and loss adjustment expenses under this agreement, and increased by an interest credit. During the nine months ended September 30, 2003, the Company ceded $159.0 million of written premium, which included unearned premium reserves of $63.6 million at April 1, 2003.

•

Relatively lower reinsurance costs (ceded premiums) as a result of increasing the Company’s loss retention from $0.5 million to $2.0 million on its commercial lines per-risk property reinsurance treaty and from $0.9 million to $1.0 million on its excess liability reinsurance treaty effective January 1, 2003.

Net Investment Income Net investment income approximated $28.3 million for the nine months ended September 30, 2003 and $27.7 million for the same period of 2002. Total investments grew to $1,161.0 million at September 30, 2003 from $859.6 million at September 30, 2002. The growth in investment income is due to investing net cash flows provided from operating activities. The Company’s average duration of its fixed income portfolio increased to approximately 4.0 years at September 30, 2003, compared to 3.3 years at September 30, 2002 as a result of investing in intermediate to long tax exempt fixed income securities due to perceived value. Additionally, the Company has invested approximately $57.5 million in overall “AAA” rated floating rate and shorter amortizing securities to reduce interest rate risk with the expectation of reinvesting these funds into longer duration investments at higher future fixed income rates. The Company’s tax equivalent book yield on its fixed income holdings was 5.0% at September 30, 2003, compared to 5.7% at September 30, 2002 as a result of investing in the capital market environment which has existed during most of 2002 and 2003 (low U.S. Treasury yields). Net investment income was reduced by $1.3 million due to the interest credit on the Funds Held Account balance pursuant to the Company’s quota share reinsurance agreement (see Premiums).

The total return, which includes the effects of both income and price returns on securities, of the Company’s fixed income portfolio was 3.27% and 8.01% for the nine months ended September 30, 2003 and 2002, respectively, and was similar to the Lehman Brothers Intermediate Aggregate Bond Index (“the Index”) total return of 3.37% and 7.87% for the same periods, respectively.

Net Realized Investment Gain (Loss): Net realized investment losses were $1.3 million for the nine months ended September 30, 2003 and $2.9 million for the same period in 2002. The Company realized net investment gains of $1.5 million and $0.7 million from the sale of fixed maturity and equity securities, respectively, for the nine months ended September 30, 2003, and $2.6 million and $0.9 million in non-cash realized investment losses for fixed maturity and common stock investments, respectively, as a result of the Company’s impairment evaluation.

The Company realized $1.2 million in net investment gains from the sale of fixed maturity securities and $2.6 million in net investment losses from the sale of common stock equity securities for the nine months ended September 30, 2002. Additionally, $1.5 million in non-cash realized losses were recorded for fixed maturity investments as a result of the Company’s impairment evaluation.

Other Income: Other income approximated $3.7 million for the nine months ended September 30, 2003 and $0.4 million for the same period of 2002. Other income primarily consists of commissions earned on brokered personal lines business, and to a lesser extent brokered commercial lines business. The Company is seeking to increase brokering activities in its personal lines segment as it is restricting new business and not renewing certain policies in designated areas of Florida as a result of its property exposures in these areas and related catastrophe loss considerations.

Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses increased $70.6 million (36.7%) to $262.8 million for the nine months ended September 30, 2003 from $192.2 million for the same period of 2002 and the loss ratio decreased to 63.7% in 2003 from 65.0% in 2002. This increase in net loss and loss adjustment expenses was due to the 39.5% growth in net earned premiums, the $33.0 million increase in the estimated gross and net loss for unreported claims incurred and related claim adjustment expenses on residual value polices issued during the years 1998 through 2002 and offset in part by the 2002 and 2003 price increases which have exceeded loss trends (see Premiums).

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

Additionally, during the period the Company ceded $40.3 million in net loss and loss adjustment expenses pursuant to the quota share reinsurance agreement (see Premiums) and decreased the gross and net liability for unpaid loss and loss adjustment expenses for accident year 2002, principally in the property line of its commercial package products, by approximately $9.0 million due to better than expected loss experience.

As of September 30, 2003, the Company has estimated a total liability for unpaid loss and loss adjustment expenses for the residual value policies of $51.5 million ($51.3 million net of reinsurance). The residual value policies provide coverage guaranteeing the value of a leased automobile at the lease termination, which can be up to five years from lease inception. As part of the Company’s monitoring and evaluation process, a consulting firm was engaged during the second quarter of 2003 to aid in evaluating the ultimate potential loss exposure under these policies. Based upon the result of the indications and subsequent evaluation by the Company and changes in the Company’s assumptions relating to future frequency and severity of losses, the estimate for unpaid loss and loss adjustment expenses was increased. The Company primarily attributes this deterioration to the following factors that led to a softening of prices in the used car market subsequent to the September 11, 2001 terrorist attacks: prolonged 0% new car financing rates and other incentives which increased new car sales and the volume of trade-ins, daily rental units being sold into the market earlier and in greater numbers than expected further adding to the oversupply of used cars; and the overall general economic conditions. As of September 30, 2003, approximately 48,000 leases were outstanding under the Company’s residual value policies.

Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $28.9 million (31.7%) to $120.1 million for the nine months ended September 30, 2003 from $91.2 million for the same period of 2002. This increase was due primarily to the 39.5% growth in net earned premiums and in part to the Company establishing a $1.4 million allowance for doubtful reinsurance receivables based upon its review of collectibility from its reinsurers. During the period the Company ceded $74.5 million of net earned premium and earned $29.6 million in ceding commission under the quota share reinsurance agreement (see Premiums).

Other Operating Expenses: Other operating expenses increased $1.4 million to $6.0 million for the nine months ended September 30, 2003 from $4.6 million for the same period of 2002 as the Company continues to control its expenses during this period of premium growth.

Income Tax Expense: The Company’s effective tax rate for the nine months ended September 30, 2003 and 2002 was 30.4% and 31.5%, respectively. The effective rates differed from the 35% statutory rate principally due to investments in tax-exempt securities and the relative proportion of tax exempt income to total income before tax.

Results of Operations (Three Months ended September 30, 2003 vs. September 30, 2002)

Premiums: Gross written premiums grew $75.9 million (36.1%) to $286.4 million for the three months ended September 30, 2003 from $210.5 million for the same period of 2002; gross earned premiums grew $62.4 million (41.8%) to $211.7 million for the three months ended September 30, 2003 from $149.3 million for the same period of 2002; net written premiums increased $35.2 million (21.8%) to $196.4 million for the three months ended September 30, 2003 from $161.2 million for the same period of 2002; and net earned premiums grew $36.6 million (34.5%) to $142.7 million in 2003 from $106.1 million in 2002.

The respective gross written premium increases for commercial lines, specialty lines and personal lines segments for the three months ended September 30, 2003 vs. September 30, 2002 amount to $69.9 million (43.5%), $5.0 million (16.5%) and $1.0 million (5.0%), respectively. The overall growth in gross written premiums is primarily attributable to the following:

•

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

•

Continued expansion of marketing efforts relating to commercial lines and specialty lines products through the Company’s field organization and preferred agents.

•

In force policy counts have increased 22.6% and 37.6% for the commercial and specialty lines segments, respectively, primarily as a result of the factors discussed above. Policy counts have decreased approximately 1.0% for the personal lines segment as a result of restricting new business and not renewing certain business to manage overall property exposures and the related catastrophe loss considerations. Rate increases on renewal business have approximated 3.7%, 7.4%, and 11.7% for the commercial, specialty and the personal lines segments, respectively. As a result of recent increased competition in the Company’s commercial and specialty lines segment price increases have moderated. The Company anticipates this trend of moderating price increases to continue for the foreseeable future.

Additionally, the respective net written premium changes for commercial lines, specialty lines and personal lines segments for the three months ended September 30, 2003 vs. September 30, 2002 amount to $38.1 million (30.1%), ($2.6) million (-9.4%) and ($0.3) million (-4.4%) respectively. The differing percentage changes in net written premiums versus gross written premiums during the period results from:

•

The Company entering into a Quota Share reinsurance agreement (effective April 1, 2003) covering all of the Company’s lines of business. Under this agreement, the Company cedes 22% of its net written premium (including 22% of net unearned premium reserves at April 1, 2003) and loss and loss adjustment expenses. The Company also receives a provisional commission of 33.0%, adjusted prorata based upon the ratio of losses incurred to premiums earned. Pursuant to this reinsurance agreement the Company withholds the reinsurance premium reduced by the reinsurers’ expense allowance, and the Company’s ceding commission allowance in a Funds Held Payable to Reinsurer account. This Funds Held Payable to Reinsurer account is also reduced by ceded paid losses and loss adjustment expenses under this agreement, and increased by an interest credit. During the three months ended September 30, 2003, the Company ceded $55.4 million of written premium.

•

Relatively lower reinsurance costs (ceded premiums) as a result of increasing the Company’s loss retention from $0.5 million to $2.0 million on its commercial lines per-risk property reinsurance treaty, and from $0.9 million to $1.0 million on its excess liability reinsurance treaty effective January 1, 2003.

Net Investment Income Net investment income approximated $9.2 million for the three months ended September 30, 2003 and $9.5 million for the same period of 2002. Total investments grew to $1,161.0 million at September 30, 2003 from $859.6 million at September 30, 2002. The Company’s average duration of its fixed income portfolio approximated 4.0 years at September 30, 2003, compared to 3.3 years at September 30, 2002 as a result of investing in intermediate to long tax exempt fixed income securities due to perceived value. Additionally, the Company has invested approximately $57.5 million in overall “AAA” rated floating rate and shorter amortizing securities to reduce interest rate risk with the expectation of reinvesting these funds into longer duration investments at higher future fixed income rates. The Company’s tax equivalent book yield on its fixed income holdings was 5.0% at September 30, 2003, compared to 5.7% at September 30, 2002 as a result of investing in the capital market environment which has existed during most of 2002 and 2003 (low vs. treasury yields). Net investment income was reduced by $0.8 million due to the interest credit on the Funds Held to Reinsurer Account balance pursuant to the Company’s quota share reinsurance agreement (see Premiums).

The total return, which includes the effect of realized and unrealized gains and losses, of the Company’s fixed income portfolio was 0.58% and 3.72% for the three months ended September 30, 2003 and 2002, respectively, was similar to the Lehman Brothers Intermediate Aggregate Bond Index (“the Index”) total return of 0.18% and 3.79% for the same periods, respectively.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

Net Realized Investment Gain (Loss): Net realized investment gains were $0.5 million for the three months ended September 30, 2003 and $0.2 million for the same period in 2002. The Company realized net investment gains of $0.3 million and $0.6 million from the sale of fixed maturity and equity securities, respectively, for the three months ended September 30, 2003, and $0.4 million in non-cash realized investment losses for fixed maturity investments as a result of the Company’s impairment evaluation.

The Company realized net investment losses of $0.3 million, from the sales of common stock equity securities and $0.8 million in net investment gains from the sales of fixed maturity securities during the three months ended September 30, 2002. Additionally, $0.3 million in non-cash realized investment losses were recorded for fixed maturity investments as a result of the Company’s impairment evaluation during the three months ended September 30, 2002.

Other Income: Other income approximated $2.0 million for the three months ended September 30, 2003 and $0.4 million for the same period of 2002. Other income primarily consists of commissions earned on brokered personal lines business, and to a lesser extent brokered commercial lines business. The Company is seeking to increase brokering activities in its personal lines segment as it is restricting new business and not renewing certain policies in designated areas of Florida as a result of its property exposures in these areas and related catastrophe loss considerations.

Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses increased $1.1 million (1.4%) to $79.4 million for the three months ended September 30, 2003 from $78.3 million for the same period of 2002 and the loss ratio decreased to 55.6% in 2003 from 73.8% in 2002. This increase in net loss and loss adjustment expenses was due to the 34.5% growth in net earned premiums, partially offset by 2002 and 2003 price increases which have exceeded loss trends and the Company increasing loss and loss adjustment expenses incurred by $27.0 million ($15.0 million net of reinsurance recoverables) for the three months ended September 30, 2002 as a result of changes in estimates of insured events in prior years. Such adverse loss development was due to losses emerging at a higher rate on automobile leases expiring on residual value policies than had been originally anticipated when the reserves were estimated, primarily as a result of the deterioration in the value of used cars.

Additionally, during the period the Company ceded $21.3 million in net loss and loss adjustment expenses pursuant to the quota share reinsurance agreement (see Premiums).

Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $9.2 million (28.5%) to $41.5 million for the three months ended September 30, 2003 from $32.3 million for the same period of 2002. This increase was due primarily to the 34.5% growth in net earned premiums and in part to the Company establishing a $1.4 million allowance for doubtful reinsurance receivables based upon its review of collectibility from its reinsurers.. During the period the company ceded $40.2 million in net earned premiums and earned $16.3 million in ceding commission under the quota share reinsurance agreement (see Premiums).

Other Operating Expenses: Other operating expenses increased $1.1 million to $2.7 million for the three months ended September 30, 2003 from $1.6 million for the same period of 2002. The increase in other operating expenses was primarily due to the increase in brokering activities resulting in an increase in the amount of broker commissions paid (see “Other Income” above).

Income Tax Expense: The Company’s effective tax rate for the three months ended September 30, 2003 and 2002 was 31.7% and 26.5%, respectively. The effective rates differed from the 35% statutory rate principally due to investments in tax-exempt securities. The lower effective tax rates are principally due to the relative proportion of tax exempt income to total income before tax.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

For the nine months ended September 30, 2003, the Company’s investments experienced unrealized investment appreciation of $2.1 million, net of the related deferred tax expense of $1.1 million. At September 30, 2003, the Company had total investments with a carrying value of $1,161.0 million, of which 92.6% consisted of investments in fixed maturity securities, including U.S. treasury securities and obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, corporate debt securities, collateralized mortgage securities and asset backed securities. The collateralized mortgage securities and asset backed securities consist of amortizing securities possessing favorable pre-payment and/or extension risk profiles. The remaining 7.4% of the Company’s total investments consisted primarily of publicly traded common stock securities.

The Company produced net cash from operations of $253.0 million and $163.5 million, respectively, for the nine months ended September 30, 2003 and 2002. Sources of operating funds consist primarily of net premiums collected and investment income. Funds are used primarily to pay claims and operating expenses and for the purchase of investments. The source of cash from operations for the nine months ended September 30, 2003 was primarily generated from strong premium growth during the current year due to increases in the number of policies written and price increases realized on renewal business. Net loss and loss expense payments were $148.7 million and $115.6 million, respectively, for the nine months ended September 30, 2003 and 2002. Management believes that the Company has adequate liquidity to pay all claims and meet all other cash needs.

Two of the Company’s insurance subsidiaries are members of the Federal Home Loan Bank of Pittsburgh (“FHLB”). A primary advantage of FHLB membership is the ability of members to access credit products from a reliable capital markets provider. The availability of any one member’s access to credit is based upon its FHLB eligible collateral. At September 30, 2003 the insurance subsidiaries’ borrowing capacity was $73.2 million. The insurance subsidiaries have utilized a portion of their borrowing capacity to purchase a diversified portfolio in investment grade floating rate securities. These purchases were funded by floating rate FHLB borrowings to achieve a positive spread between the rate of interest on these securities and borrowing rates. The remaining borrowing capacity will provide an immediately available line of credit. Borrowings aggregated $49.7 million at September 30, 2003, bear interest at adjusted LIBOR, mature twelve months from inception and are collateralized by $62.2 million of the Company’s fixed maturity securities. The weighted-average interest rate on borrowings outstanding as of September 30, 2003 was 1.2%.

Risk-based capital is a method developed by the NAIC designed to measure the acceptable amount of capital and surplus an insurer should have based on the inherent specific risks of each insurer. The adequacy of a company’s actual capital and surplus is evaluated by a comparison to the risk-based capital results. Insurers failing to meet minimum risk-based capital requirements may be subject to scrutiny by the insurer’s domiciliary insurance department and ultimately rehabilitation or liquidation. Based on the standards currently adopted, the Company’s insurance subsidiaries capital and surplus is in excess of the prescribed risk-based capital requirements.

Certain information included in this report and other statements or materials published or to be published by the Company are not historical facts but are forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new and existing products, expectations for market segment and growth, and similar matters. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development, results of the Company’s business, and the other matters referred to above include, but are not limited to: (i) changes in the business environment in which the Company operates, including inflation and interest rates; (ii) changes in taxes, governmental laws, and regulations; (iii) competitive product and pricing activity; (iv) difficulties of managing growth profitably; (v) claims development and the adequacy of our liability for unpaid loss and loss adjustment; (vi) severity of natural disasters

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

and other catastrophe losses; (vii) adequacy of reinsurance coverage which may be obtained by the Company; (viii) ability and willingness of our reinsurers to pay; and (ix) future terrorist attacks.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s financial instruments are subject to the market risk of potential losses from adverse changes in market rates and prices. The primary market risks to the Company are equity price risk associated with investments in equity securities and interest rate risk associated with investments in fixed maturities. The Company has established, among other criteria, duration, asset quality and asset allocation guidelines for managing its investment portfolio market risk exposure. The Company’s investments are held for purposes other than trading and consist of diversified issuers and issues.

The table below provides information about the Company’s financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. The information is presented in U.S. dollar equivalents.


	SEPTEMBER 30, 2003
	EXPECTED MATURITY DATES
	(In thousands, except average interest rate)

	2003			2004			2005			2006			2007			Thereafter			TOTAL			TOTAL FAIR VALUE

FIXED MATURITIES AVAILABLE FOR SALE:
Principal Amount	$	12,569		$	124,789		$	163,038		$	102,765		$	86,745		$	548,556		$	1,038,462		$	1,071,180
Book Value	$	12,625		$	126,053		$	166,078		$	104,145		$	87,312		$	554,813		$	1,051,026			—
Average Interest Rate		5.27	%		3.63	%		3.85	%		3.89	%		4.39	%		4.41	%		4.19	%		4.03	%
PREFERRED:
Principal Amount	$	4,750		$	1,500		$	1,125		$	3,500			—		$	75		$	10,950		$	11,497
Book Value	$	4,883		$	1,489		$	1,166		$	3,666			—		$	75		$	11,279			—
Average Interest Rate		5.91	%		6.06	%		6.84	%		6.33	%		—			8.75	%		6.18	%		6.10	%
SHORT-TERM INVESTMENTS:
Principal Amount	$	86,239			—			—			—			—			—		$	86,239		$	86,239
Book Value	$	86,250			—			—			—			—			—		$	86,250			—
Average Interest Rate		1.33	%		—			—			—			—			—			1.33	%		1.33	%
LOANS PAYABLE:
Principal Amount	$	18,726		$	31,024			—			—			—			—		$	49,750			—
Average Interest Rate		1.23	%		1.19	%		—			—			—			—			1.20	%		—

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) have concluded that, as of the end of the period covered by this report on Form 10-Q, the Company’s disclosure controls and procedures were effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within such entities, particularly during the period in which this quarterly report on Form 10-Q was being prepared.

(b) Changes in Internal Controls. There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
PART II — OTHER INFORMATION


Exhibit No.		Description

10.1*		Quota Share Reinsurance Contract with Swiss Reinsurance America Corporation effective May 15, 2003 covering policies within the Custom Harvest Program
10.2*		Excess of Loss Agreement of Reinsurance No. 9034 with General Reinsurance Corporation effective January 1, 2003
10.3*		Addendum No. 3 to the Casualty Excess of Loss Reinsurance Agreement No. TC988A, B with Swiss Reinsurance American Corporation effective January 1, 2003
10.4*		Property Excess of Loss Agreement of Reinsurance No. TP1600E with Swiss Reinsurance America Corporation effective January 1, 2003
10.5*		Casualty Excess of Loss Reinsurance Contract with American Re-Insurance Company, Converium Reinsurance (North America) Inc., Endurance Specialty Insurance Limited, Liberty Mutual Insurance Company effective January 1, 2003
31.1*		Certification of the Company’s chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of the Company’s chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of the Company’s chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of the Company’s chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Filed herewith.

The Company did not file any reports on Form 8-K during the quarterly period ended September 30, 2003 but did furnish the following report:

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Exhibit 10.1 Quota Share Reinsurance Contract with Swiss RE America Corporation effective May 15, 2003 covering policies within the Custom Harvest Program

The Subcribing Reinsurer hereby accepts a 100% share in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above.

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, May 15, 2003, and shall continue in force until terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Colleen Heagney, Senior Vice President

SWISS REINSURANCE AMERICA CORPORATION
By: Swiss Re Underwriters Agency Inc., Its authorized agent

Wherever the word “Company” is used in this Contract, such term shall be held
to include any and/or all of the subsidiary companies which are or may
hereafter come under the management of the Company, provided that notice be
given to the management of the Reinsurers within 45 days of such acquisition,
with full particulars as to how such acquisition is likely to affect this
Contract.

THE SUBSCRIBING REINSURER(S) IDENTIFIED
IN THE INTERESTS AND LIABILITIES AGREEMENT(S)
ATTACHED TO AND FORMING PART OF THIS CONTRACT

This Contract is to indemnify the Company in respect of the liability that may accrue to the Company as a result of loss or losses under Policies within the Custom Harvest Program, including business classified by the Company as Auto Liability, Automobile Physical Damage, Inland Marine, Comprehensive General Liability, Cargo and Associated Coverages as defined in the original policies, written or renewed during the term of this Contract by or on behalf of the Company, subject to the terms and conditions herein contained.

A.		Continuous contract in respect of new and renewal business written on or after 12:01 a.m., Eastern Standard Time, May 15, 2003. Either party may terminate this contract at 12:01 a.m., Standard Time, on any May 15, by giving 90 days prior written notice of cancellation to the other party by certified mail. Company option to run-off or cut-off Reinsurer’s liability. Run-off not to exceed 12 months plus odd time. Such run-off period including odd time shall not exceed 18 months in all. In the event that any policy is required by statute or departmental regulation or order to be continued in force, the Reinsurer will continue to remain liable with respect to each such policy until the Company may legally cancel, non-renew or otherwise eliminate liability under such policy or policies.

		Notwithstanding the above, in the event of cancellation by the Reinsurer, any business quoted by the Company after the notice of cancellation and prior to the termination date and having an effective date within the ninety (90) days following the termination date may be bound subject to the review and approval of the Reinsurer.

B.		In the event the Company is unable or prevented from terminating any original Policy by reason of regulatory or other legal restrictions this Contract shall follow such continuing original Policies until the Company is able to effectively terminate such affected original Policies in accordance with regulatory requirements, with such time period not to exceed 24 months.

C.		The Company shall have the sole option of waiving the run-off provision with 60 days after the termination date. In such event the Reinsurer shall return to the Company the unearned premium reserve, less applicable ceding commission, calculated as of the date and time of cancellation, and shall not be liable as respects losses occurring or Claims Made subsequent to the date and time of cancellation.

Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

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

	1.		Any loss or damage, which is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law, or confiscated by order to any government or public authority.

	2.		Insolvency Funds.

	3.		Pollution, except as provided in the Business Automobile Coverage Part.

	4.		Assumed reinsurance other than inter-company pooling arrangements and reinsurance of a fronting company used solely for the purpose of writing subject business.

	5.		Any loss or liability occurring to the Company, directly or indirectly, whether as insurer or reinsurer, from membership in any Pool, Association or Syndicate.

	6.		Nuclear exposures, as per the attached “Nuclear Energy Liability Exclusion Endorsement.”

	7.		Asbestos Liability.

It is also understood that, if the Company, without the knowledge and contrary to the instructions of its supervisory underwriting personnel, is bound on a Risk falling within one of the foregoing exclusions, such Risk is covered hereunder until said supervisory underwriting personnel receives knowledge thereof, and pending cancellation of such Risk by the Company, for a further period of thirty (30) days after receipt of such knowledge. If such Risk cannot be cancelled due to state regulation, it shall be covered hereunder to Policy expiration.

A.		The term “Risk” shall mean each original insured on each Policy for each type of coverage where the original Policy provides a separate limit. The Company shall be the sole judge as to what constitutes a risk.

B.		This Contract shall follow the definition of “Occurrence”, “Accident”, and “Incident“contained in the original Policy.

C.		The term “Original Gross Net Written Premium” as used in this Contract shall mean the Gross Written Premium of the Company for the business reinsured hereunder, as specified in the Retention and Limit Article, less returned premium for cancellations and reductions, and less premium for inuring reinsurance.

D.		The term “Policies” as used herein means each of the Company’s binders, policies and contracts providing insurance on the lines of business covered hereunder.

E.		The term “Allocated Loss Adjustment Expense” as used in this Contract shall mean all expenses incurred by the Company in adjusting, settling and compromising individual claims, including costs of litigation, interest on judgments (if any), third party claims, administration costs, all subrogation, salvage, recovery expense and Declaratory Judgment action expenses. Declaratory Judgment action expenses shall be deemed to have been fully incurred on the same date as the underlying loss (if any) giving rise to the action and shall not exceed an amount equal to the agreement limit.

		The term “Unallocated Loss Adjustment Expense” as used in this Contract shall mean the salaries of employees of the Reassured and normal office expenses.

A.		The Company shall cede, and the Reinsurer shall accept as reinsurance, a 100% Quota Share of all business reinsured hereunder of up to $1,000,000 for each and every policy, each and every risk for property business and each and every coverage part for liability business.

B.		The Company shall retain a 20% participation in the business covered hereunder net and unreinsured (not to include inter-group pooling or reinsurance arrangements).

C.		In the event the original Policy provides for expenses in addition to the Policy limit, the Reinsurer shall be liable for its proportionate share of expense in addition to their limit of liability under this Contract. However, if the original Policy limit includes expenses within the Policy limit, the Reinsurer shall be liable for its proportionate share of those expenses within their limit of liability under this Contract.

D.		The Reinsurer shall pay its proportionate share of Extra Contractual Obligations and/or Excess of Original Policy Limits Loss in addition to their limit of liability under this Contract but limited to one additional Policy Limit each Risk, each and every Incident, Accident, Occurrence as original.

E.		The Company and the Reinsurer shall have the joint benefit of facultative reinsurance purchased by the Company, and the Reinsurer’s proportion of the cost of such reinsurance shall be deducted from its share of the premium on the Business Covered hereunder.

EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS OF ORIGINAL POLICY LIMITS LIABILITY

A.		This Contract shall cover Extra Contractual Obligations. “Extra Contractual Obligations” shall be defined as those Liabilities not covered under any other provision of this Contract and that 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, 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 in the preparation or prosecution of an appeal consequent upon such action.

B.		This contract shall cover Loss in Excess of Policy Limits. “Loss in Excess of Policy Limits” shall be defined as loss in excess of the Policy limit, having been incurred because of, but not limited to, failure by it to settle within the Policy limit or by reason of alleged or actual negligence, 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.

C.		An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Company’s Policy, and shall constitute part of the original loss.

D.		For the purposes of the Loss in Excess of Policy Limits coverage hereunder, 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.

E.		Loss adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense.

F.		Notwithstanding anything stated herein, the Contract shall not apply to any extra contractual obligation incurred by the Company as a result of any final legal adjudication of fraudulent and/or criminal act(s) by any officer or director of the Company acting individually, or party involved in the presentation, or defense of settlement of any claim covered hereunder.

G.		In no event shall coverage be provided to the extent not permitted under law.

All loss settlements made by the Company shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement in accordance with this Contract.

A.		The Company shall pay to the Reinsurer its proportionate share of the Company’s Original Gross Net Written Premiums during the period of this contract and covered hereunder.

B.		The Reinsurer shall allow the Company a ceding commission of 27% of ceded Original Gross Net Written Premium. On all return premiums the Company shall allow a ceding commission to the Reinsurer at the same rate.

C.		Original Gross Net Written Premium shall be for limits ceded hereunder, less a ceding commission allowance of 27%, which includes original brokerage or agent’s commission, premium taxes, board and bureau fees, engineering/loss control and quality assurance expenses, unallocated claims expenses, corporate overhead and all other production and underwriting costs, excluding Federal Excise Tax and other reinsurance expenses.

A.		The Company shall furnish the Reinsurer with monthly reports for ceded premiums written and ceded losses paid, which shall be settled net by the Company within 60 days of the close of that month. Notation of the unearned premium reserve and outstanding loss reserve shall be included with the monthly report. Amounts due to the Company shall be paid by the Reinsurer within 30 days of receipt of the report.

		Monthly reports shall include the following information, and shall be prepared separately for each Contract year:

	1.		Ceded Original Gross Net Written Premium, itemized by Policy including Policy period, limit and named insured;

	2.		Ceded Unearned Original Gross Net Written Premium – reported on a quarterly basis;

	3.		Ceding Commission;

	4.		Ceded Paid Losses and Loss adjustment Expense itemized by loss;

	5.		Ceded Outstanding Losses itemized by loss;

		If the balance of item 2 less 3 less 4 is owed to the Reinsurer, the Company shall remit payment with the account. Should the balance be owed to the Company, the Reinsurer shall pay such amount within 15 days of receipt of the account.

		Annually, the Company shall furnish the Reinsurer with such information as the Reinsurer may require to complete its Annual Convention Statement.

The Company shall provide individual loss reports as soon as practicable on all claims where the Company has established gross case reserves, including those for loss expense, equal to or greater than $100,000. Furthermore, complete details shall be provided on all claims which meet any of the following conditions:

			Brain injuries resulting in impairment of physical functions;
			Spinal injuries resulting in partial or total paralysis of upper or lower extremities;
			Amputations or permanent loss of use of upper or lower extremities;
			Severe burn cases;
			Fatalities; and
			Loss of sight or hearing.

Such individual loss reports must include Policy information, limits, loss date, effective date, insured claimants, injury details, facts, reserves and plans for disposition. Updates shall be provided as appropriate, but at least annually.

In determining the liability of the Reinsurer to the Company, this Contract shall be subject in all respects to all the general and special stipulations, clauses, waivers, and endorsements of the policies to which this Contract applies. This Article is incorporated in this Contract solely for the purpose of determining the liability of the Reinsurer to the Company, and is not intended under any circumstances, to give a direct right of action against the Reinsurer to anyone other than the Company except as provided in the Insolvency Article. In the event the terms of a subject policy are modified by judgment or settlement, or amended by an legislative, regulatory, or judicial body, the Reinsurer’s liability shall follow the policy language as modified or amended, it being the intent of this Contract that the Reinsurer shall follow the fortunes of the Company on the policies to which this Contract applies.

A.		Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United States Dollars.

B.		For purposes of this Contract, where the Company receives premiums or pays losses in currencies other than United States Dollars, such premiums or losses shall be converted into United States Dollars at the actual rates of exchange at which these premiums or losses are entered in the Company’s books.

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

B.	1.	Federal Excise Tax applies only to those Subscribing Reinsurers, excepting Underwriters at Lloyd’s, London and other Subscribing Reinsurers exempt from the Federal Excise Tax, who are domiciled outside the United States of America.

	2.	The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax 1% of the premium payable hereon to the extent such premium is subject to Federal Excise Tax.

	3.	In the event of any return of premium becoming due hereunder, the Reinsurer shall deduct 1% from the amount of the return, and the Company or its agent should take steps to recover the Tax from the U.S. Government.

The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (“Records”) relating to business reinsured under this Contract during regular business hours after giving five working days prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company and the Company shall have no right to reimbursement under this Contract if it fails or refuses to provide the access required by this Article other than by reason of the Reinsurers’ failure to pay. The Reinsurer shall keep confidential all information and reports derived from the Records of the Company to which it has received access and shall not publish or communicate that information or report(s) to any other person or reinsurers without the Company’s express prior written consent, except under the following circumstances: when required by retrocessionaires; when the Reinsurer is subject to a lawful subpoena or other duly issued order of a court or other regulatory or governmental authority, after giving notice to the Company and allowing the Company to take appropriate protective measures; or when required by auditors, legal counsel, and/or arbitrators involved in any arbitration procedures under this Contract.

The Reinsurer is reinsuring, to the amount herein provided, the obligations of the Company under any original insurance. The Company shall be the sole judge as to:

	1.		what shall constitute a claim or loss covered under any original insurance or reinsurance written by the Company;

	2.		the Company’s liability thereunder;

	3.		the amount or amounts that it shall be proper for the Company to pay thereunder.

B.		The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any original insurance subject to the terms and conditions of this Contract.

C.		Any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay has not been made, provided such error, omission or delay is rectified immediately upon discovery.

A.		In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at their own expense, in the proceeding where such claim is to be adjudicated any defense of defenses that they may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

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

As to all reinsurance made, ceded, renewed or otherwise becoming effective under this Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the Company or to its liquidator, receiver, conservator or statutory successor, (except as provided by Sections 4118(a)(1)(A) and 1114(c) of the New York Insurance Law) or except (1) where the Contract specifically provides another payee in the event of the insolvency of the Company, or (2) where the Reinsurer, with the consent of the direct insured or insureds, have assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees. Then, and in that event only, the Company, 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 the Reinsurer pays any loss directly to payees under such policy.

A.		This article applies only to those Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities.

B.		In the event of the failure of a Reinsurer to pay any amount claimed to be due under this Contract, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of any court of competent jurisdiction within the United States of America and shall comply with all requirements necessary to give such court jurisdiction; and all matters arising hereunder shall be determined in accordance with the law and practice of such court. Nothing in this clause constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States of America, 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 of America or of any state in the United States of America.

C.		Service of process is such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829 (hereinafter, “agent for service of process”), and in any suit instituted against the Reinsurer(s) upon this Contract, the Reinsurer(s) shall abide by the final decision of such court or of any appellate court in the event of an appeal.

D.		The above named are authorized and directed to accept service of process on behalf of the Reinsurer(s) in any such suit and/or upon the request of the Company to give a written undertaking to the Company that the agent for service of process shall enter a general appearance on behalf of the Reinsurer(s) in the event such a suit shall be instituted.

Further, pursuant to any statute of any state, territory or district of the United States of America that makes provision therefor, the Reinsurer(s) hereby designate the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as 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 the Company or any beneficiary hereunder arising our of this Contract and hereby designates the agent for service of process as the firm to whom the said officer is authorized to mail such process or a true copy thereof.

A.		Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested.

B.		One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days prior notice by certified or registered mail or its intention to do so, may appoint the second arbitrator.

C.		If the two arbitrators do not agree on a third arbitrator with 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures of the AIDA Reinsurance and Insurance Arbitration Society – U.S. (ARIAS) in effect on the date of selection, for selecting the third arbitrator. The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If an arbitrator dies, becomes disabled or otherwise can no longer serve, a substitute arbitrator shall be selected using the same method used in selecting the departed arbitrator and the proceeding shall continue.

D.		Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings.

E.		The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. The arbitration shall take place in New York, New York, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate.

F.		The panel shall interpret this Contract as an honorable engagement rather than as merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible after the hearings. Judgment upon an award may be entered in any court having jurisdiction thereof.

Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The remaining costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including, but not limited to attorneys’ fees, to the extent permitted by law.

	1.		An original written ink signature of paper documents.

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

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

The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of the Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s) this 4th day of November in the year of 2003.

This insurance does not apply to, and we have no obligation to pay for, investigate, settle or defend, any claim or “suit” for:

	A.		“Bodily injury” or “property damage” under any Liability Coverage:

	(1)		With respect to which an “insured” under the policy is also an “insured” under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters, Nuclear Insurance Association of Canada or any of their successors, or would be an “insured” under any such policy but for its termination upon exhaustion of its limit of liability; or

	(2)		Resulting from the “hazardous properties” of “nuclear material” and with respect to which (a) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (b) the “insured” is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or any agency thereof, with any person or organization.

“Bodily injury” or “property damage”, under any Liability Coverage, resulting from “hazardous properties” of “nuclear material”, if:

	(1)		The “nuclear material” (a) is at any “nuclear facility” owned by, or operated by or on behalf of, an “insured” or (b) has been discharged or dispersed therefrom;

	(2)		The “nuclear material” is contained in “spent fuel” or “waste” at any time possessed, handled, used, processed, stored, transported or disposed of, by or on behalf of an “insured”, or

	(3)		The “bodily injury” or “property damage” arises out of the furnishing by an “insured” of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any “nuclear facility”, but if such facility is located within the United States of America, its territories or possessions or Canada, the Exclusion (3) applies only to “property damage” to such “nuclear facility” and any property thereat.

Includes Copyright material from Insurance Services Office With Its Permission.

		“Hazardous properties” includes radioactive, toxic or explosive properties.

		“Nuclear material” means “source material”, “Special nuclear material” or “by-product material”.

		“Source material”, “special nuclear material”, and “by-product material” have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof.

		“Spent fuel” means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a “nuclear reactor”.

		“Waste” means any waste material (a) containing “by-product material” other than the tailings or wastes produced by the extraction or concentration of uranium or thorium from any ore processed primarily for its “source material” content, and (b) resulting from the operation by any person or organization of any “nuclear facility” included under the first two paragraphs of the definition of “nuclear facility”.

		“Nuclear facility” means:

	(a)		Any “nuclear reactor”;

	(b)		Any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing “spent fuel”, or (3) handling, processing or packaging “waste”;

	(c)		Any equipment or device used for the processing, fabricating or alloying of “special nuclear material” if at any time the total amount of such material in the custody of the “insured” at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235;

	(d)		Any structure, basin, excavation, premises or place prepared or used for the storage or disposal of “waste”;

		And includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations.

		“Nuclear reactor” means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material.

		“Property damage” includes all forms of radioactive contamination of property.

		All other terms and conditions of this policy shall remain the same.

This endorsement is effective on the inception date of this policy unless otherwise stated herein.

Includes Copyright material from Insurance Services Office With Its Permission.

17 of 17 EX-10.2 4 w91619exv10w2.htm EXCESS OF LOSS AGREEMENT OF REINSURANCE NO. 9034 exv10w2

Exhibit 10.2 Excess of Loss Agreement of Reinsurance No. 9034 with General Reinsurance Corporation effective January 1, 2003

PHILADELPHIA INDEMNITY COMPANY
PHILADELPHIA INSURANCE COMPANY
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
(herein collectively referred to as the “Company”)

GENERAL REINSURANCE CORPORATION
a Delaware corporation
having its principal offices at
Financial Centre
695 East Main Street P.O. Box 10350
Stamford, Connecticut 06904-2350
(herein referred to as the “Reinsurer”)

In consideration of the promises set forth in this Agreement, the parties agree as follows:

As a condition precedent to the Reinsurer’s obligations under this Agreement, the Company shall cede to the Reinsurer the business described in this Agreement, and the Reinsurer shall accept such business as reinsurance from the Company.

This Agreement is comprised of General Articles I through XIII and the Exhibit(s) listed below and each Exhibit which may be made a part of this Agreement. The terms of the General Articles and of the Exhibit(s) shall determine the rights and obligations of the parties. The terms of the General Articles shall apply to each Exhibit unless specifically amended therein. In the event of termination of all the Exhibits made a part of this Agreement, the General Articles shall automatically terminate when the liability of the Reinsurer under said Exhibits ceases.

This Agreement is solely between the Company and the Reinsurer. When more than one Company is named as a party to this Agreement, the first Company named shall be the

agent of the other companies as to all matters pertaining to this Agreement. Performance of the obligations of each party under this Agreement shall be rendered solely to the other party. However, if the Company becomes insolvent, the liability of the Reinsurer shall be modified to the extent set forth in the article entitled INSOLVENCY OF THE COMPANY. In no instance shall any insured of the Company or any claimant against an insured of the Company have any rights under this Agreement.

The Company shall investigate and settle or defend all claims and losses. When requested by the Reinsurer, the Company shall permit the Reinsurer, at the expense of the Reinsurer, to be associated with the Company in the defense or control of any claim, loss, or legal proceeding which involves or is likely to involve the Reinsurer. All payments of claims or losses by the Company within the terms and limits of its policies which are within the limits set forth in the applicable Exhibit shall be binding on the Reinsurer, subject to the terms of this Agreement.

The Company shall pay to or credit the Reinsurer with the Reinsurer’s portion of any recovery obtained from salvage, subrogation, or other insurance. Adjustment Expense for recoveries shall be deducted from the amount recovered. However, if the Adjustment Expense incurred in obtaining recoveries exceeds the amount recovered, if any, the excess Adjustment Expense shall be apportioned between the parties in proportion to the liability of each party for the loss before the recovery was obtained.

The Reinsurer shall be subrogated to the rights of the Company to the extent of its loss payments to the Company. The Company agrees to enforce its rights of salvage, subrogation, and its rights against insurers or to assign these rights to the Reinsurer.

If the reinsurance under an Exhibit is on a share basis, the recoveries shall be apportioned between the parties in the same ratio as the amounts of their liabilities bear to the loss. If the reinsurance under an Exhibit is on an excess basis, recoveries shall be distributed to the parties in an order inverse to that in which their liabilities accrued.

As respects any “insured loss”, as defined in the Terrorism Risk Insurance Act of 2002 (“the Act”), for which the Reinsurer makes a payment to the Company under this Agreement, the following provisions shall apply.

(a)

Financial assistance provided under the Act to the Company and its affiliates, if any, (as “affiliate” is defined in the Act) with respect to all “insured loss” that applies to each “program year”, as defined in the Act; and

(b)

Amounts due from all reinsurance which the Company and its affiliates, if any, purchase, including but not limited to this reinsurance, all other treaty reinsurance and all facultative reinsurance, and whether collectible or not, under which there is a recoverable for any such “insured loss”,

exceeds the amount of the Company’s and its affiliates’, if any, gross “insured loss”, the excess amount shall be allocated to the Reinsurer in the ratio that the Reinsurer’s liability for the “insured loss” under this Agreement bears to the total collectible reinsurance recoverables for the “insured loss” under (b) above.

Upon receipt of payment under the Act by the Company and its affiliates, if any, the Company shall pay to or credit the Reinsurer under this Agreement with the Reinsurer’s share of such excess amount determined in accordance with the preceding paragraph.

All reinsurance premium reports required by the Exhibit(s) attached hereto may be sent to:

Client Accounting Unit
General Reinsurance Corporation
Financial Centre
P.O. Box 10353
Stamford, CT 06904-2353

All reinsurance premiums and any other amounts due the Reinsurer may be remitted to the following lockbox address:

General Reinsurance Corporation
75 Remittance Drive
Suite 2555
Chicago, IL 60675-2555

The Reinsurer shall not be relieved of liability because of an error or accidental omission of the Company in reporting any claim or loss or any business reinsured under this Agreement, provided that the error or omission is rectified promptly after discovery. The Reinsurer shall be obligated only for the return of the premium paid for business reported but not reinsured under this Agreement.

Business not within the terms of this Agreement may be submitted to the Reinsurer for special acceptance and, if accepted by the Reinsurer, shall be subject to all of the terms of this Agreement except as modified by the special acceptance.

The Reinsurer shall maintain the required reserves as to the Reinsurer’s portion of unearned premium, if any, claims, losses, and Adjustment Expense.

The Company shall be liable for all premium taxes on premium ceded to the Reinsurer under this Agreement. If the Reinsurer is obligated to pay any premium taxes on this premium, the Company shall reimburse the Reinsurer; however, the Company shall not be required to pay taxes twice on the same premium.

The Company or the Reinsurer may offset any balance, whether on account of premium, commission, claims or losses, Adjustment Expense, salvage, or otherwise, due from one party to the other under this Agreement or under any other agreement heretofore or hereafter entered into between the Company and the Reinsurer.

The Company shall allow the Reinsurer to inspect, at reasonable times, the records of the Company relevant to the business reinsured under this Agreement, including the Company’s files concerning claims, losses, or legal proceedings which involve or are likely to involve the Reinsurer. The Reinsurer’s right of inspection shall continue after the termination of this Agreement.

All unresolved differences of opinion between the Company and the Reinsurer relating to this Agreement, including its formation and validity, shall be submitted to arbitration consisting of one arbitrator chosen by the Company, one arbitrator chosen by the Reinsurer, and a third arbitrator chosen by the first two arbitrators.

The party demanding arbitration shall communicate its demand for arbitration to the other party by registered or certified mail, identifying the nature of the dispute and the name of its arbitrator, and the other party shall then be bound to name its arbitrator within 30 days after receipt of the demand.

Failure or refusal of the other party to so name its arbitrator shall empower the demanding party to name the second arbitrator. If the first two arbitrators are unable to agree upon a third arbitrator after the second arbitrator is named, each arbitrator shall name three candidates, two of whom shall be declined by the other arbitrator, and the choice shall be made between the two remaining candidates by drawing lots. The arbitrators shall be disinterested and shall be active or retired officers of property or casualty insurance or reinsurance companies.

The arbitrators shall adopt their own rules and procedures and are relieved from judicial formalities. In addition to considering the rules of law and the customs and practices of the insurance and reinsurance business, the arbitrators shall make their award with a view to effecting the intent of this Agreement.

The decision of the majority of the arbitrators shall be in writing and shall be final and binding upon the parties.

Each party shall bear the cost of its own arbitrator and shall jointly and equally bear with the other party the expense of the third arbitrator and other costs of the arbitration. In the event both arbitrators are chosen by one party, the fees of all arbitrators shall be equally divided between the parties.

The arbitration shall be held at the times and places agreed upon by the arbitrators.

In the event of the insolvency of the Company, the reinsurance proceeds will be paid to the Company or the liquidator, with reasonable provision for verification, on the basis of the claim allowed in the insolvency proceeding without diminution by reason of the inability of the Company to pay all or part of the claim, except as otherwise specified in the statutes of any state having jurisdiction of the insolvency proceedings or except where the Agreement, or other written agreement, specifically provides another payee of such reinsurance in the event of insolvency.

The Reinsurer shall be given written notice of the pendency of each claim against the Company on the policy(ies) reinsured hereunder within a reasonable time after such claim is filed in the insolvency proceedings. The Reinsurer shall have the right to investigate each such claim and to interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defenses which it may deem available to the Company or its liquidator. The expense thus incurred by the Reinsurer shall be chargeable, subject to court approval, against the insolvent Company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in

This Exhibit shall apply to Property Business written by the Company, which is defined as insurance which is classified in the NAIC form of annual statement as fire, allied lines, inland marine, commercial multiple peril (property coverages), associations homeowners multiple peril (property coverages), or automobile physical damage (comprehensive and collision) when written on a garage open lot basis and as insurance that is classified by the Company as crime and fidelity when written as part of a package policy, except those lines specifically excluded in the section entitled EXCLUSIONS, on Risks wherever located in the United States of America, its territories and possessions. On policies which provide inland marine coverage beyond these territorial limits, the territorial limits of this Exhibit shall be identical with those of the Company’s policies.

This Exhibit shall apply to new and renewal policies of the Company becoming effective at and after 12:01 A.M., January 1, 2003, and to policies of the Company in force at 12:01 A.M., January 1, 2003, with respect to claims and losses resulting from Occurrences taking place at and after the aforesaid time and date, and shall continue in force until terminated in accordance with the provisions of the section entitled TERMINATION.

The Reinsurer shall pay to the Company, with respect to each Risk of the Company, the amount of Net Loss sustained by the Company in excess of the Company Retention but not exceeding the Limits of Liability of the Reinsurer as set forth in the Schedule of Reinsurance.

The liability of the Reinsurer shall not exceed $9,000,000 under the First Excess Cover nor $15,000,000 under the Second Excess Cover with respect to all Net Loss and Adjustment Expenses combined on all Risks involved in one Occurrence.

Further, the liability of the Reinsurer shall not exceed $18,000,000 under the First Excess Cover nor $15,000,000 under the Second Excess Cover with respect to all Net Loss on all Risks involved in all Occurrences (including Extra Contractual Obligations) taking place during each Agreement Year.

For purposes of the provisions in the preceding paragraph, upon a run off termination of this Exhibit the last completed Agreement Year shall be combined with the remaining period that reinsurance is afforded under this Exhibit to constitute a single Agreement Year.

All insurance written under one or more policies of the Company against the same peril on the same Risk shall be combined, and the Company Retention and the Limits of Liability of the Reinsurer shall be determined on the basis of the sum of all insurance against the same peril and on the same Risk which is in force at the time of a claim or loss.

	(a)		Company Retention

			This term shall mean the amount the Company shall retain for its own account; however, this requirement shall be satisfied if this amount is retained by the Company or its affiliated companies under common management or common ownership.

	(b)		Net Loss

			This term shall mean all payments by the Company within the terms and limits of its policies in settlement of claims or losses, after deduction of salvage and other recoveries and after deduction of amounts due from all other reinsurance, except catastrophe reinsurance, whether collectible or not. This term shall include Adjustment Expense. If the Company becomes insolvent, this definition shall be modified to the extent set forth in the article entitled INSOLVENCY OF THE COMPANY.

			Notwithstanding the provisions of the article entitled MANAGEMENT OF CLAIMS AND LOSSES, this term shall also include 95% of Extra Contractual Obligations, provided that the Reinsurer is given written notice of circumstances which may result in an Extra Contractual Obligation within 36 months of the later of the termination date of this Exhibit or the termination of reinsurance on the policy under which the Extra Contractual Obligation arose.

			Nothing in this definition shall imply that losses are not recoverable hereunder until the Company’s Net Loss has been finally ascertained.

	(c)		Adjustment Expense

			This term shall mean expenditures by the Company within the terms of its policies in the direct defense of claims and in connection with Extra Contractual Obligations and as allocated to an individual claim or loss (other than for office expenses and for the salaries and expenses of employees of the Company or of any subsidiary or related or wholly owned company of the Company) made in connection with the disposition of a claim, loss, or legal proceeding including investigation, negotiation, and legal expenses; court costs; prejudgment interest; and postjudgment interest.

			Notwithstanding the provisions of the article entitled MANAGEMENT OF CLAIMS AND LOSSES, this term shall also be deemed to include any expenses incurred by the Company in bringing or in defending a declaratory judgment action brought to determine the Company’s obligations to its insured with respect to a specific claim under a policy (or coverage part thereof) reinsured hereunder. However, the amount of any declaratory judgment expense that may be included in computation of Adjustment Expense shall not exceed the lesser of the amount of insurance under the policy or the Reinsurer’s Limit of Liability for each Risk under this Exhibit.

			The date on which a declaratory judgment expense is incurred by the Company shall be deemed, in all circumstances, to be the date of the original Occurrence.

	(d)		Extra Contractual Obligations

			This term shall mean a loss which is not covered under any other provision of this Exhibit resulting from an action taken by the insured or assignee arising from the Company’s handling of any claim otherwise covered under this Exhibit on the Risks reinsured hereunder which have total amounts of insurance greater than the Company Retention.

			The date on which an Extra Contractual Obligation is incurred by the Company shall be deemed, in all circumstances, to be the date of the original Occurrence.

			There shall be no coverage hereunder where the Extra Contractual Obligation has been incurred due to:

	(i)		The fraud or criminal conduct of a member of the Board of Directors, a corporate officer of the Company, or any other employee of the Company, acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the investigation, defense or settlement of any claim covered hereunder;

	(ii)		An act or omission of an independent claims service organization handling claims on behalf of the Company.

	(h)		General Location

			This term shall mean a contiguous and unbroken tract of land surrounded by public roads, railroads, rivers or other natural barriers.

	(i)		Agreement Year

			This term shall mean each twelve month period commencing on January 1^st.

	(j)		Company’s Subject Earned Premium

			This term shall mean the premium earned by the Company on the business reinsured hereunder, after deduction from such premium earned of the portion paid for share reinsurance which inures to the benefit of the Reinsurer.

	(a)		Reinsurance assumed by the Company other than reinsurance of primary business assumed from affiliated companies;

	(b)		Nuclear incident per the Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance attached hereto;

	(c)		“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, notwithstanding that no legal liability may arise in respect thereof by reason of the fact that the Company, its affiliates or subsidiaries, may not be obligated by law to pay a claim to itself, its affiliates or subsidiaries;

	(d)		Any loss or liability accruing to the Company directly or indirectly from any insurance written by or through any pool or association including pools or associations in which membership by the Company is required under any statutes or regulations;

	(e)		Any liability of the Company arising from its participation or membership in any insolvency fund;

	(f)		Any loss or damage directly or indirectly arising out of, caused by, or resulting from war, as described in paragraph (1) below, or any act of terrorism, as described in paragraphs (2), (3), (4) and (5) below. Such loss or damage is excluded regardless of (i) any other cause or event contributing to such loss or damage in any way or at any time, or (ii) whether such loss or damage is accidental or intentional.

	(u)		Loss of, damage to, or failure of, or consequential loss resulting therewith (including but not limited to earnings and extra expense) of satellites, spacecraft, and launch vehicles, including cargo and freight carried therein, in all phases of operation (including but not limited to manufacturing, transit, pre-launch, launch, and in-orbit);

	(v)		Losses arising, directly or indirectly, out of loss of, alteration of, or damage to or a reduction in the functionality, availability or operation of a computer system, hardware, program, software, data, information repository, microchip, integrated circuit or similar device in computer equipment or non-computer equipment, whether the property of the policyholder of the Company or not, unless such loss arises out of physical damage occurring at the insured’s premises as a result of the following perils to the extent that these perils are covered under this Exhibit: fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action, falling objects, weight of snow, ice or sleet, water damage, flood and/or earth movement. Nothing in this exclusion shall be construed to extend coverage under this Exhibit to any liability which would not have been covered in the absence of this exclusion;

	(w)		Mobile homes unless written as part of a commercial multiple peril policy;

	(x)		Watercraft, other than watercraft insured under a standard homeowners policy or when written as part of contents coverage under a commercial multiple peril policy.

If the Company is bound, without knowledge of or contrary to the instructions of the Company’s supervisory underwriting personnel, on any business falling within the scope of one or more of the exclusions set forth in this section, these exclusions, except (a) through (f), (h), (j), (l), (m) and (o) shall be suspended with respect to such business until 60 days after an underwriting supervisor of the Company acquires knowledge of such business.

The obligations of the Company to reinsure business falling within the scope of this Exhibit and of the Reinsurer to accept such reinsurance are mandatory and no other reinsurance (either facultative or treaty) is permitted, except as provided for below.

When the amount of insurance written by the Company on an individual Risk exceeds $15,000,000, the Company may purchase facultative excess of loss or share reinsurance for the excess amount on such Risk. The Company may also purchase facultative excess of loss reinsurance or facultative share reinsurance within the liability of the Reinsurer, if, in the underwriting judgment of the Company, the Reinsurer will be benefited thereby. In no event, however, shall the amount required with respect to the Company Retention be reduced.

Recoveries from catastrophe reinsurance shall be deemed not to reduce the amount required with respect to the Company Retention.

	(a)		For the First Excess Cover, 3.25% of the Company’s Subject Earned Premium;

	(b)		For the Second Excess Cover, 1.58% of the Company’s Subject Earned Premium;

	(c)		For Capacity Charge, $281,250 per calendar quarter payable in advance of each calendar quarter through December 31, 2004. If this Exhibit is terminated prior to December 31, 2004, any unpaid capacity charge due through December 31, 2004 shall be due and payable as of the termination date.

	(a)		Reinsurance Premium

			For the First Excess Cover and Second Excess Cover, within 25 days after the close of each calendar quarter, the Company shall render to the Reinsurer a report of the reinsurance premium for the quarter with respect to the Company’s Subject Earned Premium during the quarter, summarizing the reinsurance premium by line of insurance. The amount due the Reinsurer, shall be remitted within 25 days after the close of the quarter.

			The Company shall pay to the Reinsurer the Capacity Charge, on or before the beginning of each calendar quarter through December 31, 2004.

	(b)		Claims and Losses

			The Company shall report promptly to the Reinsurer each claim or loss which in the Company’s opinion may involve the reinsurance afforded by this Exhibit. The Company shall also report promptly to the Reinsurer any action alleging Extra Contractual Obligations against the Company or any declaratory judgment action brought by or against the Company on the business reinsured hereunder. The Company shall advise the Reinsurer of the estimated amount of Net Loss and Adjustment Expense in connection with each such claim or loss and of any subsequent changes in such estimates.

			Promptly upon receipt of a definitive statement of Net Loss and Adjustment Expense from the Company, but within no more than 25 days after receipt of such statement, the Reinsurer shall pay to the Company the Reinsurer’s portion of Net Loss and the Reinsurer’s portion of Adjustment Expense, if any. The Company shall report to the Rein-

The Limit of Liability of the Reinsurer with respect to each Occurrence shall be reduced by an amount equal to the amount of liability paid by the Reinsurer, but that part of the liability of the Reinsurer that is so reduced shall be automatically reinstated from the date of the Occurrence for which payment is made; however, the Limits of Liability of the Reinsurer with respect to all Occurrences taking place during each Agreement Year shall not exceed the amount set forth in the section entitled LIABILITY OF THE REINSURER. In consideration of this automatic reinstatement:

	(a)		For each amount so reinstated in the First Excess Cover, there shall be no additional reinsurance premium;

	(b)		For first $3,000,000 so reinstated in the Second Excess Cover, the Company shall pay to the Reinsurer an additional reinsurance premium that shall be the product of 50% of the reinsurance premium set forth in sub-paragraph (b) of the section entitled REINSURANCE PREMIUM for the Agreement Year multiplied by the amount of the reinstated Limit of Liability of the Reinsurer divided by $3,000,000;

(c)

For the next $3,000,000, so reinstated in the Second Excess Cover, the Company shall pay to the Reinsurer an additional reinsurance premium that shall be the product of 100% of the reinsurance premium set forth in sub-paragraph (b) of the section entitled REINSURANCE PREMIUM for the Agreement Year multiplied by the amount of the reinstated Limit of Liability of the Reinsurer divided by $3,000,000.

The reinsurance premium so developed for each amount reinstated shall be in addition to the reinsurance premium set forth in the section entitled REINSURANCE PREMIUM.

Either party may terminate this Exhibit at any time by sending to the other, by registered mail to its principal office, notice stating the time and date when, not less than 90 days after the date of mailing of such notice, termination shall be effective. Upon termination of this Exhibit, at the Company’s option:

	(a)		The Reinsurer shall continue to be liable, with respect to policies in force at the time and ate of termination, for claims and losses resulting from Occurrences taking place until the expiration, cancellation, or next anniversary date, not to exceed one year, of each such policy of the Company, which ever occurs first. The reinsurance premium for policies in force a the time and date of termination shall be calculated by applying the provisions of the section entitled REINSURANCE PREMIUM to the monthly earned premiums that derive from the unearned premium applicable to policies in force at the time and date of termination.

	(b)		The Reinsurer shall not be liable for claims and losses resulting from Occurrences taking place at and after the effective time and date of termination.

To induce a mortgagee named in a policy of the Company to accept such policy, the Company and the Reinsurer may agree to name such mortgagee as a third party beneficiary in a Mortgagee Reinsurance Endorsement made a part of this Exhibit. For each such Mortgagee Reinsurance Endorsement so issued, the Company shall indemnify the Reinsurer for any and all liability, loss, cost, or expense the Reinsurer may sustain or incur in excess of its obligations under this Exhibit by reason of the issuance of such Mortgagee Reinsurance Endorsement.

If the Reinsurer becomes liable to a mortgagee under any Mortgagee Reinsurance Endorsement, the Reinsurer shall, to the extent of its liability:

	(a)		Benefit pro-rata in reductions of the Company’s loss by salvage, subrogation, compromise, or otherwise.

	(b)		Be automatically subrogated to all of the mortgagee’s rights against the Company under the policy.

(c)

Be completely discharged from its obligation to make any payment to the Company under this Exhibit and be entitled to set off against any amount due from the Reinsurer to the Company under this or any other agreement for any amounts for which the Reinsurer would not be liable except for the existence of such Mortgagee Reinsurance Endorsement.

The Reinsurer shall have the right to cancel any Mortgagee Reinsurance Endorsement by notice to the mortgagee.

Prior to the termination date, the Company shall advise the Reinsurer as to which of the above options shall apply.

EXCESS OF LOSS REINSURANCE
(Per Risk)
of
Property Business
(Coverage for Terrorism Only)

This Exhibit shall apply to new and renewal policies of the Company becoming effective at and after 12:01 A.M., January 1, 2003, and to policies of the Company in force at 12:01 A.M., January 1, 2003, with respect to claims and losses resulting from Terrorism Occurrences taking place at and after the aforesaid time and date, and prior to 12:01 A.M., January 1, 2004.

However, if Exhibit A to this Agreement is terminated within the term stipulated above, this Exhibit will automatically terminate on the same date. In such instance, the Reinsurer shall not be liable for Terrorism Occurrences taking place at and after the time and date of termination and shall return to the Company the reinsurance premium unearned, calculated on the monthly pro rata basis, as of such time and date.

The liability of the Reinsurer shall not exceed $8,000,000 with respect to all Net Loss and Adjustment Expenses combined arising out of all loss or damage directly or indirectly arising out of, caused by, or resulting from all Terrorism Occurrences taking place during each Agreement Year, regardless of any other cause or event contributing to such loss or damage in any way or at any time, or whether such loss or damage is accidental or intentional. However, all such Net Loss and Adjustment Expense on Risks with total insurable values of more than $50,000,000 shall be excluded hereunder.

	(a)		Company Retention

			This term shall mean the amount the Company shall retain for its own account; however, this requirement shall be satisfied if this amount is retained by the Company or its affiliated companies under common management or common ownership.

	(b)		Net Loss

			This term shall mean all payments by the Company within the terms and limits of its policies in settlement of claims or losses, after deduction of salvage and other recoveries and after deduction of amounts due from all other reinsurance, except catastrophe reinsurance, whether collectible or not. This term shall include Adjustment Expense. If the Company becomes insolvent, this definition shall be modified to the extent set forth in the article entitled INSOLVENCY OF THE COMPANY.

			Notwithstanding the provisions of the article entitled MANAGEMENT OF CLAIMS AND LOSSES, this term shall also include 95% of Extra Contractual Obligations, provided that the Reinsurer is given written notice of circumstances which may result in an Extra Contractual Obligation within 36 months of the later of the termination date of this

			Exhibit or the termination of reinsurance on the policy under which the Extra Contractual Obligation arose.

			Nothing in this definition shall imply that losses are not recoverable hereunder until the Company’s Net Loss has been finally ascertained.

	(c)		Adjustment Expense

			This term shall mean expenditures by the Company within the terms of its policies in the direct defense of claims and in connection with Extra Contractual Obligations and as allocated to an individual claim or loss (other than for office expenses and for the salaries and expenses of employees of the Company or of any subsidiary or related or wholly owned company of the Company) made in connection with the disposition of a claim, loss, or legal proceeding including investigation, negotiation, and legal expenses; court costs; prejudgment interest; and postjudgment interest.

			Notwithstanding the provisions of the article entitled MANAGEMENT OF CLAIMS AND LOSSES, this term shall also be deemed to include any expenses incurred by the Company in bringing or in defending a declaratory judgment action brought to determine the Company’s obligations to its insured with respect to a specific claim under a policy (or coverage part thereof) reinsured hereunder. However, the amount of any declaratory judgment expense that may be included in computation of Adjustment Expense shall not exceed the lesser of the amount of insurance under the policy or the Reinsurer’s Limit of Liability for each Risk under this Exhibit.

			The date on which a declaratory judgment expense is incurred by the Company shall be deemed, in all circumstances, to be the date of the original Occurrence.

	(d)		Extra Contractual Obligations

			This term shall mean a loss which is not covered under any other provision of this Exhibit resulting from an action taken by the insured or assignee arising from the Company’s handling of any claim otherwise covered under this Exhibit on the Risks reinsured hereunder which have total amounts of insurance greater than the Company Retention.

			The date on which an Extra Contractual Obligation is incurred by the Company shall be deemed, in all circumstances, to be the date of the original Occurrence.

			There shall be no coverage hereunder where the Extra Contractual Obligation has been incurred due to:

(i)

The fraud or criminal conduct of a member of the Board of Directors, a corporate officer of the Company, or any other employee of the Company, acting individually or collectively or in collusion with any individual or corporation or any other

			organization or party involved in the investigation, defense or settlement of any claim covered hereunder;

	(ii)		An act or omission of an independent claims service organization handling claims on behalf of the Company.

			Any insurance which indemnifies or protects the Company against claims which are the subject matter of this definition shall inure to the benefit of the Reinsurer and shall be deducted to arrive at the amount of the Company’s Net Loss.

	(e)		Risk

			The Company shall establish what constitutes one Risk at the time of acceptance, provided:

	(1)		A Building and its contents, regardless of the number of insureds or policies involved, including time element coverages, shall never be considered more than one Risk.

			When two or more Buildings and their contents, including time element coverages, are situated at the same General Location, the Company shall identify on its records at the time of acceptance by the Company those individual Buildings and their contents, including time element coverages, that are to be considered to constitute each Risk; if such identification is not made, each Building and its contents, including time element coverages, shall be considered to be a separate Risk.

			When there are known and named extensions of coverage involving other risk locations (including but not limited to suppliers extensions, customer extensions and interdependencies and whether triggered by physical loss at the risk location or another location) that are included and formally recorded on the Company’s records at the time of acceptance of the Risk, all such known and named extensions of coverage shall be included in calculation of the one Risk.

	(2)		Unknown, unnamed or unidentified extensions of coverage shall be considered separate Risks. The maximum amount which may be included in Net Loss with respect to each such Risk shall be $250,000. Further, the Limit of Liability of the Reinsurer shall not exceed $500,000 of Net Loss with respect to all such Risks involved in one Occurrence. Such Occurrence limit is part of, and not in addition to the Occurrence limit stipulated in the section entitled LIABILITY OF THE REINSURER.

	(f)		Building

			This term shall mean each structure enclosed within exterior walls. Exterior walls are defined as walls constructed on the perimeter foun-

			dation, regardless of the number of additional structures or roofs placed upon this perimeter foundation.

	(g)		General Location

			This term shall mean a contiguous and unbroken tract of land surrounded by public roads, railroads, rivers or other natural barriers.

	(h)		Terrorism Occurrence

			This term shall mean an Occurrence arising out of any Act of Terrorism, as described in paragraphs (1) and (2) below.

	(1)		An Act of Terrorism means an activity, including the threat of an activity or any preparation for an activity, that (a) causes either (i) damage to property, or (ii) injury to persons; and (b) appears to be intended to: (i) intimidate or coerce a civilian population, or (ii) disrupt any segment of an economy, or (iii) influence the policy of a government by intimidation or coercion, or (iv) affect the conduct of a government by destruction, assassination, kidnapping or hostage-taking, or (v) advance a political, religious or ideological cause; provided, however, that an Act of Terrorism for purposes of this definition shall not include any act or threat as described above perpetrated by an official, employee or agent of a foreign state acting for or on behalf of such state.

	(2)		An Act of Terrorism is also deemed to include any act authorized by a governmental authority for the purpose of preventing, terminating, countering or responding to any act or threat of terrorism or for the purpose of preventing or minimizing the consequences of any act or threat of terrorism.

	(i)		Agreement Year

			This term shall mean each twelve month period commencing on January 1^st.

This Exhibit shall be subject to the exclusions set forth in the section entitled EXCLUSIONS of Exhibit A to this Agreement, except that for purposes of this Exhibit, exclusion (f) of said Section is amended to read as follows:

(f)

Any loss or damage directly or indirectly arising out of, caused by, or resulting from war, including undeclared or civil war; warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or insurrection, rebellion, revolution, usurped power or action taken by governmental authority in hindering or defending against any of these. War includes any

activity that would be included as an Act of Terrorism, but for the fact that such activity was perpetrated by an official, employee or agent of a foreign state acting for or on behalf of such state. Such loss or damage is excluded regardless of (i) any other cause or event contributing to such loss or damage in any way or at any time, or (ii) whether such loss or damage is accidental or intentional.

The Company shall pay to the Reinsurer a flat reinsurance premium of $800,000 for the term of this Exhibit.

	(a)		Reinsurance Premium

			Within 25 days after the close of each calendar quarter, the Company shall pay to the Reinsurer one quarter of the flat reinsurance premium stipulated in the section entitled REINSURANCE PREMIUM.

	(b)		Claims and Losses

			The Company shall report promptly to the Reinsurer each claim or loss which in the Company’s opinion may involve the reinsurance afforded by this Exhibit. The Company shall also report promptly to the Reinsurer any action alleging Extra Contractual Obligations against the Company or any declaratory judgment action brought by or against the Company on the business reinsured hereunder. The Company shall advise the Reinsurer of the estimated amount of Net Loss and Adjustment Expense in connection with each such claim or loss and of any subsequent changes in such estimates.

			Promptly upon receipt of a definitive statement of Net Loss and Adjustment Expense from the Company, but within no more than 25 days after receipt of such statement, the Reinsurer shall pay to the Company the Reinsurer’s portion of Net Loss and the Reinsurer’s portion of Adjustment Expense, if any. The Company shall report to the Reinsurer any subsequent changes in the amount of Net Loss and/or Adjustment Expense, and the amount due either party shall be remitted promptly, but within no more than 25 days after receipt of such report.

	(c)		General

			In addition to the reports required by (a), (b), and (c) above, the Company shall furnish such other information as may be required by the Reinsurer for the completion of the Reinsurer’s quarterly and annual statements and internal records.

			All reports shall be rendered on forms or in format acceptable to the Company and the Reinsurer.

Exhibit 10.3 Addendum No. 3 to the Casualty Excess Of Loss Reinsurance Agreement No. TC988A, B with Swiss Reinsurance America Corporation effective January 1, 2003

CASUALTY EXCESS OF LOSS
REINSURANCE AGREEMENT
NO. TC988A,B
(hereinafter referred to as the “Agreement”)

PHILADELPHIA CONSOLIDATED HOLDING CORPORATION’S
following member companies:
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
both of Bala Cynwyd, Pennsylvania

SWISS REINSURANCE AMERICA CORPORATION
Armonk, New York
(hereinafter referred to as the “Reinsurer”)

It is understood and agreed that as respects policies in force at 12:01 a.m., Eastern Standard Time, January 1, 2003, and new and renewal policies becoming effective on and after said date, this Agreement is amended as follows:

IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed by their duly authorized representatives as of the following dates:

Notwithstanding any provision to the contrary within this Agreement or any endorsement thereto, this reinsurance Agreement does not cover any liability, loss, cost or expense of whatsoever nature directly or indirectly caused by, resulting from, arising out of or in connection with any act of terrorism regardless of any other cause contributing concurrently or in any other sequence to the liability, loss, cost or expense.

For the purpose of this exclusion, terrorism means any actual or threatened violent act or act harmful to human life, tangible or intangible property or infrastructure, directed towards or having the effect of (a) influencing or protesting against any de jure or de facto government or policy thereof or (b) intimidating, coercing or putting in fear a civilian population or section thereof.

In any action, suit or other proceedings where the reinsurer alleges that by reason of this exclusion a liability, loss, cost or expense is not covered by this reinsurance Agreement, the burden of proving that such liability, loss, cost or expense is covered shall be upon the reinsured.

TERR-CAS

Exhibit 10.4 Property Excess Of Loss Agreement of Reinsurance No. TP1600E with Swiss Reinsurance America Corporation effective January 1, 2003

to
AGREEMENT OF REINSURANCE
NO. 9034
between
PHILADELPHIA INDEMNITY COMPANY
PHILADELPHIA INSURANCE COMPANY
and
GENERAL REINSURANCE CORPORATION

PHILADELPHIA INDEMNITY COMPANY
PHILADELPHIA INSURANCE COMPANY
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004

PROPERTY EXCESS OF LOSS
AGREEMENT OF REINSURANCE
NO. TP1600E
(hereinafter referred to as the “Agreement”)

PHILADELPHIA INDEMNITY COMPANY
PHILADELPHIA INSURANCE COMPANY
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
(hereinafter referred to as the “Company”)

SWISS REINSURANCE AMERICA CORPORATION
Armonk, New York
(hereinafter referred to as the “Reinsurer”)

In consideration of the promises set forth in this Agreement, the parties agree as follows:

A.		As a condition precedent to the Reinsurer’s obligations under this Agreement, the Company shall cede to the Reinsurer the business described in this Agreement, and the Reinsurer shall accept such business as reinsurance from the Company.

B.		This Agreement shall apply to Property Business written by the Company, which is defined as insurance and classified in the NAIC form of annual statement as fire, allied lines, inland marine, commercial multiple peril (property coverages), homeowners multiple peril (property coverages) or automobile physical damage (comprehensive and collision) when written on a garage open lot basis, plate glass, and burglary and theft, except those lines specifically excluded in the section entitled Exclusions, on Risks wherever located in the United States of America, its territories and possessions. On policies which provide coverage beyond these territorial limits, the territorial limits of this Agreement shall be identical with those of the Company’s policies.

This Agreement is solely between the Company and the Reinsurer. When more than one Company is named as a party to this Agreement, the first Company named shall be the agent of the other companies as to all

matters pertaining to this Agreement. Performance of the obligations of each party under this Agreement shall be rendered solely to the other party. However, if the Company becomes insolvent, the liability of the Reinsurer shall be modified to the extent set forth in the article entitled Insolvency of the Company. In no instance shall any insured of the Company or any claimant against an insured of the Company have any rights under this Agreement.

A.		This Agreement shall apply to new and renewal policies of the Company becoming effective at and after 12:01 a.m., January 1, 2003, and to policies of the Company in force at 12:01 a.m., January 1, 2003, with respect to claims and losses resulting from Occurrences taking place at and after the aforesaid time and date, and shall continue in force until terminated in accordance with the provisions set forth in Paragraph B. below.

B.		Either party may terminate this Agreement at any calendar quarter by sending to the other, by registered mail to its principal office, notice stating the time and date when, not less than 90 days after the date of mailing of such notice, termination shall be effective. Upon termination of this Agreement at the Company’s option:

	1.		The Reinsurer shall continue to be liable, with respect to policies in force at the time and date of termination, for claims and losses resulting from Occurrences taking place until the expiration, cancellation, or next anniversary date, not to exceed one year, of each such policy of the Company, whichever occurs first. The reinsurance premium for policies in force at the time and date of termination shall be calculated by applying the provisions of the Article entitled Reinsurance Premium to the monthly earned premiums that derive from the unearned premium applicable to policies in force at the time and date of termination.

	2.		The Reinsurer shall not be liable for any claims or losses resulting from Occurrences taking place at and after the effective time and date of termination.

Prior to the termination date, the Company shall advise the Reinsurer as to which of the above options shall apply.

As respects one or more than one Line of Business covered under this Agreement, the Company shall retain the first $10,000,000 of Net Loss as respects each risk in any one Loss Occurrence. The Reinsurer shall then be liable for the amount by which the Company’s Net Loss exceeds the Company’s retention of $10,000,000, but the liability of

		the Reinsurer shall never exceed $5,000,000 each risk any one Loss Occurrence, nor shall the Reinsurer’s liability from all Risks in each Occurrence exceed $15,000,000.

B.		It is understood that the liability of the Reinsurer shall not exceed $5,000,000 with respect to all Net Loss and Adjustment Expenses combined arising out of all loss or damage or indirectly arising out of, caused by or resulting from all Terrorism Loss Occurrences taking place during each calendar year regardless of any other cause or event contributing to such loss or damage in any way or at any time, or whether such loss or damage is accidental or intentional.

C.		Reinsurance of the Company’s retention, set forth above, shall not be deducted in arriving at the Company’s Net Loss herein.

A.		Company Retention

		This term shall mean the amount the Company and its underlying reinsurer shall retain for their own account; however, this requirement shall be satisfied if this amount is retained by the Company or its affiliated companies under common management or common ownership.

B.		Net Loss

		This term shall mean all payments by the Company within the terms and limits of its policies in settlement of claims or losses, after deduction of salvage and other recoveries and after deduction of amounts due from all other reinsurance, except underlying reinsurance and catastrophe reinsurance, whether collectible or not. This term shall include Adjustment Expense. If the Company becomes insolvent, this definition shall be modified to the extent set forth in the article entitled Insolvency of the Company.

		Notwithstanding the provisions of the article entitled Management of Claims and Losses, this term shall also include 100% of Losses in Excess of Policy Limits and 100% of Extra Contractual Obligations.

		Nothing in this definition shall imply that losses are not recoverable hereunder until the Company’s Net Loss has been finally ascertained.

C.		Adjustment Expense

		This term shall mean expenditures by the Company within the terms of its policies in the direct defense of claims and in connection with Losses in Excess of Policy Limits and in connection with Extra Contractual Obligations and as allocated to an individual claim or

		loss (other than for office expenses and for the salaries and expenses of employees of the Company or of any subsidiary or related or wholly owned company of the Company) made in connection with the disposition of a claim, loss, or legal proceeding including investigation, negotiation, and legal expenses; court costs; prejudgment interest; and postjudgment interest.

		Notwithstanding the provisions of the article entitled Management of Claims and Loses, this term shall also be deemed to include any expenses incurred by the Company in bringing or in defending a declaratory judgment action brought to determine the Company’s obligations to its insured with respect to a specific claim under a policy (or coverage part thereof) reinsured hereunder. However, the amount of any declaratory judgment expense that may be included in computation of Adjustment Expense shall not exceed the lesser of the amount of insurance under the policy or the Reinsurer’s Limit of Liability for each Risk under this Agreement.

		The date on which a declaratory judgment expense is incurred by the Company shall be deemed, in all circumstances, to be the date of the original Occurrence.

D.		Losses in Excess of Policy Limits and Extra Contractual Obligations

	1.		The term “Loss in Excess of Policy Limits” shall mean a payment made to a third party claimant in excess of policy limit which the Company is legally obligated to pay resulting from an action taken by the insured or assignee arising from a third party claimant being awarded an amount in excess of the Company’s policy limit as a result of the Company’s failure to settle within the policy limit of the Company’s alleged or actual negligence 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 in the preparation or prosecution of an appeal consequent upon such action.

	2.		The term “Extra Contractual Obligation” shall mean a loss which the Company is legally obligated to pay, which is not covered under any other provision of this Agreement and which arises from the Company’s handling of any claim on the policies reinsured hereunder which have limits of liability greater than the Company Retention.

		The date on which a Loss in Excess of Policy Limits or an Extra Contractual Obligation is incurred by the Company shall be deemed, in all circumstances, to be the date of the original Occurrence.

		There shall be no coverage hereunder where the Loss in Excess of the Policy Limit or the Extra Contractual Obligation has been incurred due to the fraud or criminal conduct of a member of the Board of Directors, a corporate officer of the Company, or any other employee of the Company, acting individually or collectively or in collusion

		with any individual or corporation or any other organization or party involved in the investigation, defense or settlement of any claim covered hereunder.

		Any insurance or reinsurance, whether collectible or not, which indemnifies or protects the Company against claims which are the subject matter of this definition and any contribution, subrogation, or recovery shall inure to the benefit of the Reinsurer and shall be deducted to arrive at the amount of the Company’s Net Loss.

E.		Risk

		The Company shall establish what constitutes one Risk, provided:

	1.		A Building and its contents, including time element coverages, shall never be considered more than one Risk;

	2.		When two or more Buildings and their contents are situated at the same general location, the Company shall identify on its records at the time of acceptance by the Company those individual Buildings and their contents that are considered to constitute each Risk; if such identification is not made, all of the Buildings and their contents situated at the same general location shall be considered one Risk.

F.		Building

		This term shall mean each separately roofed structure enclosed within exterior walls.

G.		Loss Occurrence

	A.		The term “Loss Occurrence” shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term “Loss Occurrence” shall be further defined as follows:

As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 72 consecutive hours arising out of and directly occasioned by the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto.

	2.		As regards riot, riot attending a strike, civil commotion, vandism and malicious mischief, all individual losses sustained by the Company, occurring during any period of 72 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 72 consecutive hours may be extended in respect of individual losses which occur beyond such 72 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period.

	3.		As regards earthquake (the epicentre of which need not necessarily be within the territorial confines referred to in the opening paragraph of this Article) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company’s Loss Occurrence.

	4.		As regards Freeze, only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting of frozen pipes and tanks) may be included in the Company’s Loss Occurrence.

	5.		As regards Terrorism, all individual losses sustained by the Company occurring during any period of 72 consecutive hours arising out of and directly occasioned by the same event. Should such an event of Terrorism give rise to other perils which, in an unbroken chain of causation, have occasioned the losses, the cause of the losses is understood to be that event of Terrorism.

	a.		“Terrorism,” for purposes of this Agreement, shall mean any actual or threatened violent act or act harmful to human life, tangible or intangible property or infrastructure directed towards or having the effect of (i) influencing or protesting against any de jure or de facto government or policy thereof, (ii) intimidating, coercing or putting in fear a civilian population or section thereof for the purpose of establishing or advancing a specific ideological, religious or political system of thought, perpetrated by a specific individual or group directly or indirectly through agents acting on behalf of said individual or group or (iii) retaliating against any country for direct or vicarious support by that country of any other government or political system.

	b.		Any act declared pursuant to the Terrorism Risk Insurance Act of 2002 shall also be considered “Terrorism” for purposes of this Agreement.

	B.		For all Loss Occurrences the Company may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss and provided that only one such period of 168 consecutive hours shall apply with respect to one event except for those Loss Occurrences referred to in 1., 2. and 5. above, where only one such period of 72 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

	C.		No individual losses occasioned by an event that would be covered by 72 hours clauses may be included in any Loss Occurrence claimed under the 168 hours provision.

H.		Company’s Subject Earned Premium

		This term shall mean the premium earned by the Company on the business reinsured hereunder, after deduction from such earned premium of the portion paid for reinsurance which inures to the benefit of the Reinsurer.

The obligations of the Company to reinsure business falling within the scope of this Agreement and of the Reinsurer to accept such reinsurance are mandatory and no other reinsurance (either facultative or treaty) is permitted, except as provided for below.

The Company may purchase facultative excess of loss reinsurance or facultative share reinsurance within the liability of the Reinsurer, if, in the underwriting judgment of the Company, the Reinsurer will be benefited thereby. In no event, however, shall the amount required with respect to the Company Retention be reduced.

Recoveries from catastrophe reinsurance shall be deemed not to reduce the amount required with respect to the Company Retention.

A.		Reinsurance assumed by the Company other than reinsurance of primary business assumed from affiliated companies;

B.		Nuclear incident per the Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance attached hereto;

C.		“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, notwithstanding that no legal liability may arise in respect thereof by reason of the fact that the Company, its affiliates or subsidiaries, may not be obligated by law to pay a claim to itself, its affiliates or subsidiaries;

D.		Any loss or liability accruing to the Company directly or indirectly from any insurance written by or through any pool or association including pools or associations in which membership by the Company is required under any statutes or regulations;

E.		Any liability of the Company arising from its participation or membership in any insolvency fund;

F.		Any loss or damage which is occasioned by war, including undeclared or civil war, warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or insurrection, rebellion, revolution, usurped power or action taken by governmental authority in hindering or defending against any of these; however, this exclusion shall not apply to any policy which contains a standard war exclusion;

G.		Risks written on a layered basis, whether primary or excess of loss, or policies written with a deductible or franchise of more than $500,000; however, this exclusion shall not apply to policies which provide a percentage deductible or franchise in connection with windstorm, earthquake or flood;

H.		Pollution to the extent excluded in the Company’s policies. Nevertheless, if the insured elects to purchase any “buy back” or additional coverage options, such options shall not be covered hereunder;

I.		Insurance against earthquake, except when written in conjunction with fire and otherwise eligible perils;

J.		Insurance on growing crops;

K.		Insurance against flood, waves, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not, except when written in conjunction with fire and otherwise eligible perils;

L.		Business classified as fidelity, however this exclusion shall not apply to crime and fidelity with limits no greater than $1,000,000 when written as such;

M.		Credit insurance;

N.		Business classified as boiler and machinery;

O.		Mortgage impairment insurance and similar kinds of insurance, howsoever styled, providing coverage to an insured with respect to its mortgagee interest in property or its owner interest in foreclosed property;

P.		Difference in conditions insurance and similar kinds of insurance, howsoever styled;

Q.		Risks which have a total insurable value of more than $250,000,000; however, this exclusion shall not apply if the Company writes 100% of the Risk;

R.		Losses with respect to overhead transmission and distribution lines and their supporting structures, other than those on or within 1,000 feet of the insured premises. However, public utilities extension and/or suppliers extension and/or contingent business interruption coverage are not subject to this exclusion, provided these are not part of a transmitters’ or distributors’ policy.

S.		Offshore property Risks;

T.		Inland marine business with respect to the following:

	1.		Cargo insurance when written as such with respect to ocean vessels;

	2.		Faulty film, tape, processing and editing insurance and cast insurance;

	3.		Drilling rigs for natural fuels;

	4.		Furriers’ customers policies;

	5.		Insurance on livestock under so-called “mortality policies”,

	6.		Mining equipment while underground;

	7.		Registered mail and armored car insurance;

U.		Loss of, damage to, or failure of, or consequential loss resulting therewith (including but not limited to earnings and extra expense) of satellites, spacecraft, and launch vehicles, including cargo and freight carried therein, in all phases of operation (including but not limited to pre-launch, launch, and in-orbit).

V.		Ex-gratia payments made by the Company, however this exclusion shall not apply if the Reinsurer give its prior approval.

W.		Mobile homes unless written as part of a commercial multiple peril policy.

Large Insurable Values as per the attached Large Insurable Values Exclusion Clause, which is made part of this Agreement.

If the Company is bound without knowledge of or contrary to the instructions of the Company’s supervisory underwriting personnel, or any business falling within the scope of one or more of the exclusions set forth in this section, these exclusions, except A. through F., H., J., L., M. and O. shall suspend with respect to such business until 60 days after an underwriting supervisor of the Company acquires knowledge of such business.

A.		The Company shall pay to the Reinsurer a premium for the reinsurance provided hereunder at a rate of 1.23%. Such rate shall be applied to the Company’s Subject Earned Premium for the calendar year under calculation.

B.		The term “Subject Earned Premium” as used herein is equal to the sum of the Net Premiums Written on the business covered hereunder during the period under consideration, plus the unearned premium reserve as respects premiums in force at the beginning of such period, less the unearned premium reserve as respects premiums in force at the end of the period, said unearned premium is to be calculated on an actual daily basis or in accordance with the Company’s methodology, as agreed.

C.		The term “Net Premiums Written” shall mean gross premiums written less returns, allowances and reinsurances which inure to the benefit of the Reinsurer.

D.		The following percentages of the Company’s premium shall be allocated to the business covered under this Agreement: 100% Businessowners.

A.		Reinsurance Premium

		Within 25 days after the close of each calendar quarter, the Company shall render to the Reinsurer a report of the reinsurance premium for the quarter with respect to the Company’s Subject Earned Premium during the quarter, summarizing the reinsurance premium by line of insurance; and the amount due the Reinsurer shall be remitted with 25 days after the close of the quarter.

B.		Claims and Losses

		The Company shall report promptly to the Reinsurer, but within no more than 25 days after the Company becomes aware of the claim or

		loss, each claim or loss which, in the Company’s opinion, may involve the reinsurance afforded by this Agreement. The Company shall also report promptly to the Reinsurer, but within no more than the 25 day time period stipulated above, any action alleging Extra Contractual Obligations against the Company or any declaratory judgment action brought by or against the Company on the business reinsured hereunder. The Company shall advise the Reinsurer of the estimated amount of Net Loss and Adjustment Expense in connection with each such claim or loss and of any subsequent changes in such estimates.

		Promptly upon receipt of a definitive statement of Net Loss and Adjustment Expense from the Company, but within no more than 25 days after receipt of such statement, the Reinsurer shall pay to the Company the Reinsurer’s portion of Net Loss and the Reinsurer’s portion of Adjustment Expense, if any. The Company shall report to the Reinsurer any subsequent changes in the amount of Net Loss and/or Adjustment Expense, and the amount due either party shall be remitted promptly, but within no more than 25 days after receipt of such report.

C.		P.C.S. Catastrophe Bulletins

		The Company shall furnish to the Reinsurer, upon request, the following information with respect to each catastrophe set forth in the Catastrophe Bulletins published by the Property Claim Services:

	1.		The preliminary estimates of the amount recoverable from the Reinsurer;

	2.		The Reinsurer’s portion of claims, losses, and Adjustment Expenses paid less salvage recovered during each calendar quarter;

	3.		The Reinsurer’s portion of reserves for claims, losses, and Adjustment Expenses at the end of each calendar quarter.

D.		General

		In addition to the reports required by (a), (b), and (c) above, the Company shall furnish such other information as may be required by the Reinsurer for the completion of the Reinsurer’s quarterly and annual statements and internal records.

		All reports shall be rendered on forms or in format acceptable to the Company and the Reinsurer.

The Company shall investigate and settle or defend all claims and losses. When requested by the Reinsurer, the Company shall permit the

Reinsurer, at the expense of the Reinsurer, to be associated with the Company in the defense or settlement of any claim, loss, or legal proceeding which involves or is likely to involve the Reinsurer. All payments of claims or losses by the Company within the terms and limits of its polices which are within the limits set forth in the Article entitled Limits and Retention shall be binding on the Reinsurer, subject to the terms of this Agreement.

If the reinsurance hereunder is on a share basis, the recoveries shall be apportioned between the parties in the same ratio as the amounts of their liabilities bear to the loss. If the reinsurance hereunder is on an excess basis, recoveries shall be distributed to the parties in an order inverse to that in which their liabilities accrued.

	1.		“Act” shall mean the Terrorism Risk Insurance Act of 2002, any amendments thereto and any regulations promulgated thereunder.

	2.		“Affiliate,” “Insured Losses,” and “Program Year” shall have the meanings provided in the Act.

	3.		“Company” shall include the Company and all affiliates.

To the extent that an Insured Loss is otherwise payable hereunder, the reinsurance provided by this Agreement shall apply only to the portion of liability, loss, cost and/or expense retained by the Company net of any federal assistance pursuant to the Act. This reinsurance shall not apply to any fines, civil penalties or surcharges assessed pursuant to the Act.

C.		The respective liability of the Reinsurer and of the Company for Insured Losses in any Program Year under this Agreement shall each be reduced by the ratio that the financial assistance available to the Company under the Act for that Program Year bears to the Company’s total Insured Losses for the same Program Year.

D.		The parties recognize that, for any Program Year, the Reinsurer may without waiver of the foregoing Paragraphs make payments for Insured Losses which, together with available financial assistance under the Act and the Company retentions and/or deductibles hereunder, exceed the Company’s Insured Losses. In such event, the Reinsurer’s proportional share of all such excess recovery (hereafter “Reinsurer’s Excess Share”) shall inure to the benefit of the Reinsurer. All excess recovery described in this Paragraph shall be allocated to the Reinsurer and the Company in proportion to the respective liability of each for Insured Losses, net of federal assistance under the Act, salvage, subrogation and other similar recoveries, as applicable.

E.		In the event of a Reinsurer’s Excess Share, the Company shall:

	1.		Promptly pay the Reinsurer’s Excess Share to the Reinsurer; or

	2.		Upon request of the Reinsurer at any time and at the Reinsurer’s sole discretion, instead assign to the Reinsurer its rights to recover directly from the federal government any portion of Reinsurer’s Excess Share not already paid to the Reinsurer. The Company shall cooperate with and assist the Reinsurer, at its own expense, to the extent reasonably necessary for the Reinsurer to exercise those rights. If the Reinsurer is unable, for any reason, to exercise any right assigned to it by the Company pursuant to this Article, the Company shall pay the Reinsurer’s Excess Share to the Reinsurer as if no assignment had taken place.

In the event of an Insured Loss, the Company shall provide the Reinsurer with a monthly report detailing claim settlement activities and financial assistance under the Act. Calculations for each Program Year shall continue to be made until the settlement of all Insured Losses covered hereunder. To the extent that the Company allocates Insured Losses and/or federal assistance under the Act among affiliates, claims, contracts or otherwise in any manner which impacts the reinsurance provided hereunder, the Company shall apply a reasonable allocation method acceptable to the Reinsurer.

obligated only for the return of the premium paid for business reported but not reinsured under this Agreement.

The Reinsurer shall maintain the required reserves as to the Reinsurer’s portion of unearned premium, if any, claims, losses, and Adjustment Expense.

The Company shall be liable for all premium taxes on premium ceded to the Reinsurer under this Agreement. If the Reinsurer are obligated to pay any premium taxes on this premium, the Company shall reimburse the Reinsurer, however, the Company shall not be required to pay taxes twice on the same premium.

The Company or the Reinsurer may offset any balance, whether on account of premium, commission, claims or loses, Adjustment Expense, salvage, or otherwise, due from one party to the other under this Agreement or under any other agreement heretofore or hereafter entered into between the Company and the Reinsurer.

All unresolved differences of opinion between the Company and the Reinsurer relating to this Agreement, including its formation and validity, shall be submitted to arbitration consisting of one arbitrator chosen by the Company, one arbitrator chosen by the Reinsurer(s), and a third arbitrator chosen by the first two arbitrators.

Failure or refusal of the other party to so name its arbitrator shall empower the demanding party to name the second arbitrator. If the first two arbitrators are unable to agree upon a third arbitrator after the second arbitrator is named, each arbitrator shall name three candidates, two of whom shall be declined by the other arbitrator, and the choice shall be made between the two remaining candidates by drawing lots. The arbitrators shall be impartial and shall be active or retired officers of property or casualty insurance or reinsurance companies.

The decision of the majority of the arbitrators shall be in writing and shall be final and binding upon the parties.

The arbitration shall be held at the times and places agreed upon by the arbitrators.

In the event of the insolvency of the Company, the reinsurance proceeds will be paid to the Company or the liquidator, with reasonable provision for verification, on the basis of the claim allowed in the insolvency proceeding without diminution by reason of the inability of the Company to pay all or part of the claim, except as otherwise specified in the statutes of any state having jurisdiction of the insolvency proceedings or except where the Agreement, or other written agreement, specially provides another payee of such reinsurance in the event of insolvency.

The Reinsurer shall be given written notice of the pendency of each claim against the Company of the policy(ies) reinsured hereunder within a reasonable time after such claim is filed in the insolvency proceedings. The Reinsurer shall have the right to investigate each such claim and to interpose, at their own expense, in the proceeding where such claim is to be adjudicated, any defenses which they may deem available to the Company or its liquidator. The expense thus incurred

by the Reinsurer shall be chargeable, subject to court approval, against the insolvent Company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate, by their duly authorized representatives as of the following dates:

		DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS

A.		Wherever the term “Company” or “Reinsured” or “Reassured” or whatever other term is used to designate the reinsured company or companies within the various attachments to the reinsurance agreement, the term shall be understood to mean Company or Reinsured or Reassured or whatever other term is used in the attached reinsurance agreement to designate the reinsured company or companies.

B.		Wherever the term “Agreement” or “Contract” or “Policy” or whatever other term is used to designate the attached reinsurance agreement within the various attachments to the reinsurance agreement, the term shall be understood to mean Agreement or Contract or Policy or whatever other term is used to designate the attached reinsurance agreement.

C.		Wherever the term “Reinsurer” or “Reinsurers” or “Underwriters” or whatever other term is used to designate the reinsurer or reinsurers in the various attachments to the reinsurance agreement, the term shall be understood to mean Reinsurer or Reinsurers or Underwriters or whatever other term is used to designate the reinsuring company or companies.

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

1.		This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

2.		Without in any way restricting the operation of paragraph 1. of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

	I.		Nuclear reactor power plants including all auxiliary property on the site, or

	II.		Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and critical facilities as such, or

	III.		Installations for fabricating complete fuel elements or for processing substantial quantities of “special nuclear material,” and for reprocessing, salvaging, chemically separating, storing or disposing of spent nuclear fuel or waste materials, or

	IV.		Installations other than those listed in paragraph 2. III. above using substantial quantities of radioactive isotopes or other products of nuclear fission.

Without in any way restricting the operation of paragraphs 1. and 2. of this Clause, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith, except that this paragraph 3. shall not operate:

	(a)		where the Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

	(b)		where the said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However, on and after 1st January, 1960, this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof.

4.		Without in any way restricting the operation of paragraphs 1., 2. and 3. of this Clause, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against.

5.		It is understood and agreed this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

6.		The term “special nuclear material” shall have the meaning given to it by the Atomic Energy Act of 1954 or by any law amendatory thereof.

7.		Reassured to be sole judge of what constitutes:

NOTE: - Without in any way restricting the operation of paragraph 1. hereof, it is understood and agreed that

	(a)		all policies issued by the Reassured on or before 31st December, 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December, 1960 whichever first occurs whereupon all the provisions of this Clause shall apply,

	(b)		with respect to any risk located in Canada policies issued by the Reassured on or before 31st December, 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December, 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

This Agreement does not cover Policies issued to a company or group of companies where the sum of:

1.		total full values, whether insured or not, for all buildings and contents, and

2.		total sums insured for Business Interruption and/or Extra Expenses,

exceeds a limit of $500,000,000 each location at the time when reinsurance coverage would have attached, but for this exclusion. EX-10.5 7 w91619exv10w5.htm CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT exv10w5

Exhibit 10.5 Casualty Excess of Loss Reinsurance Contract with American Re-Insurance Company, Converium Reinsurance (North America) Inc., Endurance Specialty Insurance Limited, Liberty Mutual Insurance Company effective January 1, 2003

PHILADELPHIA INSURANCE COMPANY
Bala Cynwyd, Pennsylvania
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennsylvania
MOBILE USA INSURANCE COMPANY, INC.
Pinellas Park, Florida
LIBERTY AMERICAN INSURANCE COMPANY
Pinellas Park, Florida
And any additional company established or acquired by the Company

THE SUBSCRIBING REINSURER EXECUTING THE
INTERESTS AND LIABILITIES AGREEMENT
ATTACHED TO THIS CONTRACT
(the “Reinsurer”)

This Contract is to indemnify the Company in respect of the net excess liability as a result of any loss or losses, which may occur during the term of this Contract under any 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, Fidelity, Professional Liability and/or Fiduciary Liability. It is understood and agreed, as respects Policies on a claims-made or losses-discovered basis, any extended reporting period coverages provided thereunder shall be reinsured hereunder, provided the date of loss is during the term of this Contract.

With respect to business classified by the Company as Professional Liability and written out of the Company’s Specialty Lines Division, the following product lines of business, as defined by the Company, shall be covered under the scope of this Contract:

Directors and Officers Liability for For-Profit and Not-For-Profit risks
Miscellaneous Errors and Omissions Liability
Lawyers Professional Liability
Accountants Professional Liability

Dentists Professional Liability
Insurance Agents Professional Liability
Miscellaneous Medical Professional Liability
Employment Practices Liability

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

The Reinsurer will be liable for $10,000,000 of Ultimate Net Loss in respect of each Loss Occurrence, each Insured in excess of the Company’s retention of $1,000,000 Ultimate Net Loss each Loss Occurrence, each Insured. With respect to the Company’s Directors and Officers Liability Policies that contain more than one coverage part, the amount of coverage and retention hereunder shall apply separately to each coverage part.

The term “Loss Occurrence” and the term “Insured” as used herein shall have the same meaning as in the Company’s Policies. However, in the event of any ambiguity or dispute relating to these terms, the Company shall be the sole judge of what constitutes one Loss Occurrence and one Insured.

A.		The Company will include as part of their original Policies a Mold exclusion for business classified as Architects and Engineers, Property Managers and Real Estate, as determined by the Company. However, this provision will not apply wherever the Company’s exclusion has not been filed and approved.

B.		The Company may issue up to $120,000,000 of aggregate limit in respect of any new and renewal Policies classified by the Company as Public Directors and Officers Liability insurance for insured companies with a market capitalization at the time of binding that is more than $200,000,000 but no greater than $500,000,000. Any such Policy that, if written, would make the total aggregate limit greater than $120,000,000 shall be submitted to the lead Reinsurer for acceptance into the Contract. Furthermore, any such Policies with market capitalization’s that are greater than $500,000,000 at the time of binding shall be submitted to the lead Reinsurer for acceptance into the Contract. Upon expiration of the Contract, the Company shall submit to the Reinsurer a bordereaux detailing all the Public Directors and Officers Liability Policies that were written during the term of the Contract.

C.		Business classified by the Company as Specialty Lines Excess shall be limited to a maximum of 3.5% of the total Gross Net Earned Premium Income subject to this Contract. In the event the Company’s premium attributable to Specialty Lines Excess business

		exceeds 3.5% of the total Gross Net Earned Premium Income, that business in excess of 3.5% shall be ceded to the Contract at pro rata premium less a ceding commission of 27.5%. Any Policies that are Specially Accepted in accordance with paragraph B, above, shall not be subject to this condition.

D.		Business classified by the Company as First Party Cyber-Liability, when written as such in conjunction with Miscellaneous Professional Liability Policies, shall be sub-limited in the Company’s original Policies to $1,000,000 or so deemed.

E.		New and renewal Policies classified by the Company as Miscellaneous Professional Liability shall contain a sub-limit of $250,000 for Copyright, Patent and Trademark coverages, when written as such, or so deemed. However, this provision will not apply wherever the Company is not permitted to do so by the applicable regulatory authority(ies).

The term of this Contract shall be from 12:01 a.m., Eastern Standard Time, January 1, 2003, to 12:01 a.m., Eastern Standard Time, January 1, 2004.

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.

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 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 said run-off coverage shall be the Contract rate applied to the Gross Net Earned Premium Income for subject Policies for such run-off period. The premium, based on the run-off period, shall be payable quarterly in advance. The maximum recoverable limit under this Contract for the run-off period will be 200% of the ceded earned premium for the run-off coverage and shall be in addition to the Reinsurer’s liability in respect to all Loss Occurrences during the term of this Contract.

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 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 Specialty Lines Division Policies issued by the Company.

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.		Fidelity business, except when written in conjunction with a Director’s and Officers’ Liability Policy.

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

J.		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.

K.		Terrorism pursuant to the “Terrorism Exclusion Endorsement (Reinsurance) N.M.A. 2921 (Amended)” attached hereto.

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

M.		Any losses arising out of latex or latex products, when written as such.

N.		New and renewal business classified by the Company as Nursing Home or Assisted Living General Liability or Professional Liability. However, this exclusion shall not apply if the Company is required to offer renewal to any insured(s) by the applicable regulatory authority(ies).

The premium to be paid by the Company to the Reinsurer for reinsurance provided by this Contract shall be calculated by applying a rate of 6.60% to the Gross Net Earned Premium

Income accounted for by the Company during the term of this Contract on all business the subject matter hereof, subject to a minimum premium of $20,000,000.

The Company shall pay to the Reinsurer an annual deposit premium of $25,053,600 payable in quarterly installments of $6,263,400 due April 1; July 1; and October 1, 2003; and January 1, 2004.

Within 90 days following the expiration of this Contract, the Company shall render to the Reinsurer a statement of premium due in accordance with the first paragraph of this Article. An adjustment of premium shall thereupon be made in accordance with the statement submitted by the Company.

Each loss hereon reduces the amount of indemnity hereunder, but the amount so exhausted shall be reinstated from the date the Loss Occurrence commenced.

A.		The first three full reinstatements shall be without payment of additional premium.

B.		Subsequently, three reinstatements have been agreed at an additional premium, each calculated pro rata by applying, to 20% of the premium earned hereon, the percentage the amount reinstated bears to $10,000,000.

C.		Thereafter, three successive full reinstatements shall be allowed without payment of additional premium.

Nevertheless, the Reinsurer’s liability hereunder shall never be more than $100,000,000 in respect of all Loss Occurrences during the term of this Contract.

A.		“Ultimate Net Loss"

		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.		“Policy” or “Policies"

		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.

C.		“Gross Net Earned Premium Income"

		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.

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

The Company reserves the right to maintain reinsurance agreement(s) in respect of its net retention under this Contract, and recoveries under said reinsurance(s) shall be entirely disregarded in determining the Ultimate Net Loss hereunder.

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

Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

(Applies only to a Reinsurer who does not qualify for full credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.)

As regards Policies or bonds issued by the Company coming within the scope of this Contract, the Company agrees that when it shall file with the insurance regulatory authority or set up on its books reserves for losses covered hereunder which it shall be required by law to set up, it will forward to the Reinsurer a statement showing the proportion of such reserves which is applicable to the Reinsurer. The Reinsurer hereby agrees to fund such reserves in respect of known outstanding losses that have been reported to the Reinsurer and allocated loss adjustment expense relating thereto, losses and allocated loss adjustment expense paid by the Company but not recovered from the Reinsurer, plus reserves for losses incurred but not reported, as shown in the statement prepared by the Company (hereinafter referred to as “Reinsurer’s Obligations”) by funds withheld, cash advances or a Letter of Credit. The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves.

When funding by a Letter of Credit, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional Letter of Credit issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves in an amount equal to the Reinsurer’s proportion of said reserves. Such Letter of Credit shall be issued for a period of not less than one year and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (60 days where required by insurance regulatory authorities) prior to any expiration date the issuing

bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the Letter of Credit extended for any additional period.

The Reinsurer and Company agree that the Letters of Credit provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company for the following purposes, unless otherwise provided for in a separate Trust Agreement:

(a)		to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and which has not been otherwise paid;

(b)		to make refund of any sum which is in excess of the actual amount required to pay the Reinsurer’s Obligations under this Contract;

(c)		to fund an account with the Company for the Reinsurer’s Obligations. Such cash deposit shall be held in an interest bearing account separate from the Company’s other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer;

(d)		to pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

In the event the amount drawn by the Company on any Letter of Credit is in excess of the actual amount required for (a) or (c) or, in the case of (d), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer.

The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.

At annual intervals or more frequently as agreed, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations, for the sole purpose of amending the Letter of Credit, in the following manner:

(a)		If the statement shows that the Reinsurer’s Obligations exceed the balance of credit as of the statement date, the Reinsurer shall, within 30 days after receipt of notice of such excess, secure delivery to the Company of an amendment to the Letter of Credit increasing the amount of credit by the amount of such difference.

(b)		If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of credit as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, 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.

In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America, the District of Columbia or Canada.

(Applicable to those Reinsurers, excepting Underwriters at Lloyd’s London and other Reinsurers exempt from Federal Excise Tax, who are domiciled outside the United States of America.)

The Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

In the event of any return of premium becoming due hereunder, the Reinsurer will deduct the applicable percentage from the return premium payable hereon, and the Company or its agent should take steps to recover the tax from the United States Government.

The Company will advise the Reinsurer promptly of all claims which in the opinion of the Company may involve the Reinsurer and of all subsequent developments on these claims which may materially affect the position of the Reinsurer, such advices to include any claim for which the reserve is 50% or more of the Company’s retention.

The Reinsurer agrees to abide by the loss settlements of the Company provided that retroactive extension of Policy terms or coverages made voluntarily by the Company and not in response to court decisions (whether such court decision is against the Company or other companies affording the same or similar coverages) will not be covered under this Contract.

When so requested, the Company will afford the Reinsurer an opportunity to be associated with the Company, at the expense of the Reinsurer, in the defense of any claim or suit or proceeding involving this reinsurance, and the Company will cooperate in every respect in the defense of such claim, suit or proceeding.

The Reinsurer will pay its share of loss settlements within 15 days upon receipt and verification of proof of loss from the Company.

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.

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.

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.

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.

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.

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

The Company shall place at the disposal of the Reinsurer at all reasonable times, and the Reinsurer shall have the right to inspect through its designated representatives, all books, records and papers of the Company in connection with any reinsurance hereunder or claims in connection herewith. Rights of access to records shall survive the termination or expiration of this Contract.

The Company and the Reinsurer, each at its option, may offset any balance or balances, whether on account of premiums, claims and losses, loss expenses or salvages due from one party to the other under this Contract; provided, however, that in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with applicable statutes and regulations.

As a condition precedent to any right of action hereunder, any irreconcilable dispute between the parties to this Contract will be submitted for decision to a board of arbitration composed of two arbitrators and an umpire meeting in Bala Cynwyd, Pennsylvania.

Arbitration shall be initiated by the delivery of a written notice of demand for arbitration by one party to the other within a reasonable time after the dispute has arisen.

The members of the board of arbitration shall be active or former, disinterested officials of insurance or reinsurance companies or Underwriters at Lloyd’s, London, not under the control or management of either party to this Contract. Each party shall appoint its arbitrator, and the two arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within 4 weeks after being requested to do so by the claimant, the latter shall also appoint the second arbitrator.

If the two arbitrators are unable to agree upon the umpire within 30 days of their appointment, the umpire shall be selected by a judge of any court of competent jurisdiction.

The claimant shall submit its initial brief within 45 days from appointment of the umpire. The respondent shall submit its brief within 45 days thereafter, and the claimant may submit a reply brief within 30 days after filing of the respondent’s brief.

The board shall make its decision with regard to the custom and usage of the insurance and reinsurance business. The board shall issue its decision in writing based upon a hearing in which

evidence may be introduced without following strict rules of evidence but in which cross-examination and rebuttal shall be allowed. The board shall make its decision within 60 days following the termination of the hearings unless the parties consent to an extension. The majority decision of the board shall be final and binding upon all parties to the proceeding. Judgment may be entered upon the award of the board in any court having jurisdiction.

If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this clause, and communications shall be made by the Company to each of the reinsurers constituting the one party provided, however, that nothing therein shall impair the rights of such reinsurers to assert several rather than joint defenses or claims, nor be construed as changing the liability of the reinsurers under the terms of this Contract from several to joint.

Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the expense of the umpire. The remaining costs of the arbitration proceedings shall be allocated by the board.

(This Article only applies to reinsurers domiciled outside of the United States and/or unauthorized in any state, territory, or district of the United States having jurisdiction over the Company).

It is agreed that in the event of the failure of the Reinsurer hereon to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the request of the Company, 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 the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.

It is further agreed that service of process in such suit may be made upon Mendes and Mount, 750 Seventh Avenue, New York, New York 10019, and that in any suit instituted the Reinsurer will abide by the final decision of such court or of any appellate court in the event of an appeal.

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

Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereon hereby designates the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as 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 the Company or any beneficiary

hereunder arising out of this Contract of reinsurance 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.

In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer, within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership and that, during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit, which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

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

In the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver, conservator or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (a) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (b) where the Reinsurer with the consent of the direct insured or insureds has assumed such Policy obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Company to such payees.

Should the Company go into liquidation or should a receiver be appointed, all amounts due either Company or Reinsurer under this or any other agreement, whether by reason of premium, losses or otherwise under this Contract, shall be subject to the right of offset at any time and from time to time and, upon the exercise of the same, only the net balance shall be due.

In the event of the insolvency of any company or companies included in the designation of “Company,” this clause will apply only to the insolvent company or companies.

The Reinsurer, except with the express prior written consent of the Company, shall not directly or indirectly communicate, disclose or divulge to any third party, any knowledge or information that may be acquired either directly or indirectly as a result of the inspection of the Company’s books, records and papers. The restrictions, as outlined in this Article, shall not apply to communication or disclosures that the Reinsurer is required to make to its statutory auditors, parent company, retrocessionaires, potential retrocessionaires, legal counsel, arbitrators involved in any arbitration procedures under this Contract or disclosures required upon subpoena or other duly-issued order of a court or other governmental agency or regulatory authority.

This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Pennsylvania, exclusive of the rules with respect to conflicts of law, except as to rules with respect to credit for reinsurance, in which case the applicable rules of all states shall apply.

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

This Contract is solely between the Company and the Reinsurer, and in no instance shall any other party have any rights under this Contract except as expressly provided otherwise in the INSOLVENCY ARTICLE.

If more than one reinsured company is named as a party to this Contract, the first named company will be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract and for purposes of remitting or receiving any monies due any party.

Willis Re Inc., 11 Penn Center, Suite 2700, 1835 Market Street, Philadelphia, Pennsylvania 19103, is hereby recognized as the intermediary negotiating this Contract and through whom all communications relating thereto shall be transmitted to the Company or the Reinsurer. However, all communications concerning accounts, claim information, funds and inquiries related thereto shall be transmitted to the Company or the Reinsurer through Willis Re Inc., 5420 Millstream Road, Suite 200, P.O. Box 3000, McLeansville, North Carolina, 27301-3000. Payments by the Company to Willis Re Inc. shall be deemed to constitute payment to the Reinsurer and payments by the Reinsurer to Willis Re Inc. shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

IN WITNESS WHEREOF, the Reinsured by its duly authorized representative has executed this Agreement as of the date specified below:

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
MOBILE USA INSURANCE COMPANY, INC.
LIBERTY AMERICAN INSURANCE COMPANY

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

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

I.		It is agreed that the policy does not apply under any liability coverage,
		to (injury, sickness, disease, death or destruction,
		(bodily injury or property damage

		with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability.

II.		Family Automobile Policies (liability only), Special Automobile Policies (private passenger automobiles, liability only), Farmers Comprehensive Personal Liability Policies (liability only), Comprehensive Personal Liability Policies (liability only) or policies of a similar nature; and the liability portion of combination forms related to the four classes of policies stated above, such as the Comprehensive Dwelling Policy and the applicable types of Homeowners Policies.

III.		The inception dates and thereafter of all original policies as described in II above, whether new, renewal or replacement, being policies which either

	(a)		become effective on or after 1st May, 1960, or

	(b)		become effective before that date and contain the Limited Exclusion Provision set out above; provided this paragraph

(2) shall not be applicable to Family Automobile Policies, Special Automobile Policies, or policies or combination policies of a similar nature, issued by the Reassured on New York risks, until 90 days following approval of the Limited Exclusion Provision by the Governmental Authority having jurisdiction thereof.

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

Owners, Landlords and Tenants Liability, Contractual Liability, Elevator Liability, Owners or Contractors (including railroad) Protective Liability, Manufacturers and Contractors Liability, Product Liability, Professional and Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile Liability (including Massachusetts Motor Vehicle or Garage Liability)

I.		Under any Liability Coverage, to (injury, sickness, disease, death or destruction
		(bodily injury or property damage

		(a) with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability; or

		(b) resulting from the hazardous properties of nuclear material and with respect to which (1) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the insured is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or any agency thereof, under any agreement entered into by the United States of America, or any agency thereof, with any person or organization.

II.		Under any Medical Payments Coverage, or under any Supplementary Payments Provision
		relating to (immediate medical or surgical relief,
		(first aid,
		to expenses incurred with respect
		to (bodily injury, sickness, disease or death
		(bodily injury

resulting from the hazardous properties of nuclear material and arising out of the operation of a nuclear facility by any person or organization.

III.		Under any Liability Coverage to (injury, sickness, disease, death or destruction
		(bodily injury or property damage

		resulting from the hazardous properties of nuclear material, if

(a)

the nuclear material (1) is at any nuclear facility owned by, or operated by or on behalf of, an insured or (2) has been discharged or dispersed therefrom;

	(b)		the nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of an insured; or

	(c)		the (injury, sickness, disease, death or destruction
			(bodily injury or property damages

			arises out of the furnishing by an insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories, or possessions or Canada, this exclusion (c) applies only to
			(injury to or destruction of property at such nuclear facility
			(property damage to such nuclear facility and any property threat.

IV.		As used in this endorsement:
		“Hazardous properties” include radioactive, toxic or explosive properties; “nuclear material” means source material, special nuclear material or byproduct material; “source material,” “special nuclear material,” and “byproduct material” have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof; “spent fuel” means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor; “waste” means any waste material (1) containing byproduct material and (2)resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (a) or (b) thereof; “nuclear facility” means

	(a)		any nuclear reactor,

	(b)		any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling, processing or packaging waste,

	(c)		any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235,

	(d)		any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste,

		and includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations; “nuclear reactor” means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material;

		(With respect to injury to or destruction of property, the word “injury” or “destruction”
		(“property damage” includes all forms of radioactive contamination of property
		(includes all forms of radioactive contamination of property.

V.		The inception dates and thereafter of all original policies affording coverages specified in this paragraph (3), whether new, renewal or replacement, being policies which become effective on or after 1st May, 1960, provided this paragraph (3) shall not be applicable to

	(i)		Garage and Automobile Policies issued by the Reassured on New York risks, or

	(ii)		statutory liability insurance required under Chapter 90, General Laws of Massachusetts,

			until 90 days following approval of the Broad Exclusion Provision by the Governmental Authority having jurisdiction thereof.

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

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

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

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

         Personal Liability.
         Farmers’ Liability.
         Storekeepers’ Liability.

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

		Limited Exclusion Provision.

		This Policy does not apply to bodily injury or property damage with respect to which the Insured is also insured under a contract of nuclear energy liability insurance (whether the Insured is unnamed in such contract and whether or not it is legally enforceable by the Insured) issued by the Nuclear Insurance Association of Canada or any other group or pool of insurers or would be an Insured under any such policy but for its termination upon exhaustion of its limits of liability.

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

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

		Broad Exclusion Provision.

		It is agreed that this Policy does not apply:

	(a)		to liability imposed by or arising under The Nuclear Liability Act; nor

	(b)		to bodily injury or property damage with respect to which an Insured under this Policy is also insured under a contract of nuclear energy liability insurance (whether the Insured is unnamed in such contract and whether or not it is legally enforceable by the Insured) issued by the Nuclear Insurance Association of Canada or any other insurer or group or pool of insurers or would be an Insured under any such policy but for its termination upon exhaustion of its limit of liability; nor

	(c)		to bodily injury or property damage resulting directly or indirectly from the nuclear energy hazard arising from:

	(i)		the ownership, maintenance, operation or use of a nuclear facility by or on behalf of an Insured;

	(ii)		the furnishing by an Insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility; and

	(iii)		the possession, consumption, use, handling, disposal or transportation of fissionable substances or of other radioactive material (except radioactive isotopes, away from a nuclear facility, which have reached the final stage of fabrication so as to be usable for any scientific, medical, agricultural, commercial or industrial purpose) used, distributed, handled or sold by an Insured.

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

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

3.		The term “nuclear facility” means:

	(a)		any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of plutonium, thorium and uranium or any one or more of them;

	(b)		any equipment or device designed or used for (i) separating the isotopes of plutonium, thorium and uranium or any one or more of them, (ii) processing or utilizing spent fuel, or (iii) handling, processing or packaging waste;

	(c)		any equipment or device used for the processing, fabricating or alloying of plutonium, thorium or uranium enriched in the isotope uranium 233 or in the isotope uranium 235, or any one or more of them if at any time the total amount of such material in the custody of the Insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235;

	(d)		any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste radioactive material; and includes the site on which any of the foregoing is located, together with all operations conducted thereon and all premises used for such operations.

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

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

Notwithstanding any provision to the contrary within this reinsurance or any endorsement thereto it is agreed that this reinsurance excludes loss, damage, cost or expense of whatsoever nature directly or indirectly caused by, resulting from or in connection with any act of terrorism regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

For the purpose of this endorsement an act of terrorism means an act, including but not limited to the use of force or violence and/or the threat thereof, of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organization(s) or government(s), committed for political, religious, ideological or similar purposes including the intention to influence any government and/or to put the public, or any section of the public, in fear.

This endorsement also excludes loss, damage, cost or expense of whatsoever nature directly or indirectly caused by, resulting from or in connection with any action taken in controlling, preventing, suppressing or in any way relating to any act of terrorism.

If the Reinsurers allege that by reason of this exclusion, any loss, damage, cost or expense is not covered by this reinsurance the burden of proving the contrary shall be upon the Reassured.

In the event any portion of this endorsement is found to be invalid or unenforceable, the remainder shall remain in full force and effect.

Notwithstanding the above, this terrorism exclusion shall only apply to liability losses arising directly from the following classes of business, when written as such.

However, the maximum liability to the Reinsurer for all Terrorism losses during the term of this Contract shall be limited to $10,000,000.

Any financial assistance the Company receives under the Terrorism Risk Insurance Act of 2002 (“TRIA”) shall apply as follows:

	1.		Except as provided in subparagraph 2 below, any such financial assistance shall inure solely to the benefit of the Company and shall be entirely disregarded in applying all of the provisions of this Contract.

	2.		If losses occurring hereunder result in recoveries made by the Company both under this Contract and under TRIA, and such recoveries, together with any other reinsurance recoveries made by the Company applicable to said losses, exceed the amount permitted by TRIA, any amount in excess thereof shall reduce the Ultimate Net Loss subject to this Contract for the losses to which the TRIA financial assistance applies.

Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company has received financial assistance under TRIA.

The Subscribing Reinsurer shall have a 25.00% share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2003, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2004.

The share of the Subscribing Reinsurer in the interests and liabilities of the “Reinsurer” shall be several and not joint with the share of any other subscribing reinsurer. In no event shall the Subscribing Reinsurer participate in the interests and liabilities of the other subscribing reinsurers.

IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

CONVERIUM REINSURANCE (NORTH AMERICA) INC.
(the “Subscribing Reinsurer”)

The Subscribing Reinsurer shall have a 35.00% share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2003, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2004.

IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

The Subscribing Reinsurer shall have a 20.00% share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2003, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2004.

IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

The Subscribing Reinsurer shall have a 20.00% share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2003, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2004.

IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

I, James J. Maguire, Jr., Chief Executive Officer of Philadelphia Consolidated Holding Corp, certify that:

I have reviewed this quarterly report on Form 10-Q of Philadelphia Consolidated Holding Corp.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

I, Craig P. Keller, Chief Financial Officer of Philadelphia Consolidated Holding Corp, certify that:

I have reviewed this quarterly report on Form 10-Q of Philadelphia Consolidated Holding Corp.

(a)

(b)

(c)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Philadelphia Consolidated Holding Corp. (the “Company”) on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James J. Maguire, Jr., chief executive officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Philadelphia Consolidated Holding Corp. (the “Company”) on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig P. Keller, chief financial officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


PENNSYLVANIA		23-2202671

(State of Incorporation)		(IRS Employer Identification No.)


Date of Report		Item Reported

July 15, 2003		Second Quarter Results June 30, 2003 and Regulation FD Disclosure


	PHILADELPHIA CONSOLIDATED HOLDING CORP. Registrant

Date	November 13, 2003	James J. Maguire, Jr.

		James J. Maguire, Jr. President and Chief Executive Officer (Principal Executive Officer)

Date	November 13, 2003	Craig P. Keller

		Craig P. Keller Executive Vice President, Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)


Class of Business	Company Retention		Limits of Liability of the Reinsurer

			First		Second
			Excess Cover		Excess Cover
Property Business	$	2,000,000	$	3,000,000	$	5,000,000


			Page

Article
		Preamble		3
	1	Business Covered		3
	2	Term		4
	3	Third Party Rights		4
	4	Territory		4
	5	Exclusions		5
	6	Definitions		5
	7	Retention and Limit		6
	8	Extra Contractual Obligations and Excess of Original Policy Limits Liability		7
	9	Loss Settlements		7
	10	Premium		8
	11	Reports and Remittances		8
	12	Original Conditions		9
	13	Currency		9
	14	Taxes		10
	15	Access to Records		10
	16	Indemnification and Errors and Omissions		11
	17	Insolvency		11
	18	Service of Suit		12
	19	Arbitration		13
	20	Mode of Execution		14
		Company Signing Block		15
Attachments
		Nuclear Energy Liability Exclusion Endorsement		16

	(f)		Building

			This term shall mean each structure enclosed within exterior walls. Exterior walls are defined as walls constructed on the perimeter foundation, regardless of the number of additional structures or roofs placed upon this perimeter foundation.

	(g)		Occurrence

			This term shall mean a loss or series of losses arising out of one event.

	(1)		War, including undeclared or civil war; warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or insurrection, rebellion, revolution, usurped power or action taken by governmental authority in hindering or defending against any of these. War includes any activity that would be included as an “act of terrorism” in paragraphs (2), (3), (4) and (5) below, but for the fact that such activity was perpetrated by an official, employee or agent of a foreign state acting for or on behalf of such state.

	(2)		Any “act of terrorism”, as described in paragraphs (3), (4) and (5) below, but only with respect to loss or damage that is not excluded by paragraph (1) above.

	(3)		Any act defined as an “act of terrorism” in the Terrorism Risk Insurance Act of 2002.

	(4)		Any act authorized by a governmental authority for the purpose of preventing, terminating, countering or responding to any act or threat of terrorism or for the purpose of preventing or minimizing the consequences of any act or threat of terrorism.

	(5)		Any activity (other than an act described in (3) above), including the threat of an activity or any preparation for an activity, that (a) causes either (i) damage to property, or (ii) injury to persons; and (b) appears to be intended to: (i) intimidate or coerce a civilian population, or (ii) disrupt any segment of an economy, or (iii) influence the policy of a government by intimidation or coercion, or (iv) affect the conduct of a government by destruction, assassination, kidnapping or hostage-taking, or (v) advance a political, religious or ideological cause; provided, however, that an “act of terrorism” for purposes of this exclusion shall not include any act or threat as described above perpetrated by an official, employee or agent of a foreign state acting for or on behalf of such state.

	(j)		Insurance on growing crops;

	(k)		Insurance against flood, surface water, waves, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not, except when written in conjunction with fire and otherwise eligible perils;

	(l)		Business classified as fidelity; however, this exclusion shall not apply to crime and fidelity with limits no greater than $2,000,000 when written as part of a package policy;

	(m)		Credit insurance;

	(n)		Business classified as boiler and machinery;

	(o)		Mortgage impairment insurance and similar kinds of insurance, howsoever styled, providing coverage to an insured with respect to its mortgagee interest in property or its owner interest in foreclosed property;

	(p)		Difference in conditions insurance and similar kinds of insurance, howsoever styled;

	(q)		Risks which have a total insurable value of more than $250,000,000; however, this exclusion shall not apply if the Company writes 100% of the Risk;

	(r)		Losses with respect to overhead transmission and distribution lines and their supporting structures, other than those on or within 1,000 feet of the insured premises. However, public utilities extension and/or suppliers extension and/or contingent business interruption coverage are not subject to this exclusion, provided these are not part of a transmitters’ or distributors’ policy;

	(s)		Offshore property Risks;

	(t)		Inland marine business with respect to the following:

			surer any subsequent changes in the amount of Net Loss and/or Adjustment Expense, and the amount due either party shall be remitted promptly, but within no more than 25 days after receipt of such report.

	(c)		P.C.S. Catastrophe Bulletins

			The Company shall furnish to the Reinsurer, upon request, the following information with respect to each catastrophe set forth in the Catastrophe Bulletins published by the Property Claim Services:


1.	Paragraph E. of Article I – Business Covered is amended as follows:

	E.	Under this Agreement, the indemnity for reinsured loss applies only to the following Classes of Insurance and Line of Business as classified in the Company’s Annual Statement, except as excluded under Article VIII – Exclusions of this Agreement.

		CLASSES OF INSURANCE

		1.	Automobile Liability:

			Bodily Injury Liability, Property Damage Liability, Medical Payments, Uninsured Motorists, Underinsured Motorists and No-Fault Coverage.


		2.	Liability Other Than Automobile:

			Bodily Injury Liability, Property Damage Liability, Personal and Advertising Injury Liability, and Medical Payments Coverage when written as part of a Commercial or Personal Package Policy or on a monoline basis. However, Kidnap and Ransom Liability shall only apply to this Agreement when written as part of a Commercial Package Policy or a Commercial General Liability Coverage Form.

		3.	Professional Liability:

			Employment Related Practices, Errors and Omission Liability and Directors and Officers Liability.

		4.	NAIC
			CODE: LINE OF BUSINESS:

			05 Commercial Multiple Peril (Section I only)

2.	Article II – Effective Date and Termination is amended to read as follows:

	ARTICLE II – EFFECTIVE DATE AND TERMINATION

	A.	This Agreement shall apply to losses occurring within the period commencing 12:01 a.m., Eastern Standard Time, January 1, 2003, and ending 12:01 a.m., Eastern Standard Time, January 1, 2004.

	B.	Upon termination of this Agreement, the Reinsurer shall be liable for losses occurring prior to the date of termination; however, the Reinsurer shall have no liability for losses occurring subsequent to the termination of this Agreement.

3.	Paragraphs B. and D. of Article V – Ultimate Net Loss are amended as follows:

	B.	The term “Ultimate Net Loss” shall include 90% of Extra Contractual Obligations, as defined herein, but only as respects business covered under this Agreement.


	D.	Declaratory Judgment Expenses is defined below and the Reinsurer shall be liable for such expenses in accordance with the following:

		1.	The term “Declaratory Judgment Expenses” shall mean all legal expenses, incurred in the representation of the Company in litigation brought to determine the Company’s defense and/or indemnification obligations, that are allocable to any specific claim or loss covered by Policies reinsured under this Agreement. In addition, the Company shall promptly notify the Reinsurer of any Declaratory Judgment Expenses subject to this Agreement.

		2.	Declaratory Judgment Expenses shall be recoverable in accordance with the provisions set forth in Paragraph C. of this Article and shall be further limited to the lesser of one times the original policy limit or $1,000,000.

4.	Paragraph A. of Article VI – Loss In Excess of Policy Limits is amended as follows:

	A.	In the event the Company is liable to a policy holder as the result of a settlement or judgment rendered against the policyholder which is in excess of the Policy limit, 90% of that portion of the award made to the third party claimant which is in excess of the Company’s Policy limit shall be added to the amount of the Company’s Policy limit and the sum thereof shall be considered one loss, subject to the provision in Paragraph B. below and all other provisions set forth in this Agreement.

5.	The following exclusions are added to Article VIII – Exclusions:

	Exclusion No. 9 of Paragraph A. is added to as follows:

	9.	Terrorism Exclusion Clause – Reinsurance (Casualty) which is attached and made part of this Agreement.

	Exclusions 12., 13. and 14. of Paragraph B. are added as follows:

	12.	Homeowners and Mobilehomeowners – Section 1 (Property).

	13.	Auto Physical Damage.

	14.	GAPP when written as part of the Company’s Rental and Leasing Program or as such.


6.	Paragraphs A. and B. of Article X – Reinsurance Premium are amended to read as follows:

	A.	The Company shall pay to the Reinsurer a premium for the reinsurance provided at a rate of .18%. Such rate shall be applied to the Company’s Subject Earned Premium during the term of this Agreement. The Company’s estimated Subject Earned Premium for the business covered hereunder during the term of this agreement is $575,095,542.

	B.	A deposit premium of $1,035,172 shall be payable by the Company to the Reinsurer in twelve equal installments of $86,264 each due on the 1st of every month. As promptly as possible after the termination of this Agreement, the Company shall render a statement to the Reinsurer showing the actual reinsurance premiums due hereunder. If such premium calculations differ from the deposit previously paid, the debtor party shall pay the outstanding balance as soon as practicable. However, in no event shall the adjusted premium be less than the minimum premium of $828,138.

7.	Paragraph B. of Article XI – Reports and Remittances is deleted in its entirety.

8.	Article XXIII – Reinstatement is added to this Agreement as follows:

	A.	Each claim hereunder reduces the amount of indemnity from the time of occurrence of the loss by the sum paid, but any amount so exhausted is hereby reinstated from the time the Loss Occurrence commences hereon.

	B.	There shall be one reinstatement, of which the Company agrees to pay an additional premium calculated at 100% of the reinsurance premium hereon.

	C.	Nevertheless, the Reinsurer’s liability hereunder shall never exceed $5,000,000 in respect of any one Loss Occurrence and shall be further limited in all during the term of this Agreement to $10,000,000.


ATTEST:	PHILADELPHIA CONSOLIDATED HOLDING CORPORATION’S
		following member companies:
	PHILADELPHIA INDEMNITY INSURANCE COMPANY
	PHILADELPHIA INSURANCE COMPANY

Florence R. McCallum	Christopher J. Maguire


ATTEST:		SWISS REINSURANCE AMERICA CORPORATION

Peter Thomson		Michael Taxter

Member of Management		Member of Senior Management

FC: jh dsPHIL988A, B-A3


		Page
GENERAL ARTICLES
Article I	SCOPE OF AGREEMENT	1
Article II	PARTIES TO THE AGREEMENT	1
Article III	MANAGEMENT OF CLAIMS AND LOSSES	2
Article IV	RECOVERIES	2
Article V	TRIA INUREMENT	2
Article VI	PREMIUM REPORTS AND REMITTANCES	3
Article VII	ERRORS AND OMISSIONS	3
Article VIII	SPECIAL ACCEPTANCES	3
Article IX	RESERVES AND TAXES	4
Article X	OFFSET	4
Article XI	INSPECTION OF RECORDS	4
Article XII	ARBITRATION	4
Article XIII	INSOLVENCY OF THE COMPANY	5
EXHIBIT A - EXCESS OF LOSS REINSURANCE (Per Risk) of Property Business
Section 1	BUSINESS SUBJECT TO THIS EXHIBIT	A-1
Section 2	COMMENCEMENT	A-1
Section 3	LIABILITY OF THE REINSURER	A-1
Section 4	DEFINITIONS	A-2
Section 5	EXCLUSIONS	A-5
Section 6	OTHER REINSURANCE	A-8
Section 7	REINSURANCE PREMIUM	A-9
Section 8	REPORTS AND REMITTANCES	A-9
Section 9	AUTOMATIC REINSTATEMENT	A-10
Section 10	TERMINATION	A-11
Section 11	MORTGAGEE REINSURANCE ENDORSEMENT	A-11
EXHIBIT B - EXCESS OF LOSS REINSURANCE (Per Risk) of Property Business (Coverage for Terrorism Only)
Section 1	BUSINESS SUBJECT TO THIS EXHIBIT	B-1
Section 2	TERM	B-1
Section 3	LIABILITY OF THE REINSURER	B-1
Section 4	DEFINITIONS	B-2
Section 5	EXCLUSIONS	B-5
Section 6	REINSURANCE PREMIUM	B-6
Section 7	REPORTS AND REMITTANCES	B-6


ARTICLE		CONTENTS	PAGE

		PREAMBLE		1
	I	SCOPE OF AGREEMENT		1
II		PARTIES TO THE AGREEMENT		1
III		COMMENCEMENT AND TERMINATION		2
IV		LIMIT AND RETENTION		2
	V	DEFINITIONS		3
VI		OTHER REINSURANCE		7
VII		EXCLUSIONS		7
VIII		REINSURANCE PREMIUM		10
IX		REPORTS AND REMITTANCES		10
	X	MANAGEMENT OF CLAIMS AND LOSSES		11
XI		RECOVERIES		12
XII		TERRORISM EXCESS RECOVERY		12
XIII		ERRORS AND OMISSIONS		13
XIV		SPECIAL ACCEPTANCES		14
	XV	RESERVES AND TAXES		14
XVI		OFFSET		14
XVII		INSPECTION OF RECORDS		14
XVIII		ARBITRATION		14
XIX		INSOLVENCY OF THE COMPANY		15
		SIGNATURES		16


ATTACHMENTS:		INSOLVENCY FUNDS EXCLUSION CLAUSE NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A. LARGE INSURABLE VALUES EXCLUSION CLAUSE

	(a)		substantial quantities, and

	(b)		the extent of installation, plant or site.


	Contract
Reinsurers	Participation

American Re-Insurance Company		25.00	%
Converium Reinsurance (North America) Inc.		35.00	%
Endurance Specialty Insurance Limited		20.00	%
Liberty Mutual Insurance Company		20.00	%
Total		100.00	%


Class of Business		Coverage

Airports (Including Any Related Services Or Operations)		CGL/UMB
Amusement Parks		CGL/UMB
Animal Feed Mills		CGL/UMB
Bridges and Tunnels		CGL/UMB
Buildings in which U.S. Government is Owner or Largest Tenant		CGL/UMB
Chemical Manufacturing, Wholesale Or Storage		CGL/UMB
Convention Centers		CGL/UMB
Concert Halls ³ 1,000 person capacity		CGL/UMB
Dams		CGL/UMB
Drug Manufacturing		CGL/UMB
Electrical Generating Facilities		CGL/UMB
Explosives - Manufacture, Distribution Or Storage		CGL/UMB
Mass Transit Systems - Subways, Railways Etc.		CGL/UMB
Oil & Gas Pipelines		CGL/UMB
Oil Refineries & Storage Tank Farms		CGL/UMB
Pesticides, Herbicides, Insecticides - Manufacture		CGL/UMB
Ports (Including Any Related Services Or Operations)		CGL/UMB
Security Services		CGL/UMB
Stadiums and Sports Arenas		CGL/UMB
Telecommunications Services - Telephone, Radio, TV, Internet		CGL/UMB
Water & Sewage Treatment Plants		CGL/UMB


	Signed:	James J. Maguire, Jr.

November 13, 2003		Name: James J. Maguire, Jr. Title: Chief Executive Officer